<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the fiscal year ended September 30, 1996.
(Fee required)
/ / Transitional report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from ______________ to
______________.
Commission File No. 0-27186
RAYTEL MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2787342
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2755 CAMPUS DRIVE, SUITE 200, SAN MATEO, CA 94403
(Address of principal executive offices) (Zip Code)
(415) 349-0800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of November 29, 1996 was $72,473,174 based on the
closing sale price of the Common Stock, as reported on the Nasdaq National
Market System on that day.
The number of shares of the registrant's Common Stock outstanding on
November 29, 1996 was 8,332,924.
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT WHERE INCORPORATED
Annual Report for fiscal year ended
September 30, 1996 PART II
Proxy Statement for the Annual Meeting
to be held on March 6, 1997 PART III
<PAGE> 2
PART I.
This report includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in "Item 17. Management's Discussion
and Analysis of Financial Conditions and Results of Operations - Business
Environment and Future Financial Results" and elsewhere in this report, that
could cause actual results to differ materially from historical results or those
anticipated. In this report, the words "anticipates," "believes," "expects,"
"intends," "future," "goals" and similar expressions identifying forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
ITEM 1. BUSINESS
Raytel Medical Corporation is a provider of healthcare services,
focusing on the needs of patients with cardiovascular disease ("CVD"). The
Company believes, based on its industry experience, that it is the leading
provider of remote cardiac monitoring and testing services utilizing
transtelephonic monitoring technology in the United States. The Company's goal
is to become a leading CVD healthcare management company by developing a network
of integrated heart centers that will coordinate or provide a full range of
diagnostic, therapeutic and follow up services, augmented by Raytel's cardiac
monitoring and testing services. Raytel intends to develop its heart centers in
affiliation with cardiology physician groups and hospitals delivering high
quality patient care. Raytel believes its planned heart centers will address the
cost containment pressures currently shaping the healthcare industry. The
Company has executed an agreement with Stanford Health Services to develop a
diagnostic cardiac catheterization facility. The Company has also entered into
an agreement with Granada Hills Community Hospital in Southern California under
which the Company is managing an existing, on-site heart center and is
negotiating to upgrade the hospital-based cardiac catheterization facility at
the hospital. The Company expanded its physician practice management business in
1996 through its acquisitions of cardiology practices in Beaumont, Texas, and
Granada Hills, California. The Company is negotiating to develop a fully
integrated heart center with a general acute care hospital in Southeast Texas.
In June 1996, Raytel acquired the assets and assumed certain liabilities of
Cardio Data Services, Inc., ("CDS"), a provider of pacemaker monitoring, cardiac
detection and Holter monitoring services.
Raytel was incorporated in California in October 1981 under the name
Raytel Labs, Inc. and changed its name to Raytel Medical Imaging, Inc. in 1983
and to Raytel Systems Corporation in 1985. In August 1987, the Company was
reincorporated in Delaware under the name Raytel Systems Corporation. Following
the organization of its majority-owned subsidiary Raytel Corporation in 1990,
the Company changed its name to Raytel Holding Corporation. In October 1992, the
Company changed its name to Raytel Medical Corporation. Unless the context
otherwise requires, "Raytel" or the "Company" as used herein refers to Raytel
Medical Corporation, a Delaware corporation, and its consolidated subsidiaries.
The Company's executive offices are located at 2755 Campus Drive, Suite 200, San
Mateo, California 94403, and its telephone number is (415) 349-0800.
RECENT CORPORATE DEVELOPMENTS
Initial Public Offering
In December 1995, the Company completed the initial public offering of
its Common Stock which yielded net proceeds of $20,400,000 after underwriting
discounts and expenses. The Company used approximately $6,000,000 of the
proceeds of the offering to pay the remaining balance of a term loan from two
banks, approximately $2,101,000 to repurchase certain outstanding redeemable
warrants
2
<PAGE> 3
and $5,000,000 to repay substantially all of the outstanding balance of a
subordinated note of the Company. The remaining proceeds were used for working
capital, general corporate purposes and to fund a portion of the purchase price
for an acquisition in June 1996.
Acquisition of Certain Assets from Cardio Data Services, Inc.
In June 1996, the Company acquired certain assets and assumed certain
liabilities of Cardio Data Services, Inc. ("CDS"). Total consideration for the
acquisition was $14,000,000, consisting entirely of cash from the Company's
available cash and short-term investments and a line of credit with its banks.
Through this acquisition the Company expanded its cardiac monitoring and testing
services, and added Holter monitoring services, a new line of business.
Acquisition of Nonmedical Assets of Southeast Texas Cardiology Associates, P.A.
In October 1996, the Company acquired certain nonmedical assets and
assumed certain liabilities of Southeast Texas Cardiology Associates, P.A., a
cardiology practice in Beaumont, Texas, and entered into a long-term
management agreement to manage the medical practice after the acquisition.
Acquistion of Nonmedical Assets of Comprehensive Cardiology Medical Group, Inc.
In November 1996, the Company acquired certain nonmedical assets and
assumed certain liabilities of Comprehensive Cardiology Medical Group, Inc., a
cardiology practice in Granada Hills, California, and entered into a long-term
agreement to manage the medical practice after the acquisition.
OVERVIEW OF CARDIOVASCULAR DISEASE AND ITS TREATMENT
Cardiovascular disease is the leading cause of death in the United
States and represents the highest percentage of hospital patient days of stay.
CVD is a category of illnesses that generally develop progressively, and in many
cases asymptomatically, over a number of years. As a result, CVD frequently goes
undiagnosed until the patient suffers an acute episode such as a stroke or heart
attack. CVD manifests itself in a number of disease states, including
atherosclerosis, electrophysiological defects, valvular dysfunction, congestive
heart failure, hypertension and congenital defects. The American Heart
Association (the "AHA") estimates that approximately 59 million people in the
United States suffer from one or more forms of CVD and approximately 1.5 million
Americans will suffer a heart attack during 1995. According to AHA estimates,
the medical costs associated with the treatment of CVD in 1996 will be
approximately $129 billion, or approximately 12% of total healthcare
expenditures in the United States. Due to the aging of the United States
population, the Company believes that the need for medical services to diagnose
and treat CVD will increase significantly in the future.
BUSINESS STRATEGY
Raytel's objective is to be a leader in the coordination and provision
of CVD services across the continuum of cardiac care through a network of heart
centers, augmented by Raytel's remote cardiac monitoring and testing services.
The Company is pursuing this objective through the following strategies:
Focus on Establishment of Heart Centers. Raytel is focusing its primary
efforts on the establishment of heart centers designed to coordinate or provide
quality, integrated CVD services on a cost-effective basis. The Company believes
that these heart centers will offer substantial benefits over the traditional
fragmented healthcare delivery system to all of the constituencies involved in
CVD care. Patients will benefit from the convenience of dealing with a single
entity administering their CVD management needs and providing many services at a
single location. Referring physicians will benefit from simplified referral
patterns and more consistent patient treatment. Cardiologists and other
professionals affiliated with the centers will benefit from local access to a
wider range of complementary specialists and diagnostic equipment as well as
management, marketing and administrative resources.
3
<PAGE> 4
The Company believes that its heart centers will be able to offer more
integrated services at a lower cost than traditional providers, thus addressing
the cost containment objectives of managed care plans and other third-party
payors. All of these constituencies will benefit from improved accountability.
Leverage Expertise and Existing Businesses. Raytel has significant
experience in providing diagnostic and monitoring services to CVD patients and
in acquiring and operating geographically dispersed healthcare service
businesses. The Company believes that the expertise it has acquired through the
management and operation of its existing businesses, including its extensive
experience in marketing, billing and collection, as well as its existing
relationships with cardiologists, hospitals and third-party payors, will be of
substantial benefit to the Company in the establishment and operation of its
heart centers. Raytel intends to integrate the services provided at its heart
centers by making its current and future cardiac monitoring and testing services
available to heart center patients.
Develop Affiliations with Providers. Raytel plans to develop its heart
centers on a regional basis, in cooperation with cardiology groups and hospitals
with a reputation for the delivery of high quality services among referring
primary care physicians and the general population in the communities that they
serve. As part of its strategy to create a flexible format for its heart
centers, the Company will seek to establish relationships with cardiovascular
and thoracic surgeons and other specialists who perform invasive therapeutic
procedures not offered at the heart center in order to create consistent
referral patterns and assure the seamless delivery of quality service throughout
the continuum of cardiac care.
Expand Managed Care Relationships. The Company believes that
interaction with managed care organizations will become an increasingly
important element in the provision of cardiac care, including care for Medicare
patients, and that third-party payors will increasingly prefer to contract with
providers offering a wide range of cardiovascular services provided on a
multistate or regional basis. Raytel actively markets its existing healthcare
services to managed care plans and provides value added services, such as
utilization review and outcome studies, to such organizations. The Company
intends to utilize its experience in working with managed care plans to market
the services of its heart centers to such organizations. The Company believes
that the ability to offer payors a system of integrated and coordinated cardiac
care on a cost-effective basis will constitute a competitive advantage in
obtaining contracts with such payors.
Develop Standardized Protocols and Information Systems. The Company
believes that the development and ongoing refinement of guidelines and protocols
for the diagnosis, treatment and management of CVD, reflecting currently
accepted practices, is important for improving the consistency of patient care
and reducing overall costs of treatment. Raytel intends to establish a medical
advisory board, comprised of cardiologists and other specialists and
sub-specialists, to work with the Company and its physician and hospital
affiliates, to define guidelines for diagnosis, treatment and management of
various CVD disease states. The Company also intends to expand its existing
information systems to collect and analyze clinical and financial data at its
heart centers to promote more efficient practice patterns and better enable the
Company to negotiate managed care contracts.
Expand the Company's Telemedical Business. The Company believes that
the establishment of heart centers will enhance its ability to market its
cardiac monitoring and testing services. Raytel also intends to utilize its
technology and expertise as well as its operating and administrative systems to
address additional transtelephonic applications in the treatment and management
of cardiac patients and thereby widen the range of cardiac services offered both
nationally and through its heart centers.
Pursue Strategic Acquisitions. Raytel has built its existing
organization largely through a series of acquisitions. The Company believes that
it is often more cost-effective to acquire and reconfigure an existing business
than to establish a new business. The Company believes that its experience in
identifying, structuring and completing acquisitions of healthcare service
organizations and effectively integrating these organizations will enable it to
take advantage of future acquisition
4
<PAGE> 5
opportunities that arise as a result of the trends toward consolidation of
healthcare service providers. Raytel intends to explore opportunities to
establish heart centers and expand its other cardiac businesses through
additional strategic acquisitions, including the acquisition of the assets of
physician practices.
RAYTEL HEART CENTERS
The principal element in Raytel's strategy is the development and
operation of heart centers that will coordinate or provide integrated CVD
services to patients, including management of the patient's diagnostic,
therapeutic and follow up needs. The Company anticipates that each heart center
will include a catheterization laboratory, specialized diagnostic equipment,
examination and consultation rooms an operating room and patient beds and
monitoring equipment. Personnel at the heart center will perform diagnostic
services, coordinate therapeutic care with affiliated physicians and/or
hospitals, conduct post-therapeutic follow up programs and enroll patients in
cardiac monitoring and testing programs. The Company currently operates two
catheterization laboratories, has completed the construction of a diagnostic
catheterization laboratory in Fremont, California, in collaboration with
Stanford Health Services and is in negotiations for the development of a fourth
facility in Beaumont, Texas. The Company has also entered into a 10-year
agreement with Granada Hills Community Hospital in Southern California under
which it is managing an existing, on-site heart center and is negotiating to
upgrade the hospital-based cardiac catheterization facility. The Company
expanded its physician practice management business in 1996 through its
acquisitions of cardiology practices in Beaumont, Texas, and Granada Hills,
California. The Company is negotiating to develop a fully integrated heart
center with a general acute care hospital in Southeast Texas, which would
include a cardiac catheterization laboratory among other possible facilities and
equipment. In addition, Raytel is evaluating opportunities for the development
and acquisition of additional heart centers.
The Raytel Heart Center Approach
The Company plans to organize an integrated delivery system for
cardiovascular services in each region in which it develops a heart center.
Raytel heart centers will be designed and developed on a region-by-region basis
to maximize the available resources and address the specific needs of each
community served. The structure of the heart centers will be flexible to permit
the Company to proactively respond to the restructuring of the healthcare system
as it occurs. The Company intends to develop its heart centers in conjunction
with academic medical centers, established hospitals and cardiology specialists.
In certain cases, the Company may develop heart centers by acquiring the assets
of cardiology practices and negotiating long-term agreements to provide
management services to such practices. The heart centers will be located on
hospital premises or in free-standing facilities in close proximity to the
hospitals or physicians with whom the heart centers are affiliated. The heart
centers will be designed to enable affiliated cardiologists and cardiovascular
surgeons to perform a comprehensive range of diagnostic procedures on site.
Therapeutic procedures will generally be performed by physicians either at the
affiliated hospital or the heart center. Post-therapeutic monitoring and follow
up programs will be offered through the Company's cardiac monitoring services
and through on-site programs to be developed by the Company in conjunction with
its physician and hospital affiliates.
The Company believes that the heart centers and the related integrated
delivery systems will be well positioned in their local markets to capture
patients enrolled in HMOs and other managed care programs, as well as patient
referrals from local primary care physicians and the heart centers' affiliated
hospitals.
5
<PAGE> 6
Southmore and Mesquite Catheterization Laboratories
In September 1994, the Company acquired two catheterization
laboratories, located at Southmore Hospital in Pasadena, Texas, a suburb of
Houston, and Mesquite Hospital in Mesquite, Texas, a suburb of Dallas (the
"Catheterization Laboratories"). These facilities are each operated under
contracts with the respective hospitals under which Raytel provides equipment,
technical staff and certain management and administrative services. The
hospitals provide space for the facility within the hospital, all supplies, and
credentialing of physicians. The Company receives a fee from the hospital on a
per procedure basis, with a guaranteed minimum monthly payment. Physicians
practicing at the Catheterization Laboratories are not obligated to refer
patients to or practice at these facilities and in many cases also practice at
other hospitals. The contract with Southmore Hospital expires in March 1998, and
the contract with Mesquite Hospital expires in January 1999. In addition to
diagnostic catheterization procedures, the Southmore facility currently performs
pacemaker installations, peripheral vascular angioplasty and peripheral stent
installations. There can be no assurance that the Company will be successful in
negotiating extensions of the terms of the Southmore or Mesquite contracts.
Cardiac catheterization utilizes catheters and sophisticated diagnostic
instruments to evaluate the functioning of the heart and the coronary arteries.
A narrow, flexible tube, or catheter, is inserted through a main artery in the
leg or arm and guided into the patient's coronary arteries, where a cardiologist
can use the catheter to perform various tests to diagnose the nature and extent
of the patient's coronary artery disease.
Northern California Heart Center
In January 1996, the Company entered into an agreement with Stanford
Health Services ("SHS") to develop a diagnostic cardiac catheterization
facility (the "Northern California Heart Center") in Fremont, California. In
November 1996, the Company completed the construction of the facility and is in
the final process of completing the requirements for a license from the
California Department of Health Services. The Company expects the facility to
be fully licensed and operational during the second quarter of the 1997 fiscal
year. However, there can be no assurance that the company will be able to
obtain such licensure or any additional licenses that may be required to expand
the services offered at the facility.
Under the agreement with SHS, the Company will provide the facilities
and equipment for the facility and will be responsible for the facility's
administration, including maintenance and repairs, administrative support
services, personnel administration and billing and collection. The agreement
provides that SHS will be responsible for providing all medical services at the
facility, including providing the medical director, physicians, protocols,
credentialing and quality assurance. The parties have subsequently agreed that
the Company, through an affiliated medical group, will collaborate with SHS in
providing certain of these services. The Company will bill and collect for the
technical component of services rendered at the facility, and SHS, the
affiliated medical group or physicians with staff privileges at the facility
will bill and collect for their professional component of such services. The
Company will also receive a fee from SHS for the Company's marketing services
and pay a fee to SHS for the services of the medical director.
The initial term of the agreement is one year, subject to successive,
automatic one-year extensions unless terminated by either party. The agreement
is subject to earlier termination under certain circumstances, including, among
others, the failure to obtain licensure by the State of California prior to
June 30, 1996 and without cause at any time upon 60 days notice during the
initial term and upon 90 days notice during any extension. Should the agreement
be terminated, the Company will endeavor to operate the facility in
collaboration with other medical service providers.
Raytel Heart Center at Granada Hills Community Hospital
The Company has entered into an agreement with Granada Hills Community
Hospital, in the San Fernando Valley north of Los Angeles, pursuant to which
Raytel manages an integrated heart center located on the premises of the
hospital. Granada Hills Community Hospital is a general, acute care hospital.
The hospital's heart program includes cardiac catheterization procedures,
stress testing, ultrasound and other
6
<PAGE> 7
diagnostic services, cardiovascular and cardiothoracic surgical procedures and
cardiac rehabilitation programs.
There are two phases to Raytel's agreement with the hospital. Under
Phase I, known as the interim agreement, the Company manages the hospital's
heart center, leases space from the hospital, provides capital equipment and has
provided improvements to consolidate the hospital's program in a contiguous
physical location. The Company is responsible for supervising and coordinating
all day-to-day operations of the heart center, including administrative support
and on-site management. The Company is also primarily responsible for marketing
and public relations activities and assists the hospital in the negotiation and
administration of contracts with managed care organizations and other
third-party payors and in its compliance with Medicare coverage and
accreditation requirements and governmental licensing and certification matters.
All medical service at the facility are the responsibility of the hospital and
its medical staff.
The Company and the hospital intend to implement Phase II of the
agreement in the second quarter of the 1997 fiscal year. Under Phase II, the
duties and responsibilities will remain the same as under Phase I. The principal
difference between Phase I and Phase II is the method of calculating the
procedure costs for which Raytel reimburses the hospital. Once Phase II has been
implemented, the initial term of the definitive agreement will be 10 years and
the Company will have an option to extend the term for an additional five years.
The agreement will be subject to termination under certain circumstances,
including the failure by either party to maintain any material license, Joint
Commission on Accreditation of Healthcare Organizations accreditation or
Medicare certification for the hospital and will also be terminable by the
hospital in the event that fewer than a specified number of procedures are
performed at the center during any successive two-year period. During the term
of the agreement, the parties have each agreed to refrain from competitive
activities.
The Company and the hospital are also in the process of negotiating an
agreement for Raytel to manage the hospital's cardiovascular surgery program,
although there can be no assurance that this agreement will be consummated.
RAYTEL CARDIAC MONITORING SERVICES
The Company is the largest provider of cardiac monitoring and testing
services in the United States utilizing Holter monitoring and transtelephonic
pacemaker monitoring ("TTM") technology. The Company believes that its TTM-based
services are the most cost-effective means of testing the performance of
implanted cardiac pacemakers and detecting symptoms of transient arrhythmias.
Since its acquisition of assets from CDS in June 1996, the Company has also
offered Holter monitoring services.
Pacemaker Monitoring
The Company believes, based on its industry experience, that it is the
largest provider of transtelephonic pacemaker monitoring services in the United
States, currently serving over 70,000 patients with implanted pacemaker systems.
Pacemaker systems are designed to assist the human heart in maintaining
an adequate pumping rate. A pacemaker is an electronic device that is implanted
in the patient and is designed to monitor and, if necessary, to stimulate the
patient's heartbeat. As it senses the heart's failure to respond to normal
7
<PAGE> 8
physiologic signals, the pacemaker emits electrical pulses directly into the
atrium and/or the ventricle of the heart, causing the heart muscle to contract
and pump blood through the patient's body. A pacemaker system consists of the
pacemaker device, sensing and pacing leads and a battery.
The purpose of pacemaker monitoring is to enable the patient to
maintain a normal lifestyle without the fear of an unexpected system failure.
Pacemaker monitoring can detect failures in the pacemaker system as well as
changes in the patient's heart rhythms that can cause the system to become
ineffective. In TTM-based pacemaker monitoring, the pacemaker system and its
interaction with the patient's heart is tested by conducting periodic,
prescheduled ECG examinations. The patient is provided with a battery-powered
ECG transmitter which detects the heart's impulses from the surface of the skin,
converts these impulses into an acoustic signal and transmits the signal over
ordinary telephone lines to one of the Company's three technical operations
centers, where the signal is converted and displayed on a computer screen or
strip chart recorder.
The Company's pacemaker monitoring services are prescribed by the
patient's physician. After receipt of a prescription and enrollment by the
Company, the patient is sent a transmitter and trained to use the device over
the telephone by one of the Company's technologists. Unlike most
physician-operated monitoring services, the Company's monitoring services are
provided 24 hours a day, seven days a week in order to accommodate unscheduled
calls from patients experiencing problems.
Each patient is tested on a schedule recommended by his or her
prescribing physician with such prescription updated annually. The Company
generates most of its pacemaker monitoring revenues from reimbursement by
Medicare and payors of supplemental Medicare benefits. Patients are typically
tested between three and 12 times per year. The Company is reimbursed for
pacemaker monitoring services on a per-call basis. Routine pacemaker testing is
performed in accordance with a prearranged, computer generated schedule. A
trained technologist telephones the patient and requests that the patient
initiate transmission of ECG data which is received by recorders in one of the
Company's technical operations centers. Once a continuous graph displaying the
rhythm of the heart and the pacemaker is generated, this data is interpreted by
the technologist to determine the status of the implanted pacemaker and its
relationship to the patient's cardiac rhythm. If problems with the pacemaker
system are noted or a serious abnormality is detected, including an abnormality
in the heart's own rhythm (an arrhythmia), the patient's physician is notified
immediately by telephone. After each test, the results are promptly reviewed by
a supervising technologist and a cardiologist and a written report is mailed to
the patient's physician.
Cardiac Event Detection Service
The Company operates the Cardiac Event Detection Service ("CEDS"),
which tests and documents transtelephonically an ambulatory patient's cardiac
rhythm irregularities while the patient is experiencing symptoms. CEDS testing
aids in the diagnosis of transient cardiac arrhythmias, including atrial and
ventricular abnormalities, such as tachycardia, which causes the heart to beat
at an abnormally rapid and potentially life threatening rate. During its fiscal
year ended September 30, 1996, Raytel tested over 30,000 patients for potential
transient arrhythmic events. The Company believes, based on its industry
experience, that it is the largest provider of these services in the United
States.
Upon enrollment in its CEDS program, the Company provides the patient
with a cardiac event recorder for a testing period lasting up to 30 days. Upon
experiencing symptoms, the patient activates the event recorder to capture one
or more ECGs which the patient will later transmit to one of the Company's two
CEDS technical operations center for analysis. Skilled technologists, under the
supervision of cardiac care nurses and cardiologists, make preliminary
evaluations of these transmissions for cardiac irregularities. Unlike similar
services offered by individuals or small clinics, the Company's centers are
staffed 24 hours a day, seven days a week to respond to a patient's needs on a
timely basis. During 1994, approximately 56% of patient calls to the center were
received outside of normal business hours, and
8
<PAGE> 9
approximately 21% of the patients who underwent CEDS testing placed one or more
calls to the center that resulted in immediate contact with the referring
physician, based upon preselected clinical criteria. Emergency medical response
is initiated for CEDS patients when necessary. Regardless of the number of calls
placed, payors reimburse the Company on a 30-day program basis for its CEDS
service.
Holter Monitoring Services
Since the acquisition of assets from CDS in June 1996, the Company has
offered Holter monitoring services. The Company believes, based on its industry
experience, that it is the largest provider of Holter monitoring services in the
United States, currently serving over 60,000 patients annually. Holter
monitoring service tests and documents an ambulatory patient's cardiac rhythm
irregularities while the patient is fitted with a recording device, with leads
attached to the patient's chest, typically for a single 24-hour period. Should
Holter monitoring or other testing procedures fail to detect an arrhythmia event
in a symptomatic patient, the patient's physician often will refer the patient
to an event detection service such as CEDs.
Cardiac Rehabilitation and Follow Up Programs
The Company's cardiac rehabilitation and follow up program was
discontinued during 1996. The successful commercialization of the cardiac
rehabilitation and follow-up program was dependent upon reimbursement
authorization under Medicare and by other third-party payors. Although the
Company's program services were approved for reimbursement by several private
insurers, such services are not reimbursable under current Medicare guidelines.
Because the Company does not believe that Medicare reimbursement for both
services will be authorized in the near future, the Company has determined to
discontinue offering the service until the availability of Medicare
reimbursement is more certain.
Training and Quality Assurance
As of November 30, 1996, the Company employed approximately 153 full
time equivalent technologists in all of its cardiac monitoring and testing
operations. All of the Company's pacemaker monitoring technologists undergo a
formal six-week training program that includes basic cardiac physiology, the
operation of pacemaker devices, the interaction of pacemaker systems with the
heart, and the administration and interpretation of ECG tests. As technologists
become more experienced, they are trained to monitor increasingly complex
pacemaker systems. Technologists administering the Company's CEDS and Holter
services undergo training in the interpretation of ECG data to detect symptoms
of cardiac arrhythmia.
The Company maintains a rigorous quality assurance program. The
Company's technologists are directed by board-certified cardiologists with
special training in the fields of cardiac pacing and electrophysiology. Each
pacemaker monitoring test is separately reviewed by a supervising technologist
and a cardiologist. CEDS transmissions and Holter test results are evaluated by
technologists under the supervision of cardiac care nurses and cardiologists.
DIAGNOSTIC IMAGING SERVICES
The Company provides outpatient diagnostic imaging services through
operating and investment interests in 12 free-standing imaging centers and two
mobile MRI units (the "Imaging Centers"). The Company also operates the Raytel
Imaging Network, a specialized preferred provider network currently consisting
of 241 independent imaging centers located from Maryland to New York, including
four centers managed by the Company.
Diagnostic imaging technology consists of a number of medical
diagnostic modalities, many of which integrate computer hardware and software.
These modalities include MRI, computed tomography ("CT"), nuclear medicine,
radiography/fluoroscopy ("R/F"), ultrasound, general X-ray and
9
<PAGE> 10
mammography. These imaging modalities are generally non-invasive (with the
exception of the injection of contrast material in certain techniques and the
occasional use of tranquilizing agents) and subject the patient either to sound
waves (ultrasound), X-rays (CT, R/F and X-ray mammography) or radio waves (MRI)
to gather data that aid in medical diagnosis. These diagnostic technologies
enable physicians to view certain internal body anatomy and pathology and in
many instances provide early diagnostic capability and aid in effective
treatment planning without the need for more costly exploratory surgery.
The principal diagnostic imaging modality in use at the Imaging Centers
is MRI. MRI is used to provide high resolution images of the soft tissue of the
body. In the field of cardiology, MRI is used for the assessment of congenital
and anatomical cardiac defects. Other MRI techniques, such as MR angiography,
are also used in the assessment of peripheral vascular and other cardiovascular
diseases. The Imaging Centers also provide a wide range of imaging services for
the diagnosis of neurological disorders of the head, neck and spine, as well as
imaging of the musculoskeletal system and a variety of internal organs,
including the liver and prostate, and the female pelvis.
Raytel Imaging Centers
The Imaging Centers are located in six states, with clusters in the
northeast and California. All of the Imaging Centers offer MRI services, and six
offer other imaging modalities. The Company owns four of the Imaging Centers
and holds its interests in the other eight through investments in various joint
ventures and limited partnerships (the "Ventures"). Historically, the Company
provided imaging equipment and/or financing for most of the Ventures. In
exchange for providing such equipment and/or financing, the Company receives a
fixed priority payment as defined in each Venture agreement. To the extent
that each Venture has distributable cash after such priority payments, the
Company will also receive a cash distribution to the extent of its
proportionate Venture interest which ranges from 37.5% to 90%. In Imaging
Centers where the equipment is not owned by the Company, the Company receives
only its proportionate Venture interest in the distributable cash of the
entity. The Company provides management services to seven of the Imaging
Centers (including the four owned by the Company). Such services include
marketing, data processing, billing and collection, accounting and supervision.
Day-to-day management of the other five Imaging Centers is the responsibility
of either the Company's Venture partners or independent managers who receive a
fee based upon the Imaging Center's revenues.
The Ventures were established for fixed terms. Ventures that operate
four consolidated and two unconsolidated Imaging Centers are scheduled to
terminate on or before July 31, 1997. Unless these terminating Ventures are
extended or restructured by the Company and its Venture partners, these
Ventures will discontinue operations. See Item 3, "Legal Proceedings," for a
description of the dispute between the Company and one of its Venture partners
relating to the expiration of the term of one of the Imaging Centers. Ventures
that operate the remaining Imaging Centers have terms that expire between 1999
and 2026.
Raytel Imaging Network
The trends toward cost containment and managed care have resulted in
changes in the patterns of patient referrals to diagnostic imaging facilities,
adversely affecting the profitability of independent imaging centers and
encouraging the formation of networks of independent centers. Many independent
operators of diagnostic imaging facilities lack the management and marketing
expertise and systems, as well as the experience in dealing with large managed
care organizations, that are necessary to effectively establish and operate such
networks. The Company's experience in dealing with a wide variety of managed
care organizations and its established, centralized marketing, scheduling,
billing and accounting systems provide the Company with the capability to
establish and operate networks of
10
<PAGE> 11
independent diagnostic imaging centers. In addition, the Company's purchasing
power allows it to provide participating centers with supplies, such as drugs
and film, and with equipment maintenance and other services at considerable cost
savings.
The Raytel Imaging Network (the "Network") is a dedicated network of
diagnostic imaging facilities established to provide services to patients
participating in healthcare benefit programs offered by municipal and state
employers, corporations that self-insure, third-party insurance carriers,
union health and welfare plans and managed care providers. Independent imaging
centers enter into fixed fee contractual relationships with the Network to
provide imaging services to patients referred by payors which have contracted
with the Network for services at a negotiated fee. The Network handles
scheduling for patients whose healthcare benefit programs participate in the
Network and guarantees these participating entities a fixed fee for all
radiology procedures performed in Network centers. The Network also offers
centralized billing services for those procedures, promptly reports the
results of the studies to the patient's referring physician and the outcomes
of the studies to the administrators responsible for the management of the
patient's healthcare program.
The Network is a preferred provider organization with participating
imaging centers in the states of New Jersey, Pennsylvania, Maryland, and New
York. The Network currently provides diagnostic imaging services under
referral arrangements with approximately 90 organizations administering
healthcare programs covering more than 400,000 individual participants.
SALES AND MARKETING
The Company's marketing activities are directed at managed care
organizations and referring physicians. The Company maintains a central managed
care sales group that negotiates and manages contracts with managed care
organizations. The Company's marketing organization also supervises the
marketing of its TTM-based services to physicians nationwide and supports the
efforts of local centers to market their services to referring physicians in the
communities they serve.
Raytel Cardiac Monitoring and Testing Services
The Company markets its cardiac monitoring and testing services
nationwide through a sales force made up of 17 full-time regional field
managers who direct a network of over 350 part-time salespersons and
independent sales representatives, and supported by the Company's customer
service and telemarketing personnel. The Company's sales force works closely
with the approximately 15,000 physicians currently prescribing the Company's
pacemaker monitoring services. The Company works closely with all major
pacemaker manufacturers and has agreements with certain manufacturers for the
distribution of the Company's services through their direct sales forces. In
addition, the Company has arrangements with the major pacemaker manufacturers
to place its prescription form in the document packages included with their
pacemakers.
The Company differentiates its cardiac monitoring and testing services
from most of its competitors by providing its services 24 hours a day, seven
days a week. In addition, the Company offers technologists who specialize in
monitoring specific pacemaker models (the more complex the unit, the more
expertise a technologist is required to have), extensive quality control
procedures, computerized reports for complex pacemakers, detailed reporting
procedures for abnormal findings and an extensive database on pacemaker
performance.
11
<PAGE> 12
Diagnostic Imaging Services
The Company markets services of the Imaging Centers it manages through
a team approach tailored to the needs of each Imaging Center. The Company's
central sales organization coordinates the Imaging Center's selling activities
with the Imaging Center's radiologists. The principal selling effort is directed
toward the local base of referring physicians. In support of the selling effort,
the Company provides marketing materials, including newsletters and brochures
and holds routine educational sessions for physicians. The Company also assists
the Imaging Center in addressing needs of managed care organizations by
negotiating contracts with these organizations and working closely with
insurance plan administrators, HMO personnel, workers' compensation coordinators
and hospital administrators.
Raytel Heart Centers
The Company markets the services of its heart centers using the basic
approach employed with the Imaging Centers. As is the practice at the Granada
Hills Heart Center, each heart center will undertake marketing activities
specifically structured for its local or regional market. The manager of each
heart center will initiate and maintain contact with local referring physicians.
The Company's central sales organization will support the local selling effort
with marketing materials and assistance in the development of clinical outreach
programs designed to make the capabilities of the center available to
underserved segments of the community. The center manager will coordinate local
physician contacts with the Company's cardiac monitoring and testing sales force
to cross-sell the Company's transtelephonic pacemaker monitoring, Holter
monitoring and cardiac event detection services. The Company's central sales
group will negotiate contacts with managed care organizations. This group will
also assist the center manager in addressing the needs of such organizations.
BILLING AND COLLECTION
The Company's cardiac monitoring and testing operations generate a high
volume of relatively low-cost services delivered to patients living throughout
the United States. The Company derives substantially all of its transtelephonic
pacemaker monitoring, Holter monitoring and cardiac event detection services
revenues from Medicare and other third-party payors and, in most cases, renders
bills to at least two payors for each procedure. In the year ended September 30,
1996, the Company generated more than one million bills to Medicare and other
third-party payors related to these businesses. Accordingly, the Company's
success in these businesses is substantially dependent upon the efficiency of
its billing and collection systems.
All of the billing and collection functions for the Company's
cardiology operations are centralized at the Company's facilities in Connecticut
and New Jersey. As of November 30, 1996, the Company employed approximately 64
billing and collection personnel. The Company has specialized data management
systems that it uses to obtain and record primary and secondary insurance data
at the time of patient enrollment and to maintain and update that information.
The Company's billing and collection staff is specially trained in third-party
coverage and reimbursement procedures. The Company communicates continuously
with carriers administering Medicare and has established procedures that allow
it to submit most primary Medicare claims electronically, on a batch-billing
basis. In addition, the Company maintains a database on the billing procedures
and requirements of more than 1,500 insurance carriers, which enables it to
efficiently process claims to primary, secondary and tertiary private
12
<PAGE> 13
insurers. Computerized billing and collection reports allow the Company's
personnel to continually monitor open accounts.
Due to the complexity of the billing and collection process, the
Company, like many other healthcare service providers, experiences normal
payment cycles that are considerably longer than those customary in many other
industries. The Company typically experiences billing cycles of 60 to 240 days
from the billing date, depending on the type and number of third-party payors,
although billing cycles can be even longer in certain situations. Based upon its
experience, the Company believes that its specialized data processing system and
its extensive background in processing high volume, third-party claims serve to
minimize collection cycles and the incidence of rejected claims due to
incomplete or inaccurate information.
The Company bills and collects for the Imaging Centers it manages and
expects to manage these functions centrally for certain of its heart centers.
THIRD-PARTY REIMBURSEMENT
The Company derives substantially all of its revenues from Medicare,
HMOs and 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. There can be no assurance that such
measures will not adversely affect the amounts or types of services that may be
reimbursable to the Company in the future, or that the future reimbursement for
any service offered by the Company will be sufficient to cover the costs and
overhead allocated to such service by the Company, either of which could have a
material adverse effect on the Company's operating results. The Company cannot
predict with any certainty whether or when additional changes in Medicare,
Medicaid or other third-party reimbursement rates or policies will be
implemented. However, such future changes could have a material adverse effect
on the Company's business, financial condition or operating results.
Reimbursement rates vary depending on the type of third-party payors.
Changes in the composition of third-party payors from higher reimbursement rate
payors to lower reimbursement rate payors could have an adverse effect on the
Company's operating results. In addition, the Company anticipates that it may
increasingly offer its services to third-party payors on a capitated or other
risk-sharing basis. To the extent that patients or enrollees covered by a
risk-sharing contract require more frequent or extensive services than is
anticipated by the Company, the revenue derived from such contract may be
insufficient to cover the costs of the services provided. Insufficient revenue
under capitated or other risk-sharing contracts could have a material adverse
effect on the Company's business, financial condition or operating results.
GOVERNMENT REGULATION
The healthcare industry is highly regulated, and there can be no
assurance that the regulatory environment in which the Company operates will not
change significantly and adversely in the future. In general, the scrutiny of
methods and levels of payment of healthcare providers and companies is
increasing.
13
<PAGE> 14
The Company believes that healthcare legislation, regulations and
interpretations will continue to change and, as a result, routinely monitors
developments in healthcare law. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment changes.
While the Company believes it will be able to structure all of its agreements
and operations in accordance with applicable law, the lack of definitive
interpretations of many statutory and regulatory provisions means that there can
be no assurance that the Company's arrangements are in compliance with such
provisions or will not be successfully challenged.
Government Reimbursement Programs
The federal government maintains the Medicare health insurance program
for the aged. Individual states have programs for medical assistance to the
indigent known generally as Medicaid, which are partially financed by the
federal government. Federal Medicaid funds are currently conditioned on state
compliance with federal requirements. A significant portion of the Company's
revenues is received under Medicare and other government programs. Both the
Medicare and Medicaid programs are subject to statutory and regulatory changes,
retroactive and prospective rate adjustments, administrative rulings,
interpretations of policy, intermediary determinations, and government funding
restrictions, all of which may materially increase or decrease the rate of
program payments to healthcare facilities and other healthcare suppliers and
practitioners.
The Company anticipates that its heart centers and catheterization
laboratories will derive a substantial portion of their revenue from payments
made under the Medicare program. In order to participate in this program, a
newly-developed facility must be certified after officials administering the
Medicare program in the state where the facility is located, or their designees,
have conducted a survey of the facility, a process that cannot commence until
the facility opens and begins providing services to patients. Once a facility is
certified, it will be reimbursed by Medicare for services performed from the
date on which a satisfactory survey is conducted in connection with the
certification of the facility or such later date as an acceptable plan is
submitted to correct any deficiencies noted in the survey. The Company expects
that delays in the certification process may occur and may increase with the
funding limitations being imposed on certifying authorities. Combined with the
billing and collection cycle for Medicare reimbursement that all healthcare
facilities experience, these delays could result in a three to
14
<PAGE> 15
six month working capital deficiency during the start-up phase for all newly
developed heart centers. These working capital deficiencies will have to be
funded by the Company through working capital advances to the facilities using
funds provided by operating or financing activities.
Stark Legislation and Fraud and Abuse Laws
The Company is subject to a variety of laws and regulations governing
the referral of patients to facilities with whom the referring physician has a
financial relationship.
Subject to certain exceptions, physicians who have a financial
relationship with an entity providing healthcare services are prohibited by
federal law (the "Stark Legislation") from referring or admitting patients to
that entity for the provision of certain designated services reimbursable under
Medicare or Medicaid, as well as certain other federally assisted state
healthcare programs. The entity providing healthcare services is also prohibited
from presenting, or causing to be presented, a claim or bill for the designated
services furnished pursuant to a prohibited referral. Possible sanctions for
violations of the Stark Legislation include civil monetary penalties, exclusion
from the Medicare and Medicaid programs and forfeiture of amounts collected in
violation of such prohibition. The Stark Legislation prohibits a physician who
owns stock of a company from referring patients to the medical facilities in
which such company has an ownership interest unless such Company's stockholders'
equity exceeds $75.0 million.
In addition to the limitations of the Stark Legislation, a number of
states have laws which apply to referrals made for services reimbursed by all
payors, and not simply Medicare or Medicaid. Some of these laws may extend to
the services furnished by medical facilities in which the Company has an
ownership interest and, absent the availability of an exception under such laws,
could prohibit physicians with ownership interests in the Company from referring
any patients to such facilities.
The Company is also subject to the illegal remuneration provisions of
the federal Social Security Act and similar state laws ("Fraud and Abuse Laws")
which collectively impose civil and criminal sanctions on persons who solicit,
offer, receive or pay any remuneration, directly or indirectly, for referring a
patient for treatment that is paid for in whole or in part by Medicare, Medicaid
or similar state or private programs. The courts and the Office of the Inspector
General of HHS have stated that the Fraud and Abuse Laws are violated where even
one purpose, as opposed to a primary or sole purpose, of the arrangement is to
induce referrals. Violations of the Fraud and Abuse Laws are punishable by
criminal or civil penalties, which may include exclusion or suspension of the
provider from future participation in the Medicare, Medicaid and similar state
and federal programs, as well as substantial fines. The federal government has
published exemptions, or "safe harbors," for business transactions that will be
deemed not to violate the federal Fraud and Abuse Laws. Although satisfaction of
the requirements of these safe harbors provides protection from criminal
prosecution or penalties under the federal anti-kickback legislation, failure to
meet the safe harbors does not necessarily mean a transaction violates the
statutory prohibitions. Due to the breadth of the statutory provisions of the
Fraud and Abuse Laws and the absence of definitive regulations or court
decisions addressing the type of arrangements by which the Company and its
affiliated entities conduct and will conduct their business, from time to time
certain of their practices may be subject to challenge under these laws. In
October 1995, Congress passed a bill that would extend the prohibitions of the
Fraud and Abuse Laws to all third-party payors, governmental and private.
The Company has attempted to structure its business relations to comply
with the Stark Legislation, the Fraud and Abuse Laws and all other applicable
healthcare laws and regulations. However, there can be no assurance that such
laws will be interpreted in a manner consistent with the Company's practices.
The Company holds interests in 8 diagnostic imaging centers through investments
in the Ventures. Day-to-day management of five of these Venture centers is
controlled by the Company's Venture partners or by independent managers, and the
Company is unable to exercise significant control over the operation of these
centers. While the Company believes that these centers operate in material
15
<PAGE> 16
compliance with all applicable laws, the Company may not be responsible for
ensuring compliance with these laws by other centers under its joint venture and
partnership agreements. However, failure of the entity operating or managing
such centers to ensure compliance may adversely affect the Company's business,
financial condition or operating results. In 1994, a joint venture in which a
Company subsidiary was a non-managing general partner was subject to litigation
brought on behalf of the federal government by a private plaintiff relating to
alleged non-compliance with the Fraud and Abuse laws. Such litigation was
settled with no material adverse consequences to the Company. There can be no
assurance that additional challenges under such laws or regulations or new laws
or regulations will not require the Company or its affiliated entities to change
their practices or will not have a material adverse effect on the Company's
business, financial condition or operating results. In addition, state
legislatures and other governmental entities are considering additional measures
restricting or regulating referrals, and there can be no assurance that new laws
or regulations will not be enacted which will require restructuring of the
Company's operations or otherwise have a material adverse effect on the
Company's business, financial condition or operating results.
Certificates of Need and Other Licensing Requirements
Certain states in which the Company operates or may operate in the
future prohibit the establishment, expansion or modification of certain
healthcare facilities and the services provided at such facilities, including
heart centers, catheterization laboratories and diagnostic imaging centers,
without first obtaining a certificate of need ("CON") or comparable license from
the appropriate state regulatory agency. In addition to any CON or comparable
licensing requirements that may apply, heart centers, catheterization
laboratories and diagnostic imaging centers developed or operated by the Company
may also be required to comply with other licensing requirements, which vary
from state to state. Obtaining CON approval or comparable licensing is typically
an expensive and lengthy process and may involve adversarial proceedings
initiated by competing facilities or taxpayer groups. The existence of these
laws may make it more difficult for the Company to develop heart centers,
catheterization laboratories or other diagnostic facilities or expand the
services provided at such facilities or its other diagnostic imaging facilities.
Under current California regulations, the performance of cardiac
catheterization procedures is generally restricted to licensed general acute
care hospitals. The Company has applied for a license for its free-standing
cardiac catheterization laboratory in Fremont, California under a pilot program.
Although the pilot program was repealed in 1993, the Company believes that it
meets all of the requirements for the granting of a license because the entity
holding the permit for such a facility was in active status as of December 31,
1993. However, there can be no assurance that a license will be granted on
acceptable terms, if at all. If the Company cannot obtain such license, it is
uncertain under current California regulations whether the Company could
otherwise separately obtain a license to operate a free-standing catheterization
laboratory.
Restrictions on Corporate Practice of Medicine
The laws of certain states in which the Company operates or may operate
in the future prohibit non-physician entities from practicing medicine,
exercising control over physicians or engaging in certain practices such as
fee-splitting with physicians. Although the Company has structured its
affiliations with physician groups so that the physicians maintain exclusive
authority regarding the delivery of medical care, there can be no assurance that
these laws will be interpreted in a manner consistent with the Company's
practices or that other laws or regulations will not be enacted in the future
that could have a material adverse effect on the Company's business. If a
corporate practice of medicine law is interpreted in a manner that is
inconsistent with the Company's practices, the Company would be required to
restructure or terminate its relationship with the applicable physician group to
bring its activities into compliance with such law. The termination of, or
failure of the Company to successfully restructure, any such relationship could
result in fines or a loss of revenue that could have a material adverse effect
on the Company's business, financial condition or operating results.
16
<PAGE> 17
MEDICAL MALPRACTICE INSURANCE
The Company does not, itself, engage in the practice of medicine and
requires physicians performing medical services at its facilities to maintain
medical malpractice insurance. Although the Company's employees do not practice
medicine, certain of its employees are or will be involved in the delivery of
healthcare services to the public under the supervision of physicians. To
protect the Company from medical malpractice claims, including claims associated
with its employees' activities, the Company, or the Ventures for which the
Company serves as general partner, maintains professional liability and general
liability insurance on a "claims made" basis in amounts deemed appropriate by
management based upon the nature and risks of the Company's business. Such
policies provide malpractice coverage in the amount of $1 million per occurrence
with an aggregate limit of $3 million. Insurance coverage under such policies is
contingent upon a policy being in effect when a claim is made, regardless of
when the events which caused the claim occurred. The cost and availability of
such coverage has varied widely in recent years. While the Company believes its
insurance policies are adequate in amount and coverage for its current
operations, there can be no assurance that the coverage maintained by the
Company is sufficient to cover all future claims. In addition, there can be no
assurance that the Company will be able to obtain such insurance on commercially
reasonable terms in the future.
COMPETITION
The healthcare service businesses in which the Company is currently
engaged are highly competitive. The restructuring of the healthcare system is
leading to rapid consolidation of the existing highly-fragmented healthcare
delivery system into larger and more organized groups and networks of healthcare
providers. The Company expects competition to increase as a result of this
consolidation and ongoing cost containment pressures among other factors. In
executing its business strategy, the Company competes with management services
organizations, for-profit and nonprofit hospitals, HMOs and other competitors
that are seeking to form strategic alliances with physicians or provide
management services to physicians or to diagnostic and therapeutic facilities
owned by such physicians.
17
<PAGE> 18
In operating its heart centers, the Company encounters competition from
physician groups, general acute care hospitals and free-standing and
hospital-based cardiac care facilities located in the same markets.
The Company's cardiac monitoring and testing programs compete with a
number of smaller, regional commercial entities as well as hospitals, clinics
and physicians who generally provide these services as an adjunct to their
primary practice. Principal competitive factors are availability and quality of
service. The Company believes that it competes favorably with most of its
smaller competitors based on its 24 hour a day, seven day a week service,
specialized technical staff and sophisticated billing and collection system.
Certain of its competitors, including local physicians and hospitals, may have
certain competitive advantages over the Company based upon their direct
relationships with patients.
Diagnostic imaging is performed in hospitals, private physicians'
offices, clinics operated by group practices of physicians and independent
imaging centers. Although the Company and its affiliates operate in New York,
New Jersey, Massachusetts, Pennsylvania, and California, competition focuses on
physician referrals at the local market level. Principal competitors in each of
the Company's markets are hospital and physician affiliated imaging centers,
some of which may have greater financial and other resources than the Company,
more experience and greater name recognition than the local managers and
radiologists associated with the Company's Imaging Centers, or better ties to
the local medical community. Successful competition for referrals is a result of
many factors, including quality and timeliness of test results, type and quality
of equipment, facility location, convenience of scheduling and, increasingly,
relationships with managed care programs. The Company believes that it competes
favorably with other providers of diagnostic imaging services based on the
quality of its service, its emphasis on sophisticated equipment, and the
professionalism of its staff, among other factors. Other independent companies
(including some which have substantially greater financial and operating
resources than the Company) are in the business of establishing facilities
similar to the facilities in which the Company has or may obtain interests and
providing management services to such facilities, including at least one
publicly-held Company of which the Company is aware whose primary business
consists of the development and operation of cardiac care centers.
EMPLOYEES
As of November 30, 1996, the Company employed approximately 554 full
time equivalent employees. None of the Company's employees are covered by
collective bargaining contracts.
ITEM 2. PROPERTIES
The principal operations of the Company and its subsidiaries are
conducted at facilities located in Windsor, Connecticut, New York, New York,
Haddonfield, New Jersey and San Mateo, California. The Windsor facility,
consisting of approximately 33,000 square feet, is occupied under a lease
expiring in July 1999. The New York facility, consisting of approximately 23,300
square feet, is occupied under a lease expiring in September 1996. The
Haddonfield facility, consisting of approximately 13,000 square feet, is
occupied under a lease expiring in June 1997. The San Mateo facility, consisting
of approximately 2,400 square feet, is occupied under a lease expiring in June
1998. In addition, through seven of its consolidated Imaging Centers, the
Company leases a total of approximately 31,000 square feet in facilities located
in New York, New Jersey, California and Pennsylvania.
18
<PAGE> 19
The Company generally considers its properties to be in good condition and
suitable for the Company's anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries are involved in litigation
with Medical Diagnostics, Inc. ("MDI"), the joint venture partner in Mass.
Mobile Imaging Venture ("MMIV"), one of the Ventures in which the Company,
through a subsidiary, holds an interest. The dispute arose out of MDI's proposal
to co-develop a new MRI center with a hospital utilizing assets of MMIV. In the
course of the dispute, other differences have arisen between the Company and MDI
concerning provisions of the joint venture agreement, the ability of MDI to
adequately manage MMIV and other matters concerning the operations of the
Imaging Centers owned by MMIV. In September 1992, MDI filed an action against
the Company, certain of its subsidiaries and certain other defendants in the
Superior Court of the Commonwealth of Massachusetts, County of Middlesex. The
suit alleges that the Company and the other defendants violated fiduciary and
contractual obligations to MDI and MMIV by refusing to approve the development
of the new center and by generally failing to cooperate in good faith with MDI
in the business affairs of MMIV and seeks declaratory relief, the dissolution of
MMIV, unspecified damages and injunctive relief. In addition to denying MDI's
allegations, the Company has asserted counterclaims, alleging that MDI and an
affiliate of MDI have breached their fiduciary and contractual obligations to
the Company and MMIV and have sought to benefit their own business interests at
the expense of the Company and MMIV. The counterclaim seeks the removal of MDI
as the manager of MMIV and equity participation, or damages in lieu of equity
participation, in the new center for the duration of the operating agreement
with the hospital. The Company believes that the complaint filed against it is
without merit and is vigorously defending the complaint and prosecuting its
counterclaims relating to the new center and the management of MMIV.
In September 1996, the Company won an administrative decision related
to a billing dispute with a New York Medicare carrier. The Company billed the
carrier at a reimbursement rate which was in effect at the time the Company
acquired the CardioCare division from Medtronic, Inc. in 1993. The reimbursement
rate was confirmed by the carrier after the acquisition. Following an audit of
the carrier by the Healthcare Finance Administration ("HFCA"), the Company was
ordered to return approximately $4 million to Medicare, a decision the Company
appealed. The Company was notified on September 23, 1996, that an
administrative law judge found that the Company was without fault and is
entitled to the reimbursement of approximately $4 million in question.
Raytel and its subsidiaries are parties to other litigation and claims
arising out of its ongoing business operations. The Company believes that none
of these matters, either individually or in the aggregate, are likely to have a
material adverse effect on the Company's business, financial condition or
operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
19
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to
information set forth under the heading "Stock Data Nasdaq Symbol: RTEL" on
page 37 of the Company's 1996 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
the information set forth under the heading "Five Year Financial Summary" on
page 17 of the Company's 1996 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to
information set forth under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 18 to 22 of the
Company's 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to
the financial statements and supplementary data on pages 23 to 36 of the
Company's 1996 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
20
<PAGE> 21
PART III
Certain information required by Part III is omitted from the report in
that the Company intends to file its definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this report, and certain information therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Proposal No. 1 -
Election of Directors."
The information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in the Proxy Statement under the heading
Executive Compensation and Other Matters."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Executive
Compensation and Other Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Certain
Transactions."
21
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS:
Independent Auditors Report
Consolidated Statements of Income for the Years Ended September 30,
1996, 1995 and 1994
Consolidated Balance Sheets as of September 30, 1995 and 1996
Consolidated Statements of Shareholders' Equity for the Years Ended
September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended September 30,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Supplementary Data: Quarterly Financial Data (unaudited)
2. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
Independent Auditor's Report
3. EXHIBITS
The exhibits which are filed with this Form 10-K, or incorporated
herein by reference, are set forth in the Exhibit Index, which
immediately precedes the exhibits to this Report.
(B) REPORTS ON FORM 8-K DURING THE QUARTER ENDED SEPTEMBER 30, 1996
None.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: December 30, 1996 By: /s/ RICHARD F. BADER
------------------------------
Richard F. Bader
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael Kokesh and E. Payson Smith, Jr.,
or either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign any and all amendments to this Report
on Form 10-K and to file the same, with all exhibits thereto and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might and could do in person, hereby ratify and confirming all that said
attorneys-in-fact and agents, or either of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities indicated
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD F. BADER Chairman of the Board and Chief Executive Officer December 26, 1996
-------------------- (Principal Executive Officer)
(Richard F. Bader)
/s/ ALLAN ZINBERG* President, Chief Operating Officer and Director December 26, 1996
------------------
(Allan Zinberg)
/s/ E. PAYSON SMITH, JR. Senior Vice President and Chief Financial Officer December 26, 1996
- ------------------------ (Principal Financial and Accounting Officer)
(E. Payson Smith, Jr.)
/s/ THOMAS J. FOGARTY Director December 26, 1996
- ---------------------
(Thomas J. Fogarty)
/s/ ALBERT J. HENRY* Director December 26, 1996
--------------------
(Albert J. Henry)
Director December __, 1996
---------------
(Gene I. Miller)
/s/ DAVID ROLLO* Director December 26, 1996
----------------
(David Rollo)
/s/ TIMOTHY J. WOLLAEGER* Director December 26, 1996
- -------------------------
(Timothy J. Wollaeger)
</TABLE>
23
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders of
Raytel Medical Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated balance sheets of Raytel Medical Corporation and
Subsidiaries as of September 30, 1996 and September 30, 1995 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1996
included in this Form 10-K, and have issued our report thereon dated November 8,
1996. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission rules and is not part of
the basic financial statements. The information reflected on the schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial data, and in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
---------------------------
Arthur Andersen LLP
Hartford, Connecticut
November 8, 1996
24
<PAGE> 25
Schedule II
RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
For the years ended September 30, 1996, 1995 and 1994
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to
Beginning of Cost and Balance at
Year Expenses Deductions End of Year
----------------------------------------------------------------
<S> <C> <C> <C> <C>
DESCRIPTION
September 30, 1996
Allowance for doubtful accounts $7,709,000 $5,352,000 $(7,206,000) $5,855,000
September 30, 1995
Allowance for doubtful accounts $8,220,000 $5,187,000 $(5,698,000) $7,709,000
September 30, 1994
Allowance for doubtful accounts $9,395,000 $4,643,000 $(5,818,000) $8,220,000
</TABLE>
25
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT TITLE
NUMBER -------------
- -------
<S> <C>
++2.1(1) Master Transaction Agreement, dated as of August 21, 1996, but
effective as of September 18, 1996, between and among Raytel
Medical Corporation, Raytel Texas Physician Services, Inc.,
Raytel Southeast Management, L.P., Southeast Texas
Cardiology Associates, P.A., Southeast Texas Cardiology
Associates II, P.A., Rodolfo P. Sotolongo, M.D., Wayne S.
Margolis, M.D., Michael L. Smith, M.D., and Miguel
Castellanos, M.D.
++2.2(1) Agreement for the Purchase and Sale of Assets, dated as of
August 21, 1996, but effective as of September 18, 1996,
between and among Raytel Medical Corporation, Raytel Texas
Physician Services, Inc., Raytel Southeast Management, L.P.,
Southeast Texas Cardiology Associates, P.A., Southeast Texas
Cardiology Associates II, P.A., Rodolfo P. Sotolongo, M.D.,
Wayne S. Margolis, M.D., and Michael L. Smith, M.D.
++2.3(1) Management Services Agreement, dated and effective as of
September 18, 1996, between Cardiology Management Partnership,
a Texas general partnership, and Southeast Texas Cardiology
Associates II, P.A., as assigned to Raytel Southeast
Management, L.P.
3.1(2) Restated Certificate of Incorporation of the Registrant, as
proposed to be amended.
3.2(3) Bylaws of the Registrant, as amended.
4.1(4) Registration Rights Agreement dated October 31, 1985 among the
Registrant and certain of its stockholders.
*10.1(4) 1983 Incentive Stock Option Plan, as amended.
*10.2(4) 1990 Stock Option Plan, as amended.
10.3(4) 1995 Outside Directors Stock Option Plan.
*10.5(4) Executive Deferred Compensation Plan.
*10.7(4) Form of Indemnity Agreement for officers and directors.
*10.8(4) Employment Agreement dated September 28, 1995 between the
Registrant and Richard F. Bader.
*10.9(4) Employment Agreement dated September 28, 1995 between the
Registrant and Allan Zinberg.
*10.10(4) Employment Agreement dated September 28, 1995 between the
Registrant and E. Payson Smith, Jr.
10.11(4) Asset Purchase Agreement dated February 26, 1993 between the
Registrant and Medtronic, Inc.
10.12(4) Warrant dated February 26, 1993 issued to Medtronic, Inc. and
related Put Agreement dated February 26, 1993 between the
Registrant and Medtronic, Inc., with form of Registration
Rights Agreement.
10.13(4) Subordinated Promissory Note dated February 26, 1993 issued to
Medtronic, Inc.
10.14(4) Services Agreement dated February 26, 1993 between the
Registrant and Medtronic, Inc.
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
10.21(4) Warrant issued to Thomas J. Fogarty, M.D. August 30, 1990.
10.22(4) Lease Agreement dated March 6, 1992 between the Registrant and
Peninsula Office Park, as amended.
10.23(4) Lease dated August 27, 1993 between the Registrant and USGC
Joint Venture.
10.24(4) Agreement of Lease dated July 22, 1983 between the Registrant
and C.E. Towers Co., as amended, with Lease Assignment and
Assumption Agreement dated February 26, 1993 between the
Registrant and Medtronic, Inc. and Consent of C.E. Towers Co.
dated February 12, 1993.
10.25(4) Letter of Intent dated May 31, 1995 between the Registrant and
Stanford Health Services and related letter dated June 12,
1995 from Bruce A. Reitz, M.D.
+10.26(4) American Diagnostics and Management, Inc. Diagnostic
Catheterization Services Agreement dated September 2, 1992
between American Diagnostics And Management, Inc. ("ADAM") and
Southmore Medical Center, as assumed from ADAM by Registrant.
+10.27(4) American Diagnostics And Management, Inc. Diagnostic
Catheterization Services Agreement dated June 10, 1993
between ADAM and Southmore Medical Center, as assumed from
ADAM by Registrant.
10.28(4) Joint Venture Agreement dated March 3, 1988 between Medical
Imaging Partners, L.P. and California Medical Imaging
Services, Inc., as amended, and related agreements.
10.29(4) Joint Venture Agreement dated November 25, 1987 between
Medical Imaging Partners, L.P. and Mastercare Diagnostic
Limited Partners, as amended, and related agreements.
10.30(4) MRI Diagnostic Partners I, L.P. 1986 Limited Partnership
Agreement dated December 31, 1986, and related agreements
and MRI Building Partners, L.P. 1986 Agreement of Limited
Partnership dated December 31, 1986.
10.31(4) Amended and Restated Joint Venture Agreement dated August 6,
1990 between Medical Imaging Partners, L.P. and Medical
Diagnostics, Inc., and related agreements.
10.32(4) Letter Agreement dated October 2, 1995 between the Registrant
and Bank of Boston Connecticut.
10.33(4) Letter of Intent dated October 26, 1995 between the Registrant
and Granada Hills Community Hospital.
+10.34(5) Cardiac Catheterization Facility and Administrative Services
Agreement dated January 10, 1996 between the Company and
Stanford Health Services.
+10.35(6) Letter Agreement dated January 9, 1996 between the Company and
International Philanthropic Hospital Foundation, doing business
as Granada Hills Community Hospital.
+10.36(7) Cardiac Catheterization Facility and Administrative Services
Agreement dated January 10, 1996 between the Company and
Stanford Health Services.
+10.37(8) Letter Agreement dated January 9, 1996 between the Company and
International Philanthropic Hospital Foundation, doing business
as Granada Hills Community Hospital.
++10.38 Master Transaction Agreement, dated as of August 21, 1996, but
effective as of September 18, 1996, between and among Raytel
Medical Corporation, Raytel Texas Physician Services, Inc.,
Raytel Southeast Management, L.P., Southeast Texas Cardiology
Associates, P.A., Southeast Texas Cardiology Associates II, P.A.,
Rodolfo P. Sotolongo, M.D., Wayne S. Margolis, M.D., Michael L.
Smith, M.D., and Miguel Castellanos, M.D. Reference is made to
Exhibit 2.1.
++10.39 Agreement for the Purchase and Sale of Assets, dated as of
August 21, 1996, but effective as of September 18, 1996, between
and among Raytel Medical Corporation, Raytel Texas Physician
Services, Inc., Raytel Southeast Management, L.P., Southeast
Texas Cardiology Associates, P.A., Southeast Texas Cardiology
Associates II, P.A., Rodolfo P. Sotolongo, M.D., Wayne S.
Margolis, M.D., and Michael L. Smith, M.D., Reference is made
to Exhibit 2.2.
++10.40 Management Services Agreement, dated and effective as of
September 18, 1996, between Cardiology Management Partnership,
a Texas general partnership, and Southeast Texas Cardiology
Associates II, P.A., as assigned to Raytel Southeast Management,
L.P. Reference is made to Exhibit 2.3.
*10.41 Employee Stock Purchase Plan dated May 8, 1996
10.42 Amended and Restated Credit Agreement, and form of Promissory
Note dated August 14, 1996 among the Registrant, Bank of Boston
Connecticut and Banque Paribas, and Bank of Boston Connecticut,
as agent.
10.43 Promissory Note in the amount of $15,000,000 between the Registrant
and Bank of Boston Connecticut dated September 2, 1996.
10.44 Promissory Note in the amount of $10,000,000 between the Registrant
and Banque Paribas dated September 2, 1996.
13.1 Portions of Annual Report to Stockholders incorporated by
reference in this Report on Form 10-K.
21.1 List of subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C> <C>
24.1 Power of Attorney. Reference is made to page 23 of this Report on Form 10-K.
27 Financial Data Schedule.
</TABLE>
- ----------
* Constitutes a management contract or compensatory plan
required to be filed pursuant to Item 14(c) of Form 10-K.
+ Confidential treatment has been granted as to a portion of this
Exhibit.
++ Confidential treatment has been requested as to a portion of this
Exhibit.
(1) Incorporated by reference to identically numbered exhibit to the
Registrant's Form 8-K Reports filed on October 3, 1996.
(2) Incorporated by reference to identically numbered exhibits to the
Registrant's Form 10-Q Report for the quarter ended December 31, 1995
(the "December 1995 Form 10-Q").
(3) Incorporated by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-1, No. 33-97860, which became effective
on November 30, 1995 (the "1995 Registration Statement").
(4) Incorporated by reference to identically numbered exhibit to the 1995
Registration Statement.
(5) Incorporated by reference to Exhibit 10.1 to the December 1995 Form
10-Q.
(6) Incorporated by reference to Exhibit 10.2 to the December 1995 Form
10-Q.
(7) Incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q
Report for the quarter ended June 30, 1996 (the "June 1996 Form 10-Q").
(8) Incorporated by reference to Exhibit 10.2 to the June 1996 Form 10-Q.
28
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The following entities are corporations in which Raytel Medical
Corporation ("RMC") has an ownership interest:
NAME OF CORPORATION STATE OF INCORPORATION
Raytel Cardiac Services, Inc. Delaware
Raytel Cardiovascular Labs, Inc. ("RCL") Delaware
Raytel Imaging Holdings, Inc. ("RIH") Delaware
Raytel Management Holdings, Inc. ("RMH") Delaware
The following entities are corporations in which RIH has an ownership
interest:
NAME OF CORPORATION STATE OF INCORPORATION
Raytel Imaging East, Inc. ("RIE") Delaware
Raytel Imaging Mid-Atlantic, Inc. ("RIMA") Delaware
Raytel Imaging West, Inc. ("RIW") Delaware
Raytel Medical Imaging, Inc. ("RMI") Delaware
Raytel Imaging Network, Inc. Delaware
The following entities are corporations that RMH has an ownership
interest:
NAME OF CORPORATION STATE OF INCORPORATION
Raytel California Physician Services, Inc. Delaware
Raytel Texas Physician Services, Inc. ("RTPS") Delaware
RMI is the sole general partner and RMC is the sole limited partner of
Medical Imaging Partners L.P. ("MIP"), a Delaware limited partnership.
RTPS is the sole general partner and RMH is the sole limited partner of
Raytel Southeast Management, L.P., a Texas limited partnership.
RCL is the sole general partner and RGH is the sole limited partner of
Northern California Heart Center, Ltd., a California limited partnership.
The following entities are partnerships in which RIE, RIMA, RIW or MIP
have an ownership interest:
STATE OF
NAME OF CORPORATION OWNER ORGANIZATION
CIFMI Joint Venture RIW California
Five East 82nd Street Imaging Venture RIE New York
Forest Hills Imaging Venture RIE New York
Mass. Mobile Imaging Venture MIP Massachusetts
MRI Diagnostic Partners I, L.P.-1986 RIMA Pennsylvania
MRI Building Partners I, L.P.-1986 RIMA Pennsylvania
Orlando Diagnostic Center RIMA California
San Louis Obispo Medical
Imaging Center RIW California
<PAGE> 1
EXHIBIT 10.41
RAYTEL MEDICAL CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Raytel Medical Corporation 1996 Employee
Stock Purchase Plan (the "PLAN") is hereby established effective upon its
approval by the Company's stockholders.
1.2 PURPOSE. The purpose of the Plan is to provide Eligible
Employees of the Participating Company Group with an opportunity to acquire a
proprietary interest in the Company through the purchase of Stock. The Company
intends that the Plan shall qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments or replacements of such
section), and the Plan shall be so construed.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. Whenever used herein, the following terms shall have their respective
meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly appointed
to administer the Plan and having such powers as shall be specified by the
Board. Unless the powers of the Committee have been specifically limited, the
Committee shall have all of the powers of the Board granted herein, including,
without limitation, the power to amend or terminate the Plan at any time,
subject to the terms of the Plan and any applicable limitations imposed by law.
(d) "COMPANY" means Raytel Medical Corporation, a Delaware
corporation, or any successor corporation thereto.
1
<PAGE> 2
(e) "COMPENSATION" means, with respect to an Offering Period
under the Plan, all amounts paid in cash in the forms of base salary or
commissions during such Offering Period before deduction for any contributions
to any plan maintained by a Participating Company and described in Section
401(k) or Section 125 of the Code. Compensation shall not include bonuses,
annual awards, other incentive payments, shift premiums, reimbursements of
expenses, allowances, long-term disability, workers' compensation or any amount
deemed received without the actual transfer of cash or any amounts directly or
indirectly paid pursuant to the Plan or any other stock purchase or stock option
plan.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a director who is also treated as an employee) in the
records of a Participating Company and for purposes of Section 423 of the Code;
provided, however, that neither service as a director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(i) "FAIR MARKET VALUE" means, as of any date, if there is
then a public market for the Stock, the closing price of a share of Stock (or
the mean of the closing bid and asked prices of a share of Stock if the Stock is
so reported instead) as reported on the National Association of Securities
Dealers Automated Quotation ("NASDAQ") System, the NASDAQ National Market System
or such other national or regional securities exchange or market system
constituting the primary market for the Stock. If the relevant date does not
fall on a day on which the Stock is trading on NASDAQ, the NASDAQ National
Market System or other national or regional securities exchange or market
system, the date on which the Fair Market Value shall be established shall be
the last day on which the Stock was so traded prior to the relevant date, or
such other appropriate day as shall be determined by the Board, in its sole
discretion. If there is then no public market for the Stock, the Fair Market
Value on any relevant date shall be as determined by the Board without regard to
any restriction other than a restriction which, by its terms, will never lapse.
(j) "OFFERING" means an offering of Stock as provided in
Section 6.
(k) "OFFERING DATE" means, for any Offering Period, the first
day of such Offering Period.
(l) "OFFERING PERIOD" means a period determined in
accordance with Section 6.1.
2
<PAGE> 3
(m) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(n) "PARTICIPANT" means an Eligible Employee participating in
the Plan.
(o) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation which the Board determines should be
included in the Plan. The Board shall have the sole and absolute discretion to
determine from time to time what Parent Corporations or Subsidiary Corporations
shall be Participating Companies.
(p) "PARTICIPATING COMPANY GROUP" means, at any point in time,
the Company and all other corporations collectively which are then Participating
Companies.
(q) "PURCHASE DATE" means, for any Offering Period (or
Purchase Period if so determined by the Board in accordance with Section 6.2),
the last day of such period.
(r) "PURCHASE PERIOD" means a period determined in
accordance with Section 6.2.
(s) "PURCHASE PRICE" means the price at which a share of Stock
may be purchased pursuant to the Plan, as determined in accordance with Section
9.
(t) "PURCHASE RIGHT" means an option pursuant to the Plan to
purchase such shares of Stock as provided in Section 8 which may or may not be
exercised during an Offering Period. Such option arises from the right of a
Participant to withdraw such Participant's accumulated payroll deductions not
previously applied to the purchase of Stock under the Plan (if any) and
terminate participation in the Plan or any Offering therein at any time during
an Offering Period.
(u) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(v) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
use of the term "or" shall include the conjunctive as well as the disjunctive.
3
<PAGE> 4
3. ADMINISTRATION. The Plan shall be administered by the Board, including
any duly appointed Committee of the Board. All questions of interpretation of
the Plan or of any Purchase Right shall be determined by the Board and shall be
final and binding upon all persons having an interest in the Plan or such
Purchase Right. Subject to the provisions of the Plan, the Board shall determine
all of the relevant terms and conditions of Purchase Rights granted pursuant to
the Plan; provided, however, that all Participants granted Purchase Rights
pursuant to the Plan shall have the same rights and privileges within the
meaning of Section 423(b)(5) of the Code. All expenses incurred in connection
with the administration of the Plan shall be paid by the Company.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be one hundred thousand (100,000) and shall
consist of authorized but unissued or reacquired shares of the Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires or
is terminated or canceled, the shares of Stock allocable to the unexercised
portion of such Purchase Right shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall be
made in the number and class of shares subject to the Plan, to the Per Offering
Share Limit set forth in Section 8.1 and to each Purchase Right and in the
Purchase Price.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Any Employee of a
Participating Company is eligible to participate in the Plan except the
following:
(a) Employees who are customarily employed by the
Participating Company Group for twenty (20) hours or less per week;
(b) Employees who are customarily employed by the
Participating Company Group for not more than five (5) months in any calendar
year; and
(c) Employees who own or hold options to purchase or who, as a
result of participation in the Plan, would own or hold options to purchase,
stock of the Company or of any Parent Corporation or Subsidiary Corporation
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of such corporation within the meaning of Section
423(b)(3) of the Code.
4
<PAGE> 5
5.2 LEASED EMPLOYEES EXCLUDED. Notwithstanding anything herein to
the contrary, any individual performing services for a Participating Company
solely through a leasing agency or employment agency shall not be deemed an
"Employee" of such Participating Company.
6. OFFERINGS.
6.1 OFFERING PERIODS. Except as otherwise set forth below, the Plan
shall be implemented by sequential Offerings of approximately three (3) months
duration (an "OFFERING PERIOD"). The first Offering Period shall commence on
October 1, 1996 (the "INITIAL OFFERING DATE") and end on December 31, 1996.
Subsequent Offerings shall commence on the first days of January, April, July
and October of each year and end on the last days of the next March, June,
September, and December, respectively, occurring thereafter. Notwithstanding the
foregoing, the Board may establish a different term for one or more Offerings or
different commencing or ending dates for such Offerings; provided, however, that
no Offering may exceed a term of twenty-seven (27) months. An Employee who
becomes an Eligible Employee after an Offering Period has commenced shall not be
eligible to participate in such Offering but may participate in any subsequent
Offering provided such Employee is still an Eligible Employee as of the
commencement of any such subsequent Offering. Eligible Employees may not
participate in more than one Offering at a time. In the event the first or last
day of an Offering Period is not a business day, the Company shall specify the
business day that will be deemed the first or last day, as the case may be, of
the Offering Period.
6.2 PURCHASE PERIODS. If the Board shall so determine, in its
discretion, each Offering Period may consist of two (2) or more consecutive
purchase periods having such duration as the Board shall specify (individually,
a "PURCHASE PERIOD"), and the last day of each such Purchase Period shall be a
Purchase Date. In the event the first or last day of a Purchase Period is not a
business day, the Company shall specify the business day that will be deemed the
first or last day, as the case may be, of the Purchase Period.
6.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL. Notwithstanding any
other provision of the Plan to the contrary, any Purchase Right granted pursuant
to the Plan shall be subject to (a) obtaining all necessary governmental
approvals or qualifications of the sale or issuance of the Purchase Rights or
the shares of Stock and (b) obtaining stockholder approval of the Plan.
Notwithstanding the foregoing, stockholder approval shall not be necessary in
order to grant any Purchase Right granted in the Plan's initial Offering Period;
provided, however, that the exercise of any such Purchase Right shall be subject
to obtaining stockholder approval of the Plan.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee shall become a
Participant on the first Offering Date after satisfying the eligibility
requirements of
5
<PAGE> 6
Section 5 and delivering to the Company's payroll office or other office
designated by the Company not later than the close of business for such office
on the last business day before such Offering Date (the "SUBSCRIPTION DATE") a
subscription agreement indicating the Employee's election to participate in the
Plan and authorizing payroll deductions. An Eligible Employee who does not
deliver a subscription agreement to the Company's payroll or other designated
office on or before the Subscription Date shall not participate in the Plan for
that Offering Period or for any subsequent Offering Period unless such Employee
subsequently enrolls in the Plan by filing a subscription agreement with the
Company by the Subscription Date for such subsequent Offering Period. The
Company may, from time to time, change the Subscription Date as deemed advisable
by the Company in its sole discretion for proper administration of the Plan.
7.2 CONTINUED PARTICIPATION. A Participant shall automatically
participate in the Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
until such time as such Participant (a) ceases to be an Eligible Employee, (b)
withdraws from the Plan pursuant to Section 13.2 or (c) terminates employment as
provided in Section 14. If a Participant automatically may participate in a
subsequent Offering Period pursuant to this Section 7.2, then the Participant is
not required to file any additional subscription agreement for such subsequent
Offering Period in order to continue participation in the Plan. However, a
Participant may file a subscription agreement with respect to a subsequent
Offering Period if the Participant desires to change any of the Participant's
elections contained in the Participant's then effective subscription agreement.
8. RIGHT TO PURCHASE SHARES.
8.1 PURCHASE RIGHT. Except as set forth below, during an Offering
Period each Participant in such Offering Period shall have a Purchase Right
consisting of the right to purchase that number of whole shares of Stock arrived
at by dividing One Thousand Two Hundred Fifty Dollars ($1,250) by the Fair
Market Value of a share of Stock on the Offering Date of such Offering Period;
provided, however, that such number shall not exceed one hundred twenty-five
(125) shares (the "PER OFFERING SHARE LIMIT"). Shares of Stock may only be
purchased through a Participant's payroll deductions pursuant to Section 10.
8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding the
foregoing, if the Board shall establish an Offering Period of less than two and
one-half (2 1/2) months or more than three and one-half (3 1/2) months in
duration, (a) the dollar amount in Section 8.1 shall be determined by
multiplying $416.67 by the number of months in the Offering Period and rounding
to the nearest whole dollar, and (b) the Per Offering Share Limit shall be
determined by multiplying 41.67 shares by the number of months in the Offering
Period and rounding to the nearest whole share. For purposes of the preceding
sentence, fractional months shall be rounded to the nearest whole month.
6
<PAGE> 7
9. PURCHASE PRICE. The Purchase Price at which each share of Stock may be
acquired in a given Offering Period pursuant to the exercise of all or any
portion of a Purchase Right granted under the Plan shall be set by the Board;
provided, however, that the Purchase Price shall not be less than one hundred
percent (100%) of the lesser of (a) the Fair Market Value of a share of Stock on
the Offering Date of the Offering Period, or (b) the Fair Market Value of a
share of Stock on the Purchase Date of the Offering Period. Unless otherwise
provided by the Board prior to the commencement of an Offering Period, the
Purchase Price for that Offering Period shall be one hundred percent (100%) of
the lesser of (a) the Fair Market Value of a share of Stock on the Offering
Date, or (b) the Fair Market Value of a share of Stock on the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION. Shares of
Stock which are acquired pursuant to the exercise of all or any portion of a
Purchase Right for an Offering Period may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the Offering
Period. Except as set forth below, the amount of Compensation to be deducted
from a Participant's Compensation during each pay period shall be determined by
the Participant's subscription agreement.
10.1 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall
commence on the first payday following the Offering Date and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
in the Plan.
10.2 LIMITATIONS ON PAYROLL DEDUCTIONS. The amount of payroll
deductions with respect to the Plan for any Participant during any pay period
shall be in one percent (1%) increments not to exceed ten percent (10%) of the
Participant's Compensation for such pay period. Notwithstanding the foregoing,
the Board may change the limits on payroll deductions effective as of a future
Offering Date, as determined by the Board. Amounts deducted from Compensation
shall be reduced by any amounts contributed by the Participant and applied to
the purchase of Company stock pursuant to any other employee stock purchase plan
qualifying under Section 423 of the Code.
10.3 ELECTION TO DECREASE OR STOP PAYROLL DEDUCTIONS. During an
Offering Period, a Participant may elect to decrease the amount deducted or stop
deductions from his or her Compensation by filing an amended subscription
agreement with the Company on or before the "Change Notice Date." The "CHANGE
NOTICE DATE" shall initially be the seventh (7th) day prior to the end of the
first pay period for which such election is to be effective; however, the
Company may change such Change Notice Date from time to time. A Participant may
not elect to increase the amount deducted from the Participant's Compensation
during an Offering Period.
10.4 PARTICIPANT ACCOUNTS. Individual Plan accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such account and shall be deposited with the
7
<PAGE> 8
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
10.5 NO INTEREST PAID. Interest shall not be paid on sums deducted
from a Participant's Compensation pursuant to the Plan.
10.6 COMPANY ESTABLISHED PROCEDURES. The Company may, from time to
time, establish or change (a) a minimum required payroll deduction amount for
participation in an Offering, (b) limitations on the frequency or number of
changes in the rate of payroll deduction during an Offering, (c) an exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars, (d)
payroll deduction in excess of or less than the amount designated by a
Participant in order to adjust for delays or mistakes in the Company's
processing of subscription agreements, (e) the date(s) and manner by which the
Fair Market Value of a share of Stock is determined for purposes of
administration of the Plan, or (f) such other limitations or procedures as
deemed advisable by the Company in the Company's sole discretion which are
consistent with the Plan and in accordance with the requirements of Section 423
of the Code.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Offering or
whose participation in the Offering has not terminated on or before such
Purchase Date shall automatically acquire pursuant to the exercise of the
Participant's Purchase Right the number of whole shares of Stock arrived at by
dividing the total amount of the Participant's accumulated payroll deductions
for the Offering Period not previously applied toward the purchase of Stock by
the Purchase Price; provided, however, in no event shall the number of shares
purchased by the Participant during an Offering Period exceed the number of
shares subject to the Participant's Purchase Right. No shares of Stock shall be
purchased on a Purchase Date on behalf of a Participant whose participation in
the Offering or the Plan has terminated on or before such Purchase Date.
11.2 RETURN OF CASH BALANCE. Any cash balance remaining in the
Participant's Plan account shall be refunded to the Participant as soon as
practicable after the Purchase Date. In the event the cash to be returned to a
Participant pursuant to the preceding sentence is an amount less than the amount
necessary to purchase a whole share of Stock, the Company may establish
procedures whereby such cash is maintained in the Participant's Plan account and
applied toward the purchase of shares of Stock in the subsequent Offering Period
(or Purchase Period, as the case may be).
11.3 TAX WITHHOLDING. At the time a Participant's Purchase Right is
exercised, in whole or in part, or at the time a Participant disposes of some or
all of the shares of Stock he or she acquires under the Plan, the Participant
shall make adequate provision for the foreign, federal, state and local tax
withholding
8
<PAGE> 9
obligations of the Participating Company Group, if any, which arise upon
exercise of the Purchase Right or upon such disposition of shares, respectively.
The Participating Company Group may, but shall not be obligated to, withhold
from the Participant's compensation the amount necessary to meet such
withholding obligations.
11.4 EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's
Purchase Right remaining unexercised after the end of the Offering Period to
which such Purchase Right relates shall expire immediately upon the end of such
Offering Period.
12. LIMITATIONS ON PURCHASE OF SHARES; RIGHTS AS A STOCKHOLDER.
12.1 FAIR MARKET VALUE LIMITATION. Notwithstanding any other
provision of the Plan, no Participant shall be entitled to purchase shares of
Stock under the Plan (or any other employee stock purchase plan which is
intended to meet the requirements of Section 423 of the Code sponsored by the
Company or a Parent Corporation or Subsidiary Corporation at a rate which
exceeds $25,000 in Fair Market Value, which Fair Market Value is determined for
shares purchased during a given Offering Period as of the Offering Date for such
Offering Period (or such other limit as may be imposed by the Code), for each
calendar year in which the Participant participates in the Plan (or any other
employee stock purchase plan described in this sentence).
12.2 PRO RATA ALLOCATION. In the event the number of shares of Stock
which might be purchased by all Participants in the Plan exceeds the number of
shares of Stock available in the Plan, the Company shall make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Company shall determine to be equitable.
12.3 RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have
no rights as a stockholder by virtue of the Participant's participation in the
Plan until the date of the issuance of a stock certificate for the shares of
Stock being purchased pursuant to the exercise of the Participant's Purchase
Right. No adjustment shall be made for cash dividends or distributions or other
rights for which the record date is prior to the date such stock certificate is
issued. Nothing herein shall confer upon a Participant any right to continue in
the employ of the Participating Company Group or interfere in any way with any
right of the Participating Company Group to terminate the Participant's
employment at any time.
12.4 RESTRICTION ON RESALE OF SHARES. A Participant may not, for a
period of three (3) months from the Purchase Date, offer to sell, sell, contract
to sell, grant any option to purchase, assign, transfer, pledge, encumber or
otherwise sell or dispose of any shares of Stock acquired pursuant to the
exercise of a Purchase Right on such Purchase Date. Notwithstanding the
foregoing, a Participant may transfer any or all of such shares of Stock by gift
or pursuant to the laws of descent and distribution; provided, however, that in
any such case it shall be a condition to the
9
<PAGE> 10
transfer that the transferee execute an agreement stating that the transferee is
receiving and holding such shares of Stock subject to the provisions of this
Section 12.4, and there shall be no further transfer of such shares except in
accordance with this Section 12.4.
13. WITHDRAWAL.
13.1 WITHDRAWAL FROM AN OFFERING. A Participant may withdraw from an
Offering by signing and delivering to the Company's payroll or other designated
office a written notice of withdrawal on a form provided by the Company for such
purpose. Such withdrawal may be elected at any time prior to the end of an
Offering Period; provided, however, if a Participant withdraws after a Purchase
Date, the withdrawal shall not affect shares of Stock acquired by the
Participant on such Purchase Date. Unless otherwise indicated, withdrawal from
an Offering shall not result in a withdrawal from the Plan or any succeeding
Offering therein. A Participant is prohibited from again participating in an
Offering at any time following withdrawal from such Offering. The Company may
impose, from time to time, a requirement that the notice of withdrawal be on
file with the Company's payroll office or other designated office for a
reasonable period prior to the effectiveness of the Participant's withdrawal
from an Offering.
13.2 WITHDRAWAL FROM THE PLAN. A Participant may withdraw from the
Plan by signing and delivering to the Company's payroll office or other
designated office a written notice of withdrawal on a form provided by the
Company for such purpose. Withdrawals made after a Purchase Date shall not
affect shares of Stock acquired by the Participant on such Purchase Date. In the
event a Participant voluntarily elects to withdraw from the Plan, the
Participant may not resume participation in the Plan during the same Offering
Period, but may participate in any subsequent Offering under the Plan by again
satisfying the requirements of Sections 5 and 7.1. The Company may impose, from
time to time, a requirement that the notice of withdrawal be on file with the
Company's payroll office or other designated office for a reasonable period
prior to the effectiveness of the Participant's withdrawal from the Plan.
13.3 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's withdrawal
from an Offering or the Plan pursuant to Sections 13.1 or 13.2, respectively,
the Participant's accumulated payroll deductions which have not been applied
toward the purchase of shares of Stock shall be returned as soon as practicable
after the withdrawal, without the payment of any interest, to the Participant,
and the Participant's interest in the Offering or the Plan, as applicable, shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
13.4 WAIVER OF WITHDRAWAL RIGHT. The Company may, from time to time,
establish a procedure pursuant to which a Participant may elect, at least six
(6) months prior to a Purchase Date, to have all payroll deductions accumulated
in his or her Plan account as of such Purchase Date applied to purchase shares
of Stock under
10
<PAGE> 11
the Plan, and (a) to waive his or her right to withdraw from the Offering or the
Plan and (b) to waive his or her right to increase, decrease, or cease payroll
deductions under the Plan from his or her Compensation during the period ending
on such Purchase Date. Such election shall be made in writing on a form provided
by the Company for such purpose and must be delivered to the Company not later
than the close of business on the day preceding the date which is six (6) months
before the Purchase Date for which such election is to first be effective.
14. TERMINATION OF EMPLOYMENT OR ELIGIBILITY. Termination of a
Participant's employment with a Participating Company for any reason, including
retirement, disability or death or the failure of a Participant to remain an
Eligible Employee, shall terminate the Participant's participation in the Plan
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned to a
Participant pursuant to this Section 14. A Participant whose participation has
been so terminated may again become eligible to participate in the Plan by again
satisfying the requirements of Sections 5 and 7.1.
15. TRANSFER OF CONTROL.
15.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company a party; (iii) the sale, exchange, or transfer of all or substantially
all of the assets of the Company; or (iv) a liquidation or dissolution of the
Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or
11
<PAGE> 12
exchanges of the voting stock of the Company or multiple Ownership Change Events
are related, and its determination shall be final, binding and conclusive.
15.2 EFFECT OF TRANSFER OF CONTROL ON PURCHASE RIGHTS. In the event
of a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may assume the Company's rights and obligations under the Plan or
substitute substantially equivalent Purchase Rights for stock of the Acquiring
Corporation. If the Acquiring Corporation elects not to assume or substitute for
the outstanding Purchase Rights, the Board may, in its sole discretion and
notwithstanding any other provision herein to the contrary, adjust the Purchase
Date of the then current Purchase Period to a date on or before the date of the
Transfer of Control, but shall not adjust the number of shares of Stock subject
to any Purchase Right. All Purchase Rights which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Purchase Rights immediately prior to an Ownership Change
Event described in Section 15.1(a)(i) constituting a Transfer of Control is the
surviving or continuing corporation and immediately after such Ownership Change
Event less than fifty percent (50%) of the total combined voting power of its
voting stock is held by another corporation or by other corporations that are
members of an affiliated group within the meaning of section 1504(a) of the Code
without regard to the provisions of section 1504(b) of the Code, the outstanding
Purchase Rights shall not terminate unless the Board otherwise provides in its
sole discretion.
16. NONTRANSFERABILITY OF PURCHASE RIGHTS. A Purchase Right may not be
transferred in any manner otherwise than by will or the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. The Company, in its absolute discretion, may impose
such restrictions on the transferability of the shares purchasable upon the
exercise of a Purchase Right as it deems appropriate and any such restriction
shall be set forth in the respective subscription agreement and may be referred
to on the certificates evidencing such shares.
17. REPORTS. Each Participant who exercised all or part of his or her
Purchase Right shall receive, as soon as practicable after the Purchase Date, a
report of such Participant's Plan account setting forth the total payroll
deductions accumulated, the number of shares of Stock purchased, the Purchase
Price for such shares, the date of purchase and the remaining cash balance to be
refunded or retained in the Participant's Plan account pursuant to Section 11.2,
if any. Each Participant shall be provided information concerning the Company
equivalent to that information generally made available to the Company's common
stockholders.
18. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares under the
Plan shall be subject to compliance with all applicable requirements of foreign,
federal or
12
<PAGE> 13
state law with respect to such securities. A Purchase Right may not be exercised
if the issuance of shares upon such exercise would constitute a violation of any
applicable foreign, federal or state securities laws or other law or
regulations. In addition, no Purchase Right may be exercised unless (a) a
registration statement under the Securities Act of 1933, as amended, shall at
the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares under the Plan shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of a
Purchase Right, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation, and to make any representation or warranty
with respect thereto as may be requested by the Company.
19. LEGENDS. The Company may at any time place legends or other
identifying symbols referencing any applicable foreign, federal or state
securities law restrictions or any provision convenient in the administration of
the Plan on some or all of the certificates representing shares of Stock issued
under the Plan. The Participant shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to a Purchase Right in the possession of the Participant in order to
carry out the provisions of this Section . Unless otherwise specified by the
Company, legends placed on such certificates may include but shall not be
limited to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE
REGISTERED HOLDER HEREOF MADE ON OR BEFORE
, 19 . THE REGISTERED HOLDER SHALL HOLD ALL SHARES
PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND
NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE."
20. NOTIFICATION OF SALE OF SHARES. The Company may require the
Participant to give the Company prompt notice of any disposition of shares
acquired by exercise of a Purchase Right within two years from the date of
granting such Purchase Right or one year from the date of exercise of such
Purchase Right. The Company may require that until such time as a Participant
disposes of shares acquired upon exercise of a Purchase Right, the Participant
shall hold all such shares in the Participant's name (and not in the name of any
nominee) until the lapse of the
13
<PAGE> 14
time periods with respect to such Purchase Right referred to in the preceding
sentence. The Company may direct that the certificates evidencing shares
acquired by exercise of a Purchase Right refer to such requirement to give
prompt notice of disposition.
21. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time amend
or terminate the Plan, except that (a) such termination shall not affect
Purchase Rights previously granted under the Plan, except as permitted under the
Plan, and (b) no amendment may adversely affect a Purchase Right previously
granted under the Plan (except to the extent permitted by the Plan or as may be
necessary to qualify the Plan as an employee stock purchase plan pursuant to
Section 423 of the Code or to obtain qualification or registration of the shares
of Stock under applicable foreign, federal or state securities laws). In
addition, an amendment to the Plan must be approved by the stockholders of the
Company within twelve (12) months of the adoption of such amendment if such
amendment would authorize the sale of more shares than are authorized for
issuance under the Plan or would change the definition of the corporations that
may be designated by the Board as Participating Companies.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Raytel Medical Corporation 1996 Employee Stock Purchase Plan
was duly adopted by the Board of Directors of the Company on May 8, 1996.
/s/ Michael O. Kokesh, Esq.
____________________________________
Secretary
14
<PAGE> 1
EXHIBIT 10.42
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED
AS OF
AUGUST 14, 1996
BY AND AMONG
RAYTEL MEDICAL CORPORATION,
BANK OF BOSTON CONNECTICUT
AND
THE OTHER LENDERS WHICH ARE OR MAY BECOME PARTIES HERETO
AND
BANK OF BOSTON CONNECTICUT, AS AGENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. DEFINITIONS ............................................................. 1
Section 1.1. Terms Defined ............................................. 1
Section 1.2. Rules of Interpretation ................................... 1
Section 2. THE REVOLVING CREDIT FACILITY ........................................... 1
Section 2.1. Commitment to Lend ........................................ 2
Section 2.2. Revolving Credit Commitment Fee ........................... 2
Section 2.3. Reduction of Commitments .................................. 2
Section 2.4. The Notes ................................................. 3
Section 2.5. Interest on Revolving Credit Loans ........................ 3
Section 2.6. Requests for Revolving Credit Loans ....................... 4
Section 2.7. Conversion Options ........................................ 5
Section 2.8. Funds for Revolving Credit Loans .......................... 6
Section 3. REPAYMENT OF THE REVOLVING CREDIT LOANS ................................. 7
Section 3.1. Termination of Commitments ................................ 7
Section 3.2. Mandatory Repayments of Revolving Credit Loans ............ 8
Section 3.3. Optional Repayments of Revolving Credit Loans ............. 8
Section 3.4. Application of Principal Payments ......................... 8
Section 4. THE TERM LOAN ........................................................... 9
Section 4.1. Conversion of Revolving Credit Loans ...................... 9
Section 4.2. Schedule of Installment Payments of Principal of Term Loan 9
Section 4.3. Optional Prepayment of Term Loan .......................... 9
Section 4.4. Interest on Term Loan ..................................... 10
Section 4.5. Conversion Options ........................................ 10
Section 5. CERTAIN GENERAL PROVISIONS .............................................. 12
Section 5.1. Agent's Fee ............................................... 12
Section 5.2. Intentionally Omitted ..................................... 12
Section 5.3. Funds for Payments ........................................ 12
Section 5.4. Computations .............................................. 13
Section 5.5. Inability to Determine LIBOR Rate ......................... 13
Section 5.6. Illegality ................................................ 13
Section 5.7. Additional Costs, Etc ..................................... 14
Section 5.8. Capital Adequacy .......................................... 15
Section 5.9. Certificate ............................................... 16
Section 5.10. Indemnity ................................................ 16
Section 5.11. Interest After Default ................................... 16
Section 5.12. Withholding Tax Exemption ................................ 17
Section 6. COLLATERAL SECURITY AND GUARANTEES ...................................... 17
Section 7. REPRESENTATIONS AND WARRANTIES .......................................... 18
Section 7.1. Corporate Authority ....................................... 18
Section 7.2. Subsidiaries .............................................. 19
Section 7.3. Governmental Approvals .................................... 20
Section 7.4. Title to Properties ....................................... 20
Section 7.5. Financial Statements ...................................... 20
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 7.6. Acquisition Asset Financial Statements .................. 21
Section 7.7. No Material Changes, Etc ................................ 21
Section 7.8. Franchises, Patents, Copyrights, Etc .................... 21
Section 7.9. Litigation .............................................. 22
Section 7.10. No Materially Adverse Contracts, Etc .................... 22
Section 7.11. Compliance With Other Instruments, Laws, Etc ............ 22
Section 7.12. Tax Status .............................................. 23
Section 7.13. No Event of Default ..................................... 23
Section 7.14. Holding Company and Investment Company Acts ............. 23
Section 7.15. Absence of Financing Statements, Etc .................... 23
Section 7.16. Perfection of Security Interest ......................... 23
Section 7.17. Certain Transactions .................................... 24
Section 7.18. Employee Benefit Plans .................................. 24
Section 7.19. Regulations G, T, U and X ............................... 25
Section 7.20. Environmental Compliance ................................ 25
Section 7.21. Fiscal Year ............................................. 27
Section 7.22. Medicare Qualifications ................................. 27
Section 7.23. Recoupment .............................................. 28
Section 7.24. Other Representations ................................... 28
Section 8. AFFIRMATIVE COVENANTS OF THE BORROWER .................................. 28
Section 8.1. Punctual Payment ........................................ 28
Section 8.2. Maintenance of Office ................................... 28
Section 8.3. Records and Accounts .................................... 28
Section 8.4. Financial Statements, Certificates and Information ...... 29
Section 8.5. Notices ................................................. 30
Section 8.6. Corporate Existence ..................................... 31
Section 8.7. Maintenance of Properties ............................... 31
Section 8.8. Insurance ............................................... 31
Section 8.9. Taxes ................................................... 32
Section 8.10. Inspection of Properties and Books ...................... 32
Section 8.11. Compliance with Laws, Contracts, Licenses, and Permits. 33
Section 8.12. Employee Benefit Plans .................................. 33
Section 8.13. Use of Proceeds ......................................... 33
Section 8.14. Further Assurances ...................................... 34
Section 9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER ............................. 34
Section 9.1. Restrictions on Indebtedness ............................ 34
Section 9.2. Restrictions on Liens ................................... 35
Section 9.3. Restrictions on Investments ............................. 37
Section 9.4. Distributions ........................................... 38
Section 9.5. Merger, Consolidation and Disposition of Assets ......... 38
Section 9.6. Sale and Leaseback ...................................... 39
Section 9.7. Compliance with Environmental Laws ...................... 39
Section 9.8. Employee Benefit Plans .................................. 39
Section 9.9. Medicare Qualification .................................. 40
Section 9.10. Amendment or Modification of Acquisition Documents ...... 40
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 9.11. Change of Fiscal Year ................................................. 40
Section 10. FINANCIAL COVENANTS OF THE BORROWER .................................................. 40
Section 10.1. Consolidated Operating Cash Flow to Total Interest Expense ............ 40
Section 10.2. Consolidated Operating Cash Flow to Consolidated Financial Obligations 40
Section 10.3. Consolidated Total Funded Debt to Consolidated Operating Cash Flow .... 41
Section 11. CLOSING CONDITIONS ................................................................... 41
Section 11.1. Loan Documents ........................................................ 41
Section 11.2. Certified Copies of Charter Documents ................................. 41
Section 11.3. Corporate Action ...................................................... 41
Section 11.4. Incumbency Certificate ................................................ 41
Section 11.5. Legality of Transactions .............................................. 41
Section 11.6. Validity of Liens ..................................................... 42
Section 11.7. UCC Search Results .................................................... 42
Section 11.8. Landlord Consents ..................................................... 42
Section 11.9. Certificates of Insurance ............................................. 42
Section 11.10. Discharge of Liens .................................................... 42
Section 11.11. Intentionally Omitted ................................................. 42
Section 11.12. Proceedings and Documents ............................................. 42
Section 11.13. Intentionally Omitted ................................................. 43
Section 11.14. Opinions of Counsel ................................................... 43
Section 11.15. Capital Structure ..................................................... 43
Section 11.16. Financial Condition ................................................... 43
Section 11.17. Solvency Certificate .................................................. 43
Section 12. ACQUISITION CREDIT LOAN CLOSING CONDITIONS ........................................... 43
Section 12.1. Acquisition Documents ................................................. 43
Section 12.2. Corporate Action ...................................................... 44
Section 12.3. Discharge of Liens .................................................... 44
Section 12.4. Proceedings and Documents ............................................. 44
Section 12.5. Closing of Acquisition ................................................ 44
Section 12.6. Opinions of Counsel ................................................... 44
Section 12.7. Capital Structure ..................................................... 45
Section 12.8. Financial Condition ................................................... 45
Section 12.9. Additional Guaranty ................................................... 45
Section 12.10. Approvals ............................................................. 45
Section 12.11. Pro Forma Cash Flow ................................................... 45
Section 12.12. Purchase Price ........................................................ 46
Section 12.13. Pro Forma Funded Debt ................................................. 46
Section 12.14. Other Conditions ...................................................... 46
Section 12A.CONDITIONS TO ALL BORROWINGS ......................................................... 46
Section 12A.1 Representations True; No Event of Default ............................. 46
Section 12A.2 No Legal Impediment ................................................... 46
Section 12A.3 Governmental Regulation ............................................... 47
Section 12A.4 Proceedings and Documents ............................................. 47
Section 13. EVENTS OF DEFAULT; ACCELERATION: ETC ................................................. 47
Section 13.1. Events of Default and Acceleration .................................... 47
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Section 13.2. Termination of Commitments .......................................... 50
Section 13.3. Remedies; Rights Under Security Documents ........................... 50
Section 13.4. Distribution of Collateral Proceeds ................................. 51
Section 14. SETOFF.......................................................................... 52
Section 15. THE AGENT....................................................................... 53
Section 15.1. Authorization ....................................................... 53
Section 15.2. Employees and Agents ................................................ 53
Section 15.3. No Liability ........................................................ 53
Section 15.4. No Representations .................................................. 53
Section 15.5. Payments ............................................................ 54
Section 15.6. Holders of Notes .................................................... 55
Section 15.7. Indemnity ........................................................... 55
Section 15.8. Agent as Bank ....................................................... 55
Section 15.9. Resignation ......................................................... 55
Section 15.10. Notification of Defaults and Events of Default ..................... 56
Section 15.11. Duties in the Case of Enforcement .................................. 56
Section 16. EXPENSES........................................................................ 56
Section 17. INDEMNIFICATION................................................................. 57
Section 18. SURVIVAL OF COVENANTS, ETC...................................................... 58
Section 19. ASSIGNMENT AND PARTICIPATION.................................................... 58
Section 19.1. Conditions to Assignment by Banks ................................... 58
Section 19.2. Certain Representations and Warranties; Limitations; Covenants....... 59
Section 19.3. Register ............................................................ 60
Section 19.4. New Notes ........................................................... 60
Section 19.5. Participations ...................................................... 60
Section 19.6. Disclosure .......................................................... 61
Section 19.7. Assignee or Participant Affiliated with the Borrower ................ 61
Section 19.8. Miscellaneous Assignment Provisions ................................. 61
Section 19.9. Assignment by Borrower .............................................. 62
Section 20. NOTICES, ETC.................................................................... 62
Section 21. GOVERNING LAW................................................................... 63
Section 22. HEADINGS........................................................................ 63
Section 23. COUNTERPARTS.................................................................... 63
Section 24. ENTIRE AGREEMENT, ETC........................................................... 63
Section 25. WAIVER OF JURY TRIAL............................................................ 63
Section 26. CONSENTS, AMENDMENTS, WAIVERS, ETC.............................................. 64
Section 27. SEVERABILITY.................................................................... 64
Section 28. WAIVERS BY BORROWER............................................................. 64
Section 29. COMMERCIAL TRANSACTION; PREJUDGMENT REMEDY WAIVER............................... 65
Section 30. EFFECTIVE DATE.................................................................. 65
</TABLE>
SCHEDULES
<PAGE> 6
Schedule 1 Lending Institutions
Schedule 2 Definitions and Rules of Interpretation
Schedule 7.2 Subsidiaries
Schedule 7.4 Assets Owned
Schedule 7.7 Material Changes
Schedule 7.9 Litigation
Schedule 7.10 Materially Adverse Contracts, Etc.
Schedule 7.11 Compliance with Other Instruments, Laws, Etc.
Schedule 7.12 Tax Status
Schedule 7.17 Certain Transactions
Schedule 7.20 Environmental Compliance
Schedule 9.1 Indebtedness
Schedule 9.2 Liens
Schedule 9.3 Investments
EXHIBITS
Exhibit A Form of Notes
Exhibit B Form of Request for Revolving Credit Loans
Exhibit C Intentionally omitted
Exhibit D Form of Assignment and Acceptance
Exhibit E Form of Compliance Certificate
<PAGE> 7
AMENDED AND RESTATED
CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is made as of the 14th day
of August, 1996, by and among RAYTEL MEDICAL CORPORATION (the "BORROWER"), a
Delaware corporation having its principal place of business at 2755 Campus
Drive, San Mateo, California 94403, and BANK OF BOSTON CONNECTICUT and the other
lending institutions listed on Schedule 1 attached hereto (collectively, the
"BANKS") and BANK OF BOSTON CONNECTICUT as agent for itself and the other Banks
(the "AGENT").
W I T N E S S E T H
WHEREAS, pursuant to a Credit Agreement dated as of February 26, 1993,
as amended, modified, or supplemented from time to time (the "ORIGINAL LOAN
AGREEMENT"), the Agent and Internationale Nederlanden [U.S.] Capital Corporation
have made loans (the "EXISTING INDEBTEDNESS") to the Borrower for the purposes
described therein; and
WHEREAS, the Agent and each of the Banks have agreed to make loans and
other extensions of credit to the Borrower for the purpose of (i) refinancing or
replacing the Existing Indebtedness, (ii) financing Acquisitions (as hereinafter
defined) and (iii) providing the Borrower with working capital.
NOW, THEREFORE, the Borrower, the Banks and the Agent agree that as of
the Effective Date (as hereinafter defined) the Original Loan Agreement shall be
amended and restated in its entirety as set forth herein.
SECTION 1. DEFINITIONS.
SECTION 1.1. TERMS DEFINED. Except as otherwise expressly
provided herein, all capitalized terms used in this Credit Agreement,
the exhibits hereto and any notes, certificates, reports or other
documents or instruments made or delivered pursuant to or in connection
with this Credit Agreement shall have the meanings set forth for such
terms in Schedule 2 hereto.
SECTION 1.2. RULES OF INTERPRETATION. Except as otherwise
expressly provided herein, the rules of interpretation set forth in
Schedule 2 hereto shall apply to this Credit Agreement, the exhibits
hereto and any notes, certificates, reports or other documents or
instruments made or delivered pursuant to or in connection with this
Credit Agreement.
SECTION 2. THE REVOLVING CREDIT FACILITY.
SECTION 2.1. COMMITMENT TO LEND. Subject to the terms and
conditions set forth in this Credit Agreement, each of the Banks agrees
severally to lend to the Borrower and the Borrower may borrow, repay,
and reborrow from time to time between the Effective Date and the
Revolving Credit Termination Date upon notice by the Borrower to the
Agent given
<PAGE> 8
-2-
in accordance with Section 2.6, such sums as are requested by the
Borrower up to a maximum aggregate amount outstanding (after giving
effect to all amounts requested) at any one time equal to such Bank's
Commitment, provided that the sum of the outstanding amount of the
Revolving Credit Loans (after giving effect to all amounts requested)
shall not at any time exceed the Total Commitment. The Revolving Credit
Loans shall be made pro rata in accordance with each Bank's Commitment
Percentage. Each request for a Revolving Credit Loan hereunder shall
constitute a representation and warranty by the Borrower that the
conditions set forth in Section 11 and Section 12A, in the case of the
initial Revolving Credit Loans to be made on the Effective Date,
Sections 12 and 12A in the case of a Revolving Credit Loan which
is an Acquisition Credit Loan and Section 12A, in the case of all other
Revolving Credit Loans, have been satisfied on the date of such
request.
SECTION 2.2. REVOLVING CREDIT COMMITMENT FEE. The Borrower
agrees to pay to the Agent for the accounts of the Banks in accordance
with their respective Commitment Percentages a commitment fee
calculated at the rate of one-quarter of one percent (1/4%) per annum
on the average daily amount during each calendar quarter or portion
thereof from the Effective Date to the Revolving Credit Termination
Date by which the Total Commitment exceeds the outstanding aggregate
amount of Revolving Credit Loans during such calendar quarter. Such
commitment fee shall be payable quarterly in arrears on the first day
of each calendar quarter for the immediately preceding calendar
quarter, commencing on the first such date following the Effective
Date, with a final payment on the Revolving Credit Termination Date or
any earlier date on which the Commitments shall terminate.
SECTION 2.3. REDUCTION OF COMMITMENTS. The Borrower shall have
the right at any time and from time to time upon five (5) Business
Days' prior written notice to the Agent to reduce by $300,000 or any
greater integral multiple of $100,000 or terminate entirely the Total
Commitment, whereupon the Commitments of the Banks shall be reduced pro
rata in accordance with their respective Commitment Percentages of the
amount specified in such notice or, as the case may be, terminated.
Promptly after receiving any notice of the Borrower delivered pursuant
to this Section 2.3, the Agent will notify the Banks of the substance
thereof. Upon the effective date of any such reduction or termination,
the Borrower shall pay to the Agent for the respective accounts of the
Banks the full amount of any commitment fee then accrued under
Section 2.2 hereof on the amount of the reduction. No reduction or
termination of the Commitments may be reinstated.
SECTION 2.4. THE NOTES. The Revolving Credit Loans, together
with the Term Loan, shall be evidenced by separate promissory notes of
the Borrower in substantially the form of Exhibit A hereto (each a
"NOTE"), dated as of the Effective Date and completed with appropriate
insertions. One Note shall be payable to the order of each Bank in a
principal amount equal to such Bank's Commitment. The Borrower
irrevocably authorizes each Bank to make or cause to be made, at or
about the time of the Drawdown Date of any Revolving Credit Loan or at
the time of receipt of any payment of principal on such Bank's Note, an
appropriate notation on such Bank's Note Record reflecting the making
of such Revolving Credit Loan or (as the case may be) the receipt of
such payment. The outstanding amount of the Revolving Credit Loans and
the Term Loan set forth on such Note Record shall be prima
<PAGE> 9
-3-
facie evidence of the principal amount thereof owing and unpaid to such
Bank, but the failure to record, or any error in so recording, any such
amount on any Note Record shall not limit or otherwise affect the
obligations of the Borrower hereunder or under any Note to make
payments of principal of or interest on any Note when due.
SECTION 2.5. INTEREST ON REVOLVING CREDIT LOANS. Except as
otherwise provided in Section 5.11,
(a) Each Revolving Credit Base Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the last
day of each Interest Period with respect thereto at the Base Rate plus
the Applicable Base Rate Margin. With respect to each Revolving Credit
Base Rate Loan (and any portion of the Term Loan bearing interest at an
interest rate determined by reference to the Base Rate) and each fiscal
quarter of the Borrower, the Applicable Base Rate Margin will be
determined by the Agent after review of the Leverage Ratio and the Debt
Service Coverage Ratio of the Borrower and its Subsidiaries for the
period of four (4) consecutive fiscal quarters ending on the fiscal
last day of the quarter immediately preceding such fiscal quarter, all
as follows:
<TABLE>
<CAPTION>
DEBT SERVICE LEVERAGE RATIO APPLICABLE BASE RATE
COVERAGE RATIO MARGIN
<S> <C> <C>
Less than 1.7:1.0 Greater than 1.5:1.0 .50%
Greater than or equal to Less than or equal to 1.5 0.25%
1.7:1.0 but less than or equal but greater than or equal to
to 1.9:1.0 1.0:1.0
Greater than 1.9:1.0 Less than 1.0:1.0 0.00%
</TABLE>
The Agent will determine the Applicable Base Rate Margin for each
fiscal quarter on the forty-fifth (45th) day following the last day of the
immediately preceding fiscal quarter by reference to the financial statements
delivered to the Agent and the Banks by the Borrower in accordance with the
terms hereof with respect to the period of four (4) consecutive fiscal quarters
ending on such immediately preceding fiscal quarter. The Leverage Ratio and the
Debt Service Coverage Ratio for such period of four (4) consecutive fiscal
quarters must meet both of the above referenced thresholds for any decrease in
the Applicable Base Rate Margin to occur.
(b) Each Revolving Credit LIBOR Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the last
day of each Interest Period with respect thereto at the LIBOR Rate
determined for such Interest Period plus the Applicable LIBOR Rate
Margin. With respect to each Revolving Credit LIBOR Rate Loan (and any
portion of the Term Loan bearing interest at an interest rate
determined by reference to the LIBOR Rate) and each fiscal quarter of
the Borrower, the Applicable LIBOR Rate Margin will be determined by
the Agent after review of the Leverage Ratio and the Debt Service
Coverage Ratio of
<PAGE> 10
-4-
the Borrower and its Subsidiaries for the period of four (4)
consecutive fiscal quarters ending on the immediately preceding fiscal
quarter, all as follows:
<TABLE>
<CAPTION>
DEBT SERVICE LEVERAGE RATIO APPLICABLE LIBOR
COVERAGE RATIO RATE MARGIN
<S> <C> <C>
Less than 1.7:1.0 Greater than 1.5:1.0 2.00%
Greater than or Less than or equal 1.75%
equal to 1.7:1.0 but to 1.5 but greater
less than or equal than or equal to
to 1.9:1.0 1.0:1.0
Greater than 1.9:1.0 Less than 1.0:1.0 1.50%
</TABLE>
The Agent will determine the Applicable LIBOR Rate Margin for each
fiscal quarter on the forty-fifth (45th) day following the last day of the
immediately preceding fiscal quarter by reference to the financial statements
delivered to the Agent and the Banks by the Borrower in accordance with the
terms hereof with respect to the period of four (4) consecutive fiscal quarters
ending on such immediately preceding fiscal quarter. Both the Leverage Ratio and
the Debt Service Coverage Ratio for the period of four (4) consecutive fiscal
quarters must meet both of the above referenced thresholds for any decrease in
the Applicable LIBOR Rate Margin to occur.
(c)The Borrower promises to pay interest on each Revolving Credit Loan
in arrears on each Interest Payment Date with respect thereto.
SECTION 2.6. REQUESTS FOR REVOLVING CREDIT LOANS. The Borrower
shall give to the Agent written notice in the form of Exhibit B hereto
(or telephonic notice confirmed in a writing in the form of Exhibit B
hereto) of each Revolving Credit Loan requested hereunder (a "REVOLVING
CREDIT LOAN REQUEST") (a) no less than one (1) Business Day prior the
proposed Drawdown Date of any Revolving Credit Loan which is a
Revolving Credit Base Rate Loan and (b) no less than three (3) LIBOR
Business Days prior to the proposed Drawdown Date of any Revolving
Credit Loan which is a Revolving Credit LIBOR Rate Loan. Each such
notice shall specify (i) the principal amount of the Revolving Credit
Loan requested, (ii) the proposed Drawdown Date of such Revolving
Credit Loan, (iii) the Interest Period for such Revolving Credit Loan,
(iv) the Type of such Revolving Credit Loan and (v) whether or not such
Revolving Credit Loan is an Acquisition Credit Loan. Promptly upon
receipt of any such notice, the Agent shall notify each of the Banks
thereof. Each Revolving Credit Loan Request shall be irrevocable and
binding on the Borrower and shall obligate the Borrower to accept the
Revolving Credit Loan requested from the Banks on the proposed Drawdown
Date. Each Revolving Credit Loan Request shall be in a minimum
aggregate amount of (1) $1,000,000 or an integral multiple thereof for
any Revolving Credit LIBOR Rate Loan and (2) $100,000 or an integral
multiple thereof for any Revolving Credit Base Rate Loan. Each request
for an Acquisition Credit Loan hereunder shall constitute a
representation and warranty by the Borrower that the conditions set
forth in Section 12 and Section 12A have been satisfied on the date of
such request. Each request for a Revolving Credit Loan (other than an
Acquisition Loan) shall constitute a representation and warranty by the
<PAGE> 11
-5-
Borrower that the conditions set forth in Section 11 and Section 12A
have been satisfied on the date of such request.
SECTION 2.7. CONVERSION OPTIONS.
(a) The Borrower may elect from time to time to convert any
outstanding Revolving Credit Loan to a Revolving Credit Loan of another
Type, provided that (i) with respect to any such conversion of a
Revolving Credit LIBOR Rate Loan to a Revolving Credit Base Rate Loan,
the Borrower shall give the Agent at least one (1) Business Days' prior
written notice of such election; (ii) with respect to any such
conversion of a Revolving Credit Base Rate Loan to a Revolving Credit
LIBOR Rate Loan, the Borrower shall give the Agent at least three (3)
LIBOR Business Days' prior written notice of such election; (iii) with
respect to any such conversion of a Revolving Credit LIBOR Rate Loan
into a Revolving Credit Base Rate Loan, such conversion shall only be
made on the last day of the Interest Period with respect thereto and
(iv) no Revolving Credit Base Rate Loan may be converted into a
Revolving Credit LIBOR Rate Loan when any Default or Event of Default
has occurred and is continuing. On the date on which such conversion is
being made each Bank shall take such action as is necessary to transfer
its Commitment Percentage of such Revolving Credit Loans to its
Domestic Lending Office or its LIBOR Lending Office, as the case may
be. All or any part of outstanding Revolving Credit Loans of any Type
may be converted into a Revolving Credit Loan of another Type as
provided herein, provided that (i) any partial conversion shall be in
an aggregate principal amount of $1,000,000 or a whole multiple thereof
and (ii) with respect to Revolving Credit LIBOR Rate Loans, there shall
be no more than three (3) separate Interest Periods in effect at any
one time. Each Conversion Request relating to the conversion of a
Revolving Credit Base Rate Loan to a Revolving Credit LIBOR Rate Loan
shall be irrevocable by the Borrower.
(b) Any Revolving Credit Loan of any Type may be continued as a
Revolving Credit Loan of the same Type upon the expiration of an
Interest Period with respect thereto by compliance by the Borrower with
the notice provisions contained in Section 2.7(a); provided that no
Revolving Credit LIBOR Rate Loan may be continued as such when any
Default or Event of Default has occurred and is continuing, but shall
be automatically converted to a Revolving Credit Base Rate Loan on the
last day of the first Interest Period relating thereto ending during
the continuance of any Default or Event of Default of which officers of
the Agent active upon the Borrower's account have actual knowledge. The
Agent shall notify the Banks promptly when any such automatic
conversion contemplated by this Section 2.7 is scheduled to occur.
(c) Any conversion to or from Revolving Credit LIBOR Rate Loans
shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, the aggregate principal amount of
all Revolving Credit LIBOR Rate Loans
<PAGE> 12
-6-
having the same Interest Period shall not be less than $1,000,000
or a whole multiple of $1,000,000 in excess thereof.
SECTION 2.8. FUNDS FOR REVOLVING CREDIT LOANS.
(a) Not later than 11:00 a.m. (Hartford, Connecticut time) on the
proposed Drawdown Date of any Revolving Credit Loans, each of the Banks
will make available to the Agent, at the Agent's Head Office, in
immediately available funds, the amount of such Bank's Commitment
Percentage of the amount of the requested Revolving Credit Loans. Upon
receipt from each Bank of such amount, and upon receipt of the
documents required by (i) Sections 11 and 12A in the case of the
initial Revolving Credit Loans, (ii) Sections 12 and 12A in the
case of any Revolving Credit Loan which is an Acquisition Credit Loan
and (ii) by Section 12A for all other Revolving Credit Loans, and in
each case upon the reasonable determination by the Majority Banks that
the satisfaction of the other conditions set forth therein has
occurred, to the extent applicable, the Agent will make available to
the Borrower the aggregate amount of such Revolving Credit Loans made
available to the Agent by the Banks. The failure or refusal of any Bank
to make available to the Agent at the aforesaid time and place on any
Drawdown Date the amount of its Commitment Percentage of the requested
Revolving Credit Loans shall not relieve any other Bank from its
several obligation hereunder to make available to the Borrower, in
accordance with the terms and conditions hereof, the amount of such
other Bank's Commitment Percentage of any requested Revolving Credit
Loans.
(b) The Agent may, unless notified to the contrary by any Bank
prior to a Drawdown Date, assume that such Bank has made available to
the Agent on such Drawdown Date the amount of such Bank's Commitment
Percentage of the Revolving Credit Loans to be made on such Drawdown
Date, and the Agent may (but it shall no be required to), in reliance
upon such assumption, make available to the Borrower on such Drawdown
Date a corresponding amount (the Agent hereby agreeing to give notice
to the Borrower of the making of any such advance by it on behalf of
any Bank as soon as practicable thereafter). If any Bank makes
available to the Agent such amount on a date after such Drawdown Date,
such Bank shall pay to the Agent on demand an amount equal to the
product of (i) the average, computed for the period referred to in
clause (iii) below, of the weighted average interest rate paid by the
Agent for federal funds acquired by the Agent during each day included
in such period, times (ii) the amount of such Bank's Commitment
Percentage of such Revolving Credit Loans, times (iii) a fraction, the
numerator of which is the number of days that elapse from and including
such Drawdown Date to the date on which the amount of such Bank's
Commitment Percentage of such Revolving Credit Loans shall become
immediately available to the Agent, and the denominator of which is
365. A statement of the Agent submitted to such Bank with respect to
any amounts owing under this paragraph shall be prima facie evidence of
the amount due and owing to the Agent by such Bank. If the amount of
such Bank's Commitment Percentage of such Revolving Credit Loans is not
made available to the Agent by such Bank within three
<PAGE> 13
- 7 -
(3) Business Days following such Drawdown Date, the Agent shall be
entitled to recover such amount from the Borrower on demand, with
interest thereon at the rate per annum applicable to the Revolving
Credit Loans made on such Drawdown Date.
SECTION 3. REPAYMENT OF THE REVOLVING CREDIT LOANS.
SECTION 3.1. TERMINATION OF COMMITMENTS. The Borrower promises
to pay to the Agent for the account of the Banks in accordance with
their respective Commitment Percentages all amount due and payable
hereunder or under any of the other Loan Documents. All amounts owing
in respect of the Revolving Credit Loans outstanding on the Revolving
Credit Termination Date, including unpaid principal and any and all
accrued and unpaid interest thereon, shall automatically and without
any further act become due and payable on the Revolving Credit
Termination Date unless converted in accordance with the terms of
Section 4.1 hereof.
SECTION 3.2. MANDATORY REPAYMENTS OF REVOLVING CREDIT LOANS.
If at any time and for any reason the outstanding aggregate amount of
the Revolving Credit Loans exceeds the Total Commitment, then the
Borrower shall immediately pay the amount of such excess to the Agent
for the respective accounts of the Banks in accordance with their
respective Commitment Percentages for application to such excess.
SECTION 3.3. OPTIONAL REPAYMENTS OF REVOLVING CREDIT LOANS.
The Borrower shall have the right, at its election, to repay the
outstanding amount of the Revolving Credit Loans, as a whole or in
part, at any time without penalty or premium, provided that any full or
partial prepayment of the outstanding amount of any Revolving Credit
Loans which are Revolving Credit LIBOR Rate Loans pursuant to this
Section 3.3 may be made only on the Last day of the Interest Period
relating thereto. Except as provided for in certain cash management
arrangements between the Borrower and the Agent, the Borrower shall
give the Agent prior written notice (a) no later than 10:00 a.m.,
Hartford time of any proposed prepayment pursuant to this Section 3.3
of Any Revolving Credit Loans which are Revolving Credit Base Rate
Loans, and (b) at least three (3) LIBOR Business Days' notice of any
proposed prepayment pursuant to this Section 3.3 of any Revolving
Credit Loans which are Revolving Credit LIBOR Rate Loans, in each case
specifying the proposed date of prepayment of Revolving Credit Loans
and the principal amount to be prepaid. Each such partial prepayment of
the Revolving Credit Loans shall be in an integral multiple of (1)
$1,000,000 with respect to Revolving Credit LIBOR Rate Loans and (2)
$100,000 with respect to Revolving Credit Base Rate Loans, shall be
accompanied by the payment of accrued interest on the principal prepaid
to the date of prepayment and shall be applied, in the absence of
instruction by the Borrower, first to the principal of Revolving Credit
Base Rate Loans and then to the principal of Revolving Credit LIBOR
Rate Loans or both, at the Agent's option. Each partial prepayment
shall be allocated among the Banks, in proportion, as nearly as
practicable, to the respective unpaid principal amount of each Bank's
Note, with adjustments to the extent practicable to equalize any prior
repayments not exactly in proportion.
<PAGE> 14
- 8 -
SECTION 3.4. APPLICATION OF PRINCIPAL PAYMENTS. Unless an
Event of Default has occurred and is continuing or the Agent has
determined that it is illegal for a Bank to render Revolving Credit
LIBOR Rate Loans, if on the date a principal payment is made with
respect to the Revolving Credit Loans or the Term Loan, as applicable,
interest is calculated both on the basis of the Base Rate and the LIBOR
Rate, then such payment shall be applied first to the Revolving Credit
Loans principal or the Term Loan principal, as applicable, for which
interest is calculated on the basis of the Base Rate (the "BASE RATE
PRINCIPAL"). Unless an Event of Default has occurred and is continuing
or the Agent has determined that it is illegal for a Bank to render
Revolving Credit LIBOR Rate Loans, only when the Base Revolver Rate
Principal is fully paid shall the principal payment be applied to the
Revolving Credit LIBOR Rate Loan(s) principal or the Term Loan
principal bearing interest at a rate determined by reference to the
LIBOR Rate, as applicable. If more than one Revolving Credit LIBOR Rate
Loan is outstanding the principal amount shall be applied to the
Revolving Credit LIBOR Rate Loans in the order of maturity, with the
Revolving Credit LIBOR Rate Loans with the shortest time to maturity
paid first.
SECTION 4. THE TERM LOAN.
SECTION 4.1. CONVERSION OF REVOLVING CREDIT LOANS. As long as
no Default or Event of Default shall have occurred and be continuing,
the outstanding principal amount of the Revolving Credit Loans on the
Revolving Credit Termination Date shall be converted to a term loan
(the "TERM LOAN"). The Term Loan shall be in an original principal
amount equal to the lesser of (a) the Total Commitment in effect on the
Revolving Credit Termination Date and (b) the aggregate principal
amount of the Revolving Credit Loans outstanding on the Revolving
Credit Termination Date. Each Bank will be deemed to have made a loan
to the Borrower on the Revolving Credit Termination Date in the amount
of its Commitment Percentage of the principal amount of the Term Loan
on such date. The Term Loan shall be evidenced by the Notes.
SECTION 4.2. SCHEDULE OF INSTALLMENT PAYMENTS OF PRINCIPAL OF
TERM LOAN. The Borrower promises to pay to the Agent for the account of
the Banks the principal amount of the Term Loan in ten (10) equal
semiannual installments, each in an amount determined by the Agent by
reference to a five year amortization schedule commencing on the
Revolving Credit Termination Date. Such installments shall be due and
payable on the last day of January 1 and July 1 of each calendar year,
commencing on the first such date following the Revolving Credit
Termination Date, with a final payment on the Maturity Date in an
amount equal to the unpaid balance of the Term Loan.
SECTION 4.3. OPTIONAL PREPAYMENT OF TERM LOAN. The BorroWER
shall have the right at any time to prepay the Term Loan on or before
the Maturity Date, as a whole, or in part, upon not less than five (5)
Business Days' prior written notice to the Agent, without premium or
penalty, provided that each partial prepayment shall be in the
principal amount of (i) $100,000 or an integral multiple thereof with
respect to any portion of the Term Loan bearing interest at an interest
rate determined by reference to the Base Rate and (ii) $1,000,000 or
integral multiple thereof with respect to any portion of the Term Loan
bearing interest at an interest rate determined by reference to LIBOR
Rate, no portion of the Term Loan
<PAGE> 15
- 9 -
bearing interest at an interest rate determined by reference to the
LIBOR Rate may be prepaid pursuant to this Section 4.3 exCEPT on the
last day of the Interest Period relating thereto, and each partial
prepayment shall be allocated among the Banks, in proportion, as nearly
as practicable, to the respective outstanding amount of each Bank's
Note, with adjustments to the extent practicable to equalize any prior
prepayments not exactly in proportion. Any prepayment of principal of
the Term Loan shall include all interest accrued to the date of
prepayment and shall be applied against the scheduled installments of
principal due on the Term Loan in the inverse order of maturity. No
amount repaid with respect to the Term Loan may be reborrowed.
SECTION 4.4. INTEREST ON TERM LOAN. Except as otherwise provided in
Section 5.11, the Term Loan shall bear interest duriNG each Interest Period
relating to all or any portion of the Term Loan at the following rates:
(a) To the extent that all or any portion of the Term Loan
bears interest during such Interest Period at an interest rate
determined by reference to the Base Rate, the Term Loan or such portion
shall bear interest during such Interest Period at a rate per annum
equal to the Base Rate plus the Applicable Base Rate Margin (as set
forth in Section 2.5 hereof).
(b) To the extent that all or any portion of the Term Loan
bears interest during such Interest Period at an interest rate
determined by reference to the LIBOR Rate, the Term Loan or such
portion shall bear interest during such Interest Period at a rate per
annum equal to the LIBOR Rate plus the Applicable LIBOR Rate Margin (as
set forth in Section 2.5 hereof).
The Borrower promises to pay interest on the Term Loan or any portion thereof
outstanding during each Interest Period in arrears on each Interest Payment Date
applicable to such Interest Period.
SECTION 4.5. CONVERSION OPTIONS.
(a) Not less than three (3) LIBOR Business Days prior to the
Revolving Credit Termination Date the Borrower will notify the Agent
regarding the interest rates to be applied to all of any portion of the
Term Loan as of such date and the Interest Periods applicable to the
Term Loan. The Borrower may elect from time to time to convert the
interest rate applicable to all or any portion of the Term Loan,
provided that (i) with respect to any such conversion or continuation,
as the case may be, to an interest rate determined by reference to the
Base Rate, the Borrower shall give the Agent at least one (1) Business
Day's prior written notice of such election; (ii) with respect to any
such conversion from an interest rate determined by reference to the
Base Rate to one based on the LIBOR Rate, the Borrower shall give the
Agent at least three (3) LIBOR Business Days' prior written notice of
such election; (iii) with respect to any such conversion from an
interest rate determined by reference to the LIBOR Rate to one based on
the Base Rate, such conversion shall only be made
<PAGE> 16
- 10 -
on the last day of the Interest Period with respect thereto; and (iv)
the interest rate applicable to all or any portion of the Term Loan may
not be converted to an interest rate determined by reference to the
LIBOR Rate when any Default or Event of Default has occurred and is
continuing. On the date on which such conversion is being made each
Bank shall take such action as is necessary to transfer its Commitment
Percentage of the applicable portion of the Term Loan to its Domestic
Lending Office or its LIBOR Lending Office, as the case may be. Subject
to the terms of Section 4.5(c) hereof, the interest rate applicable to
all or any part of the outstanding Term Loan may be converted into a
different interest rate as provided herein, provided that (1) any
partial conversion shall be in an aggregate principal amount of
$1,000,000 or an integral multiple thereof and (2) with respect to any
portion of the Term Loan bearing interest at a rate per annum
determined by reference to the LIBOR Rate, there shall be no more than
six (6) separate Interest Periods in effect at any one time. Each
Conversion Request relating to the conversion of the interest rate
applicable to all or any portion of the Term Loan shall be irrevocable
by the Borrower.
(b) The interest applicable to all or any portion of the Term
Loan may be continued upon the expiration of an Interest Period with
respect thereto by compliance by the Borrower with the notice
provisions contained in Section 4.5(a); provided that an interest rate
determined by reference to LIBOR Rate may not be continued as such when
any Default or Event of Default has occurred and is continuing, but
shall be automatically converted to an interest rate determined by
reference to the Base Rate on the last day of the first Interest Period
relating thereto ending during the continuance of any Default or Event
of Default of which officers of the Agent active upon the Borrower's
account have actual knowledge.
(c) Any conversion to or from an interest rate determined by
reference to the LIBOR Rate shall be in such amounts and be made
pursuant to such elections so that, after giving effect thereto, the
aggregate principal amount of that portion of the Term Loan bearing
interest at an interest rate based on the LIBOR Rate having the same
Interest Period shall not be less than $1,000,000 or an integral
multiple thereof.
SECTION 5. CERTAIN GENERAL PROVISIONS.
SECTION 5.1. AGENT'S FEE. The Borrower agrees to pay to the
Agent, for its own account, a yearly agent's fee (the "AGENT'S FEE")
equal to $15,000. The Agent's Fee shall be payable annually in advance,
commencing on the date hereof and on each anniversary of the Effective
Date.
SECTION 5.2. INTENTIONALLY OMITTED.
SECTION 5.3. FUNDS FOR PAYMENTS.
(a) All payments of principal, interest, commitment fees,
facility fees and any other amounts due hereunder or under any of the
other Loan Documents shall be
<PAGE> 17
- 11 -
made to the Agent, for the respective accounts of the Banks and the
Agent, at the Agent's Head Office or at such other location that the
Agent may from time to time designate, in each case in immediately
available funds and not later than 1:00 p.m. (Hartford, Connecticut
time) on the date when due or, in the case of optional prepayments of
any Loan, on the date of such proposed repayment. Any payment made
after 1:00 p.m. (Hartford, Connecticut time) on such date will be
credited and deemed paid on the next succeeding Business Day. All
payments made by the Borrower to the Agent for the account of the Banks
will be credited to the respective accounts of the Banks in accordance
with their respective Commitment Percentages on the date when made in
accordance with the immediately preceding sentence.
(b) All payments by the Borrower hereunder and under any of
the other Loan Documents shall be made without setoff or counterclaim
and free and clear of and without deduction for any taxes, levies,
imposts, duties, charges, fees, deductions, withholdings, compulsory
loans, restrictions or conditions of any nature now or hereafter
imposed or levied by any jurisdiction or any political subdivision
thereof or taxing or other authority therein unless the Borrower is
compelled by law to make such deduction or withholding. If any such
obligation is imposed upon the Borrower with respect to any amount
payable by it hereunder or under any of the other Loan Documents, the
Borrower will pay to the Agent, for the account of the Banks or (as the
case may be) the Agent, on the date on which such amount is due and
payable hereunder or under such other Loan Document, such additional
amount in Dollars as shall be necessary to enable the Banks or the
Agent to receive the same net amount which the Banks or the Agent would
have received on such due date had no such obligation been imposed upon
the Borrower. The Borrower will deliver promptly to the Agent
certificates or other valid voucher for all taxes or other charges
deducted from or paid with respect to payments made by the Borrower
hereunder or under such other Loan Document.
SECTION 5.4. COMPUTATIONS. All computations of interest on the
Loans and of commitment fees payable hereunder shall be based on a three hundred
sixty (360) day year and paid for the actual number of days elapsed. Except as
otherwise provided in the definition of the term "INTEREST PERIOD" with respect
to Revolving Credit LIBOR Rate Loans or that portion of the Term Loan bearing
interest at an interest rate determined by reference to the LIBOR Rate, whenever
a payment hereunder or under any of the other Loan Documents becomes due on a
day that is not a Business Day, the due date for such payment shall be extended
to the next succeeding Business Day, and interest shall accrue during such
extension. The outstanding amount of the Loans as reflected on the Note Record
from time to time shall be considered correct and binding on the Borrower absent
manifest error.
SECTION 5.5. INABILITY TO DETERMINE LIBOR RATE. In the event,
prior to the commencement of any Interest Period relating to any Revolving
Credit LIBOR Rate Loan or all or any portion of the Term Loan that will bear
interest at an interest rate determined by reference to the LIBOR Rate, the
Agent shall determine or be notified by the Majority Banks that adequate and
reasonable methods do not exist for ascertaining the LIBOR Rate that
<PAGE> 18
- 12 -
would otherwise determine the rate of interest to be applicable to any Revolving
Credit LIBOR Rate Loan or such portion of the Term Loan during any Interest
Period, the Agent shall forthwith give notice of such determination (which shall
be conclusive and binding on the Borrower and the Banks) to the Borrower and the
Banks. In such event (a) any Loan Request or Conversion Request with respect to
Revolving Credit LIBOR Rate Loans shall be automatically withdrawn and such
shall be deemed a request for Revolving Credit Base Rate Loan, (b) any
Conversion Request regarding the interest rate applicable to all or any portion
of the Term Loan shall be automatically withdrawn, (c) each Revolving Credit
LIBOR Rate Loan or such portion of the Term Loan will automatically, on the last
day of the then current Interest Period relating thereto, become a Revolving
Credit Base Rate Loan or bear interest at an interest rate determined by
reference to the Base Rate (as applicable), and (d) the obligations of the Banks
to make Revolving Credit LIBOR Rate Loans or to allow the Borrower to elect to
apply the LIBOR Rate to all or any portion of the Term Loan shall be suspended
until the Agent or the Majority Banks determine that the circumstances giving
rise to such suspension no longer exist, whereupon the Agent or, as the case may
be, the Agent upon the instruction of the Majority Banks, shall so notify the
Borrower and the Banks.
SECTION 5.6. ILLEGALITY. Notwithstanding any other provisions
herein, if any present or future law, regulation, treaty or directive or in the
interpretation or application thereof shall make it unlawful for any Bank to
make or maintain Revolving Credit LIBOR Rate Loans or the LIBOR Rate with
respect to all or any portion of the Term Loan, such Bank shall forthwith give
notice of such circumstances to the Borrower and the other Banks and thereupon
(a) the commitment of such Bank to (i) make Revolving Credit LIBOR Rate Loans,
(ii) allow the Borrower to elect an interest rate based on the LIBOR Rate with
respect to all or any portion of the Term Loan, (iii) convert Revolving Credit
Base Rate Loans to Revolving Credit LIBOR Rate Loans or (iv) convert the
interest rate applicable to all or any portion of the Term Loan from an interest
rate determined by reference to the Base Rate to one based on the LIBOR Rate
shall forthwith be suspended and (b) such Bank's Revolving Credit Loans then
outstanding as Revolving Credit LIBOR Rate Loans, if any, shall be converted
automatically to Revolving Credit Base Rate Loans on the last day of each
Interest Period applicable to such Revolving Credit LIBOR Rate Loans (or within
such earlier period required by law) and all or any portion of such Bank's
Commitment Percentage of the Term Loan bearing interest at an interest rate
determined by reference to the LIBOR Rate shall be automatically converted to an
interest rate based on the Base Rate or within such earlier period as may be
required by law). The Borrower hereby agrees promptly to pay the Agent for the
account of such Bank, upon demand by such Bank, any additional amounts necessary
to compensate such Bank for any costs incurred by such Bank in making any
conversion in accordance with this Section 5.6, including any interest or fees
payable by such Bank to lenders of funds obtained by it in order to make or
maintain the LIBOR Rate or its Revolving Credit LIBOR Rate Loans hereunder.
SECTION 5.7. ADDITIONAL COSTS, ETC. If any change in present
applicable law, or any future applicable law, which expression, as used herein,
includes statutes, rules and regulations under any present or future law and
interpretations of any present or future law by any competent court or by any
governmental or other regulatory body or official charged
<PAGE> 19
- 13 -
with the administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank or the Agent by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(a) subject any Bank or Agent to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to
this Credit Agreement, the other Loan Documents, the Commitments or the
Loans (other than franchise taxes or taxes based upon or measured by
the income or profits of such Bank or the Agent), or
(b) materially change the basis of taxation (except for
changes in franchise taxes or taxes on income or profits) of payments
to any Bank or Agent of the principal of or the interest on any Loans
or any other amounts payable to any Bank or the Agent under this Credit
Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit Agreement)
any special deposit, reserve, assessment, liquidity or other similar
requirements (whether or not having the force of law) against assets
held by, or deposits in or for the account of, or loans by, or
commitments of an office of any Bank or the Agent, or
(d) impose on any Bank or the Agent any other conditions or
requirements with respect to this Credit Agreement, the other Loan
Documents, the Loans, the Commitments, or any class of loans or
commitments of which any of the Loans or the Commitments forms a part,
and the result of any of the foregoing is
(i) to increase the cost to any Bank or the Agent of
making, funding, issuing, renewing, extending or maintaining
any of the Loans or the Commitments, or
(ii) to reduce the amount of principal, interest or
other amount payable to any Bank or the Agent hereunder on
account of the Commitments or any of the Loans, or
(iii) to require any Bank or the Agent to make any
payment or to forego any interest or other sum payable
hereunder, the amount of which payment or foregone interest or
other sum is calculated by reference to the gross amount of
any sum receivable or deemed received by such Bank or the
Agent from the Borrower hereunder,
then, and in each such case, the Borrower will, within five (5) days of demand
made by such Bank or (as the case may be) the Agent at any time and from time to
time and as often as the occasion therefor may arise, pay to such Bank or Agent
such additional amounts as will be sufficient to compensate such Bank or Agent
for such additional cost, reduction, payment or foregone interest or other sum.
<PAGE> 20
- 14 -
SECTION 5.8. CAPITAL ADEQUACY. If any change in present
applicable law or any future applicable law, governmental rule, regulation,
policy, guideline or directive (whether or not having the force of law) or the
interpretation of any such present or future law by a court or governmental
authority with appropriate jurisdiction affects the amount of capital required
or expected to be maintained by any Bank or the Agent or any corporation
controlling such Bank or the Agent and such Bank or the Agent determines that
the amount of capital required to be maintained by it is increased by or based
upon the existence of the Commitments or the Loans, then such Bank or the Agent
may notify the Borrower of such fact. To the extent that the costs of such
increased capital requirements are not reflected in the Base Rate, the Borrower
and such Bank or (as the case may be) the Agent shall thereafter attempt to
negotiate in good faith, within thirty (30) days of the day on which the
Borrower receives such notice, an adjustment payable hereunder that will
adequately compensate such Bank or the Agent in light of these circumstances. If
the Borrower and such Bank or the Agent are unable to agree to such adjustment
within thirty (30) days of the date on which the Borrower receives such notice,
then commencing on the date of such notice (but not earlier than the effective
date of any such increased capital requirement), the fees payable hereunder
shall increase by an amount that will, in such Bank's or the Agent's reasonable
determination provide adequate compensation. Each Bank and the Agent shall
allocate such cost increases among its customers in good faith and on an
equitable basis.
SECTION 5.9. CERTIFICATE. A certificate setting forth any
additional amounts payable pursuant to Sections 5.7 or 5.8 hereof and a
brief explanation of such amounts which are due, submitted by such Bank or the
Agent to the Borrower, shall be conclusive, absent manifest error, that such
amounts are due and owing.
SECTION 5.10. INDEMNITY. The Borrower agrees to indemnify each
Bank and to hold each Bank harmless from and against any loss, cost or expense
(including loss of anticipated profits) that such Bank may sustain or incur as a
consequence of (a) default by the Borrower in payment of the principal amount of
or any interest on (i) any Revolving Credit LIBOR Rate Loans or (ii) any portion
of the Term Loan bearing interest rate at an interest rate based on the LIBOR
Rate as and when due and payable, including any such loss or expense arising
from interest or fee payable by such Bank to lenders of funds obtained by it in
order to maintain the LIBOR Rate with respect to all or any portion of the Term
Loan or its Revolving Credit LIBOR Rate Loans, (b) default by the Borrower in
making a borrowing or conversion after the Borrower has given (or is deemed to
have given) a Revolving Credit Loan Request or a Conversion Request relating
thereto in accordance with the terms hereof or (c) the making of any payment of
(i) a Revolving Credit LIBOR Rate Loan or (ii) any portion of the Term Loan
bearing interest at an interest rate based on the LIBOR Rate or the making of
any conversion of (1) any such Revolving Credit LIBOR Rate Loan to a Revolving
Credit Base Rate Loan or (2) the interest rate applicable to any portion of the
Term Loan from an interest rate determined by reference to the LIBOR Rate to one
based on the Base Rate in each case on a day that is not the last day of the
applicable Interest Period with respect thereto, including interest or fees
payable by such Bank to lenders of funds obtained by it in order to maintain any
such Revolving Credit LIBOR Rate Loans or the LIBOR Rate with respect to all or
any portion of the Term Loan.
<PAGE> 21
- 15 -
SECTION 5.11. INTEREST AFTER DEFAULT.
(a) Overdue principal and (to the extent permitted by
applicable law) interest on the Loans and all other overdue amounts
payable hereunder or under any of the other Loan Documents shall bear
interest compounded monthly and payable on demand at a rate per annum
equal to four percent (4%) above the Base Rate until such amount shall
be paid in full (after as well as before judgment).
(b) During the continuance of any Event of Default described
in Sections 13(a) or (b) hereof, the principal of the Loans not overdue
shall, until such Default or Event of Default has been cured or
remedied or such Default or Event of Default has been waived by the
Banks pursuant to Section 26, bear interest at a rate per annum equal
to the rate of interest applicable to overdue principal pursuant to
Section 5.11(a).
Section 5.12. WITHHOLDING TAX EXEMPTION. Each Bank that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to each of the Borrower and the Agent, at least
three (3) Business Days before interest or fees first become payable hereunder
for the account of such Bank, two (2) duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, in either case certifying whether
such Bank is entitled to receive payments under this Agreement and the Notes
without deduction or withholding of any United States Federal income taxes. Each
Bank which so delivers a Form 1001 or 4224 further undertakes to deliver to each
of the Borrower and the Agent two (2) additional copies of such form (or a
successor form) on or before the date that such form expires or becomes obsolete
or after the occurrence of any event requiring a change in the most recent form
so delivered by it, and such amendments thereto or extensions or renewals
thereof as may be reasonably requested by the Borrower or the Agent, in each
case certifying whether such Bank is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
Federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Bank from duly completing and delivering any such
form with respect to it and such Bank advises the Borrower and the Agent that it
is not capable of receiving payments without any deduction or withholding of
United States Federal income tax.
SECTION 6. COLLATERAL SECURITY AND GUARANTEES.
(a) The Obligations shall be secured by a perfected first
priority security interest (subject only to Permitted Liens entitled to
priority under applicable law) in all of the assets of the Borrower,
whether now owned or hereafter acquired, including, without limitation,
accounts receivable, inventory, real property, plant, equipment,
intangibles and shares of stock of all of the subsidiaries of the
Borrower pursuant to the terms of the Security Documents to which the
Borrower is a party.
(b) The prompt payment and performance of the Obligations
shall also be guaranteed pursuant to the terms of the Guarantees by
each Subsidiary of the
<PAGE> 22
-16-
Borrower. The obligations of each of the Subsidiaries under the
Guaranty to which it is a party shall be in turn secured by a perfected
first priority security interest (subject only to Permitted Liens
entitled to priority under applicable law) in all of the assets of each
Subsidiary, whether now owned or hereafter acquired, including, without
limitation, accounts receivable, inventory, real property, plant,
equipment, intangibles and shares of stock of any subsidiaries of such
Subsidiary pursuant to the terms of the Security Documents to which
such Subsidiary is a party.
(c) Without limiting anything set forth above, the Borrower
shall guarantee, pursuant to the Borrower Guaranty, the prompt payment
and performance of each Subsidiary under the Loan Documents to which
such Subsidiary is a party.
SECTION 7. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to each of the Banks and the Agent as follows:
SECTION 7.1. CORPORATE AUTHORITY.
(a) Incorporation; Good Standing. Each of the Borrower and its
Subsidiaries (i) is a corporation or partnership duly organized,
validly existing and in good standing under the laws of its state of
incorporation or organization, as the case may be, (ii) has all
requisite corporate or partnership power to own its property and
conduct its business as now conducted and as presently contemplated
upon the completion of any Acquisition, and (iii) is in good standing
as a foreign corporation or partnership and is duly authorized to do
business in each jurisdiction where such qualification is necessary
except where a failure to be so qualified would not have a materially
adverse effect on the business, assets or financial condition of the
Borrower or such Subsidiary.
(b) Authorization. The execution, delivery and performance of
this Credit Agreement, the other Loan Documents and the Acquisition
Documents to which the Borrower or any of its Subsidiaries is or is to
become a party and the transactions contemplated hereby and thereby (i)
are within the corporate or partnership authority of each such Person,
(ii) have been duly authorized by all necessary corporate or
partnership proceedings, (iii) do not conflict with or result in any
breach or contravention of any provision of law, statute, rule or
regulation to which any such Person is subject or any judgment, order,
writ, injunction, license or permit applicable to any such Person, (iv)
do not conflict with any provision of the corporate charter or bylaws
or agreement of limited partnership of any such Person and (v) do not
conflict with any agreement or other instrument binding upon any such
Person, except where such conflict would not have a materially adverse
affect on the business, assets or the financial condition of any such
Person.
(c) Enforceability. (i) The execution and delivery of this
Credit Agreement, the other Loan Documents and the Acquisition
Documents to which the Borrower or any of its Subsidiaries is or is to
become a party will result in valid and legally binding obligations of
such Person enforceable against it in accordance with the respective
<PAGE> 23
-17-
terms and provisions hereof and thereof, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting generally the enforcement of creditors'
rights and except to the extent that availability of the remedy of
specific performance or injunctive relief is subject to general
principles of equity and to the discretion of the court before which
any proceeding therefor may be brought.
(ii) Each Seller has duly executed and delivered each
of the Acquisition Documents to which it is or is to become a
party and each of such documents is in full force and effect.
The agreements and obligations of each Seller contained in
each of the Acquisition Documents to which it is or is to
become a party constitute its legal, valid and binding
obligations, enforceable against it in accordance with their
respective terms, except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting generally the enforcement of
creditors' rights and except to the extent the availability of
the remedy of specific performance and injunctive or other
forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding
therefor may be brought.
(d) Acquisition Assets. In connection with each Acquisition,
the applicable Seller has transferred to the Borrower valid title to
the property and assets of such Seller purported to be conveyed
thereby, free and clear of all mortgages, pledges, liens, charges,
restrictions, conditions and other sale agreements, encumbrances,
security interests, options or claims other than those permitted by
Section 9.2 hereof.
SECTION 7.2. Subsidiaries. As of the Effective Date:
(a) Except as indicated on Schedule 7.2 attached hereto,
neither the Borrower nor any of its Subsidiaries has any Subsidiaries.
(b) Except as indicated on Schedule 7.2 hereto, neither the
Borrower nor any of its Subsidiaries owns or holds of record and/or
beneficially (whether directly or indirectly) any shares of any class
in the capital of any other corporations or any legal and/or beneficial
interests in any corporation, partnership, business trust or joint
venture or in any other unincorporated trade or business enterprise.
SECTION 7.3. GOVERNMENTAL APPROVALS To the best of the
Borrower's knowledge after due and diligent inquiry and investigation, the
execution, delivery and performance by the Borrower and any of its Subsidiaries
of this Credit Agreement, the other Loan Documents and the Acquisition Documents
to which any such Person is or is to become a party and the transactions
contemplated hereby and thereby do not require the approval or consent of, or
filing with, any governmental agency or authority other than those already
obtained. The premerger waiting period under the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended (the "H-S-R ACT"), is not applicable to the
transactions contemplated hereby and by any of the Acquisition Documents.
<PAGE> 24
-18-
SECTION 7.4. TITLE TO PROPERTIES. Except as indicated on
Schedule 7.4 hereto, the Borrower and its Subsidiaries own all of the assets
reflected in the consolidated balance sheet of the Borrower and its Subsidiaries
as at the Balance Sheet Date or acquired since that date (except property and
assets sold or otherwise disposed of in the ordinary course of business since
that date), subject to no rights of others, including any mortgages, leases,
conditional sales agreements, title retention agreements, liens or other
encumbrances except Permitted Liens.
SECTION 7.5. FINANCIAL STATEMENTS. There has been furnished to
each of the Banks audited consolidated balance sheets of the Borrower and its
Subsidiaries as at September 30, 1995, and audited consolidated statements of
income of the Borrower and its Subsidiaries for the fiscal year then ended, in
each case certified by Arthur Andersen & Co. LLP. Such balance sheet and
statements of income of the Borrower and its Subsidiaries have been prepared in
accordance with generally accepted accounting principles and fairly present the
financial condition of the Borrower and its Subsidiaries as at the close of
business on the date thereof and the results of operations for the fiscal year
then ended. There are no contingent liabilities of the Borrower or any of its
Subsidiaries as of such date involving material amounts which were not disclosed
in the balance sheets of the Borrower and the notes related thereto.
(b) There has been furnished to each of the Banks an unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as at
the Balance Sheet Date. Such balance sheet of the Borrower and its
Subsidiaries has been prepared in accordance with generally accepted
accounting principles and fairly presents the financial condition of
the Borrower and its Subsidiaries as at the close of business on the
date thereof. There are no contingent liabilities of the Borrower or
any of its Subsidiaries as of such date involving material amounts
which were not disclosed in such consolidated balance sheet of the
Borrower and the notes related thereto.
(c) Both before and immediately after giving effect to the
transactions contemplated hereby and by any of the Acquisition
Documents, each of the Borrower and its Subsidiaries is solvent on a
going concern basis, has assets having a fair value in excess of the
amount required to pay its probable liabilities on its existing debts
as they become absolute and matured, and has, and will have as of the
Effective Date, access to adequate capital for the conduct of its
business and the ability to pay its debts from time to time incurred in
connection herewith as such debts mature.
SECTION 7.6. ACQUISITION ASSET FINANCIAL STATEMENTS. Any and
all financial statements furnished to the Agent and the Banks in connection with
any Acquisition have been reviewed by the Borrower and to the best of Borrower's
knowledge after due inquiry fairly present the financial condition of the
applicable Seller and the applicable Acquisition Assets as at the close of
business on the date thereof.
SECTION 7.7. NO MATERIAL CHANGES. Except as described on
Schedule 7.7 hereto, since the Balance Sheet Date there has occurred no
materially adverse change in the
<PAGE> 25
-19-
financial condition or business of the Borrower and its Subsidiaries considered
as a whole, as shown on or reflected in the consolidated balance sheet of the
Borrower and its Subsidiaries as at the Balance Sheet Date, or the consolidated
statements of income for the fiscal year then ended of the Borrower and its
Subsidiaries, other than changes in the ordinary course of business that have
not had any materially adverse effect either individually or in the aggregate on
the business or financial condition of the Borrower and its Subsidiaries,
considered as a whole.
SECTION 7.8. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the
Borrower and its Subsidiaries possesses, and upon completion of each Acquisition
will possess, all franchises, patents, copyrights, trademarks, trade names,
licenses and permits, and rights in respect of the foregoing, adequate for the
conduct of its business substantially as now conducted and as contemplated after
consummation of any Acquisition without known conflict with any rights of
others.
SECTION 7.9. LITIGATION. Except as set forth in Schedule 7.9
hereto, there are no actions, suits, proceedings or investigations of any kind
pending or, to the best knowledge of the Borrower, threatened against the
Borrower or any of its Subsidiaries or, to the best of the Borrower's knowledge
after due inquiry, against any Seller, before any court, tribunal or
administrative agency or board that, if adversely determined, might, either in
any case or in the aggregate, materially adversely affect the properties, assets
financial condition or business of the Borrower and its Subsidiaries, considered
as a whole or materially impair the right of the Borrower and its Subsidiaries,
considered as a whole to carry on business substantially as now conducted by
them, or result in any material liability not adequately covered by insurance,
or for which adequate reserves are not maintained on the consolidated balance
sheet of the Borrower and its Subsidiaries or such Seller or which question the
validity of any of the Acquisition Documents or of this Credit Agreement or any
the other Loan Documents, or any action taken or to be taken pursuant hereto or
thereto.
SECTION 7.10. NO MATERIALLY ADVERSE CONTRACTS, ETC. Except as
set forth in Schedule 7.10 hereto, neither the Borrower nor any of its
Subsidiaries nor to the best knowledge of the Borrower, after due and diligent
inquiry, any Seller (with respect to the Acquisition Assets being sold by such
Seller) is subject to any charter, corporate or other legal restriction, or any
judgment, decree or order, or, to the best knowledge of the Borrower after due
and diligent inquiry, any rule or regulation, in each case that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrower or any of its Subsidiaries. Except
as set forth in Schedule 7.10 attached hereto, neither the Borrower nor any of
its Subsidiaries nor, to the best knowledge of the Borrower after due inquiry,
any Seller (with respect to the Acquisition Assets being sold by such Seller) is
a party to any contract or agreement that has or is expected, in the judgment of
the Borrower's officers, to have any materially adverse effect on the business
of the Borrower and its Subsidiaries, considered as a whole.
SECTION 7.11. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC.
Except as set forth in Schedule 7.11 hereto, neither the Borrower nor any of its
Subsidiaries nor to the best
<PAGE> 26
-20-
of the Borrower's knowledge after due inquiry, any Seller (with respect to the
Acquisition Assets being sold by such Seller), is in violation of any provision
of any of their respective charter documents, bylaws, or any agreement or
instrument to which any of them may be subject or by which any of them or any of
their properties may be bound or any decree, order, judgment, statute or
license, or, to the best knowledge of the Borrower after due and diligent
inquiry, rule or regulation, in any of the foregoing cases in a manner that
could result in the imposition of substantial penalties or materially and
adversely affect the financial condition, properties or business of the Borrower
and its Subsidiaries, considered as a whole.
SECTION 7.12. TAX STATUS. To the best knowledge of the
Borrower after due and diligent inquiry, except as set forth in Schedule 7.12
attached hereto, the Borrower and each of its Subsidiaries (a) have made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which any of them is subject, (b)
have paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings and (c) have set
aside on their books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and, to the best knowledge
of the Borrower after due and diligent inquiry, there is no basis for any such
claim. The Borrower is also not liable with respect to any taxes incurred by any
Seller.
SECTION 7.13. NO EVENT OF DEFAULT. No Default or Event of
Default has occurred and is continuing.
SECTION 7.14. HOLDING COMPANY AND INVESTMENT COMPANY ACTS.
Neither the Borrower nor any of its Subsidiaries is a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935; nor is it an "investment company", or an "affiliated company" or a
"principal underwriter" of an "investment company", as such terms are defined in
the Investment Company Act of 1940.
SECTION 7.15. ABSENCE OF FINANCING STATEMENTS, ETC. Except
with respect to Permitted Liens there is no financing statement, security
agreement, chattel mortgage, real estate mortgage or other document filed or
recorded with any filing records, registry or other public office, that purports
to cover, affect or give notice of any present or possible future lien on, or
security interest in, any of the Acquisition Assets or any assets or property of
the Borrower or any of its Subsidiaries or any rights relating thereto.
SECTION 7.16. PERFECTION OF SECURITY INTEREST. All filings,
assignments, pledges and deposits of documents or instruments have been made and
all other actions have been taken that are necessary or advisable, under
applicable law, to establish and, to the best knowledge of the Borrower, to
perfect the Agent's security interest in the Collateral. The Collateral and the
Agent's rights with respect to the Collateral are not subject to any setoff,
claims, withholdings or other defenses. The Borrower or a Subsidiary of the
Borrower party to one
<PAGE> 27
-21-
of the Security Agreements is the owner of the Collateral free from any lien,
security interest, encumbrance and any other claim or demand, except for
Permitted Liens.
SECTION 7.17. CERTAIN TRANSACTIONS. Except as set forth on
Schedule 7.17 hereto, none of the officers, directors, or employees of the
Borrower or any of its Subsidiaries is presently a party to any transaction with
the Borrower or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Borrower, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
SECTION 7.18. EMPLOYEE BENEFIT PLANS.
(a) In General. Each Employee Benefit Plan has been maintained
and operated in compliance in all material respects with the provisions
of ERISA and, to the extent applicable, the Code, including but not
limited to the provisions thereunder respecting prohibited
transactions. The Borrower has heretofore delivered to each Bank the
most recently completed annual report, Form 5500, with all required
attachments, and actuarial statement required to be submitted under
Section 103(d) of ERISA, with respect to each Guaranteed Pension Plan.
(b) Terminability of Welfare Plans. Under each Employee
Benefit Plan which is an employee welfare benefit plan within the
meaning of Section 3(1) or Section 3(2)(B) of ERISA, no benefits are
due unless the event giving rise to the benefit entitlement occurs
prior to plan termination (except as required by Title I, Part 6 of
ERISA). The Borrower or an ERISA Affiliate, as appropriate, may
terminate each such Plan at any time (or at any time subsequent to the
expiration of any applicable bargaining agreement) in the discretion of
the Borrower or such ERISA Affiliate without liability to any Person.
(c) Guaranteed Pension Plans. Each contribution required to be
made to a Guaranteed Pension Plan, whether required to be made to avoid
the incurrence of an accumulated funding deficiency, the notice or lien
provisions of Section 302(f) of ERISA, or otherwise, has been timely
made. No waiver of an accumulated funding deficiency or extension of
amortization periods has been received with respect to any Guaranteed
Pension Plan. No liability to the PBGC (other than required insurance
premiums, all of which have been paid) has been incurred by the
Borrower or any ERISA Affiliate with respect to any Guaranteed Pension
Plan and there has not been any ERISA Reportable Event, or any other
event or condition which presents a material risk of termination of any
Guaranteed Pension Plan by the PBGC. Based on the latest valuation of
each Guaranteed Pension Plan (which in each case occurred within twelve
months of the date of this representation), and on the actuarial
methods and assumptions employed for that valuation, the present value
of the aggregate benefit liabilities of all such Guaranteed Pension
Plans within the meaning of Section 4001 of ERISA
<PAGE> 28
-22-
did not exceed the aggregate value of the assets of all such Guaranteed
Pension Plans, disregarding for this purpose the benefit liabilities
and assets of any Guaranteed Pension Plan with assets in excess of
benefit liabilities.
(d) Multiemplover Plans. Neither the Borrower nor any ERISA
Affiliate has incurred any material liability (including secondary
liability) to any Multiemployer Plan as a result of a complete or
partial withdrawal from such Multiemployer Plan under Section 4201 of
ERISA or as a result of a sale of assets described in Section 4204 of
ERISA. Neither the Borrower nor any ERISA Affiliate has been notified
that any Multiemployer Plan is in reorganization or insolvent under and
within the meaning of Section 4241 or Section 4245 of ERISA or that any
Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA.
SECTION 7.19. REGULATIONS G,T,U AND X. The proceeds of the
Loans shall be used (i) to finance the
Acquisitions, (ii) to refinance on the Effective Date the Existing Indebtedness
and (iii) for working capital and general corporate purposes. No portion of any
Loan is to be used for the purpose of purchasing or carrying any "margin
security" or "margin stock" as such terms are used in Regulations G,T,U and X
of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and
224.
SECTION 7.20. ENVIRONMENTAL COMPLIANCE. The Borrower
represents and warrants that:
(a) To the best knowledge of the Borrower, after reasonable
inquiry and investigation, none of the Borrower, its Subsidiaries, any
Seller (with respect to the Acquisition Assets being sold by such
Seller), or any operator of the Real Estate or any operations thereon
is in violation, or alleged violation, of any judgment, decree, order,
law, license, rule or regulation pertaining to environmental matters,
including without limitation, those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986
("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the
Toxic Substances Control Act, or any state or local statute,
regulation, ordinance, order or decree relating to health, safety or
the environment (hereinafter "ENVIRONMENTAL LAWS"), which violation
would have material adverse effect on the environment or the business,
assets or financial condition of the Borrower and its Subsidiaries,
considered as a whole.
(b) None of the Borrower, any of its Subsidiaries or, to the
best knowledge of the Borrower after due and diligent inquiry, any
Seller (with respect to the Acquisition Assets being sold by such
Seller) has received written notice from any third party including,
without limitation: any federal, state or local governmental authority,
(i) that any one of them has been identified by the United States
Environmental Protection Agency ("EPA") as a potentially responsible
party under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part
<PAGE> 29
-23-
300 Appendix B (1986); (ii) that any hazardous waste, as defined by 42
U.S.C. Section 9601(5), any hazardous substances, as defined by 42
U.S.C. Section 9601(14), any pollutant or contaminant, as defined by 42
U.S.C. Section 9601(33), and any toxic substances, oil or hazardous
materials or other chemicals or substances regulated by any
Environmental Laws ("HAZARDOUS SUBSTANCES") which any one of them has
generated, transported or disposed of has been found at any site at
which a federal, state or local agency or other third party has
conducted or has ordered that the Borrower or any of its Subsidiaries
or such Seller (with respect to the Acquisition Assets being sold by
such Seller) conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (iii) that it is
or shall be a named party to any claim, action, cause of action,
complaint, or legal or administrative proceeding (in each case,
contingent or otherwise) arising out of any third party's incurrence of
costs, expenses, losses or damages of any kind whatsoever in connection
with the release of Hazardous Substances.
(c) To the best knowledge of the Borrower after reasonable
inquiry and investigation, except as set forth on Schedule 7.20
attached hereto: (i) none of the Borrower, any of its Subsidiaries or
any Seller (with respect to the Acquisition Assets being sold by such
Seller) has used or is using any portion of the Real Estate for the
handling, processing, storage or disposal of Hazardous Substances
except in material compliance with applicable Environmental Laws; and
no underground tank or other underground storage receptacle for
Hazardous Substances is located on any portion of the Real Estate; (ii)
in the course of any activities conducted by the Borrower, its
Subsidiaries, such Seller (with respect to the Acquisition Assets being
sold by such Seller), or operators of its properties, no Hazardous
Substances have been generated or are being used on the Real Estate
except in material compliance with applicable Environmental Laws; (iii)
none of the Borrower, any of it Subsidiaries or such Seller (with
respect to the Acquisition Assets being sold by such Seller) has caused
or is causing any releases (i.e. any past or present releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, disposing or dumping) or threatened releases of
Hazardous Substances on, upon, into or from the properties of the
Borrower or its Subsidiaries or such Seller (with respect to the
Acquisition Assets being sold by such Seller), which releases have had
or would have a material adverse effect on the value of any of the Real
Estate or adjacent properties or the environment; (iv) in the course of
any activities conducted by the Borrower, its Subsidiaries, such Seller
(with respect to the Acquisition Assets being sold by such Seller), or
operators of properties of any of such Person, there have been no
releases on, upon, from or into any of the Real Estate which, through
soil or groundwater contamination, may have come to be located on, and
which would have a material adverse effect on the value of, the Real
Estate; and (v) in addition, any Hazardous Substances that have been
generated by the Borrower, any of its Subsidiaries or such Seller (with
respect to the Acquisition Assets being sold by such Seller) on any of
the Real Estate have been transported offsite only by carriers having
an identification number issued by the EPA and have been treated or
disposed of only by treatment or
<PAGE> 30
-24-
disposal facilities maintaining valid permits as required under
applicable Environmental Laws.
(d) None of the Borrower, any of its Subsidiaries, any Seller
(with respect to the Acquisition Assets being sold by such Seller), or
any of the Real Estate is subject to any applicable Environmental Law
requiring the performance of Hazardous Substances site assessments, or
the removal or remediation of Hazardous Substances, or the giving of
notice to any governmental agency or the recording or delivery to other
Persons of an environmental disclosure document or statement by virtue
of the transactions set forth herein and contemplated hereby, or as a
condition to the recording of any Mortgage or to the effectiveness of
any other transactions contemplated hereby.
SECTION 7.21. FISCAL YEAR. Each fiscal year of the Borrower
and each of its Subsidiaries begins on October 1 of each calendar year and ends
on September 30 of each calendar year.
SECTION 7.22. MEDICARE QUALIFICATIONS. Except as set forth on
Schedule 7.9 hereto, neither the Borrower nor any of its Subsidiaries, nor, to
the best knowledge of Borrower after due inquiry, any Seller (with respect to
the Acquisition Assets being sold by such Seller) has engaged in any activity in
material violation of any law, statute, rule or regulation related to the
delivery of health care or health care services or the payment for health care
or health care services, including, but not limited to, 42 U.S.C. Section
1320a-7 t seq., 42 U.S.C. Section 1395 et seq., 42 U.S.C. Section 1396 et seq.,
42 U.S.C. Section 1307 et seq., 18 U.S.C. Section 286, 18 U.S.C. Section 287, 19
U.S.C. Section 666; or any activity which could result in the exclusion of the
Borrower, any of its Subsidiaries or such Seller (with respect to the
Acquisition Assets being sold by such Seller) from any program promulgated or
established under Medicare or Medicaid Laws.
SECTION 7.23. RECOUPMENT. Except as set forth on Schedule 7.9
hereto, there are no actions, suits, proceedings or investigations of any kind
pending or, to the best knowledge of the Borrower after diligent inquiry and
investigation, threatened against the Borrower, any of its Subsidiaries or any
Seller (with respect to the Acquisition Assets being sold by such Seller) and
which seek the recoupment of any material portion of any payments previously
received by the Borrower, any of its Subsidiaries or such Seller pursuant to any
law, statute, rule or regulation related to the delivery of health care or
health care services, including without limitation, Medicare or Medicaid Laws.
SECTION 7.24. OTHER REPRESENTATIONS. Each of the
representations and warranties made by the Borrower or any of its Subsidiaries
in any of the Loan Documents or Acquisition Documents to which any such Person
is or is to become a party, and to the best of the Borrower's knowledge after
due and diligent inquiry, by any Seller in any of the Acquisition Documents, was
true and correct in all material respects when made and continues to be true and
correct in all material respects on the Effective Date, except to the extent
that any of such representations and warranties relate to a prior date or may
have been affected by the consummation of the transactions contemplated and
permitted or required by the Loan Documents and the applicable Acquisition
Documents.
<PAGE> 31
-25-
SECTION 8. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower
covenants and agrees that so long as any Loan or Note is outstanding or any Bank
has any obligation to make any Loans:
SECTION 8.1. PUNCTUAL PAYMENT. The Borrower will duly and
punctually pay or cause to be paid the principal and interest on the Loans, the
commitment fees and all other amounts provided for in this Credit Agreement and
the other Loan Documents to which the Borrower or any of its Subsidiaries is a
party, all in accordance with the terms of this Credit Agreement and such other
Loan Documents.
SECTION 8.2. MAINTENANCE OF OFFICE. The Borrower will maintain
its chief executive office at 2755 Campus Drive, San Mateo, California 94403 and
its principal place of business at 7 Waterside Crossing, Windsor, Connecticut
06095, or at such other place in the United States of America as the Borrower
shall designate upon written notice to the Agent, for further transmission to
the Banks, where notices, presentations and demands to or upon the Borrower in
respect of the Loan Documents to which the Borrower is a party may be given or
made.
SECTION 8.3. RECORDS AND ACCOUNTS. The Borrower will (a) keep,
and cause each of its Subsidiaries to keep, true and accurate records and books
of account in which full, true and correct entries will be made in accordance
with generally accepted accounting principles and (b) maintain adequate accounts
and reserves for all taxes (including income taxes), depreciation, depletion,
obsolescence and amortization of its properties and the properties of its
Subsidiaries, contingencies, and other reserves.
SECTION 8.4. FINANCIAL STATEMENTS, CERTIFICATES AND
INFORMATION. The Borrower will deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than
ninety (90) days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower and its Subsidiaries as at
the end of such year, and the related consolidated statement of income
and consolidated statement of cash flow for such year, each setting
forth in comparative form the figures for the previous fiscal year and
all such consolidated statements to be in reasonable detail, prepared
in accordance with generally accepted accounting principles, and
certified without qualification by Arthur Andersen & Co., LLP or by
other independent certified public accountants of nationally recognized
standing and reasonably satisfactory to the Agent, together with a
written statement from such accountants to the effect that they have
read a copy of this Credit Agreement, and that, in making the
examination necessary to said certification, they have obtained no
knowledge of any Default or Event of Default, or, if such accountants
shall have obtained knowledge of any then existing Default or Event of
Default they shall disclose in such statement any such Default or Event
of Default; provided that such accountants shall not be liable to the
Banks for failure to obtain knowledge of any Default or Event of
Default;
<PAGE> 32
-26-
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the first three fiscal
quarters of the Borrower, copies of the unaudited consolidated balance
sheet of the Borrower and its Subsidiaries as at the end of such
quarter, and the related consolidated statement of income and
consolidated statement of cash flow for the portion of the Borrower's
fiscal year then elapsed, all in reasonable detail and prepared in
accordance with generally accepted accounting principles, together with
a certification by the principal financial or accounting officer of the
Borrower that the information contained in such financial statements
fairly presents the financial position of the Borrower and its
Subsidiaries on the date thereof (subject to year-end adjustments);
(c) simultaneously with the delivery of the financial
statements referred to in subsections (a) and (b) above, a statement
certified by the principal financial or accounting officer of the
Borrower in substantially the form of Exhibit E hereto and setting
forth in reasonable detail computations evidencing compliance with the
covenants contained in Section 10 and (if applicable) reconciliations
to reflect changes in generally accepted accounting principles since
the Balance Sheet Date or since the date of the last financial
statements delivered to the Banks pursuant to the terms hereof;
(d) contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the Securities
and Exchange Commission or any national securities exchange or sent to
the stockholders of the Borrower, including, without limitation, copies
of all registration statements and Forms 10-K, 10-Q and 8-K and all
amendments thereto;
(e) from time to time such other financial data and
information (including accountants' management letters) as any Bank or
the Agent may reasonably request.
SECTION 8.5. NOTICES.
(a) Defaults. The Borrower will promptly notify the Agent and
each of the Banks in writing of the occurrence of any Default or Event
of Default. If any Person shall give any notice or take any other
action in respect of a claimed material default (whether or not
constituting an Event of Default) under this Credit Agreement or any
other note, evidence of indebtedness, indenture or other obligation to
which or with respect to which the Borrower or any of its Subsidiaries
is a party or obligor, whether as principal, guarantor, surety or
otherwise, the Borrower shall forthwith give written notice thereof to
the Agent and each of the Banks, describing the notice or action and
the nature of the claimed default.
(b) Environmental Events. The Borrower will promptly give
notice to the Agent and each of the Banks (i) of any violation of any
Environmental Law that the Borrower or any of its Subsidiaries reports
in writing (or for which any written report supplemental to any oral
report is made) to any federal, state or local environmental agency and
(ii) upon any officer of the Borrower or any of its Subsidiaries
becoming
<PAGE> 33
-27-
aware thereof, of any inquiry, proceeding, investigation, or other
action, including a notice from any agency of potential environmental
liability, of any federal, state or local environmental agency or
board, that has the potential to materially affect the assets,
liabilities, financial conditions or operations of the Borrower and its
Subsidiaries, considered as a whole, or the Agent's liens or security
interests pursuant to the Security Documents.
(c) Notification of Claims against Collateral. The Borrower
will, immediately upon becoming aware thereof, notify the Agent and
each of the Banks in writing of any setoff, claims (including, with
respect to the Real Estate, environmental claims), withholdings or
other defenses to which any of the Collateral, or the Agent's rights
with respect to the Collateral, are subject.
(d) Notice of Litigation and Judgments. The Borrower will, and
will cause each of its Subsidiaries to, give notice to the Agent and
each of the Banks in writing within fifteen (15) days of becoming aware
of any litigation or proceedings threatened in writing or any pending
litigation and proceedings affecting the Borrower or any of its
Subsidiaries or to which the Borrower or any of its Subsidiaries is or
becomes a party involving an uninsured claim against the Borrower or
any of its Subsidiaries that could reasonably be expected to have a
materially adverse effect on the Borrower or any of its Subsidiaries
and stating the nature and status of such litigation or proceedings.
The Borrower will, and will cause each of its Subsidiaries to, give
notice to the Agent and each of the Banks, in writing, in form and
detail satisfactory to the Bank, within ten (10) days of any judgment
not covered by insurance, final or otherwise, against the Borrower or
any of its Subsidiaries in an amount in excess of $1,000,000.
SECTION 8.6. CORPORATE EXISTENCE. The Borrower will do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and those of its
Subsidiaries.
SECTION 8.7. MAINTENANCE OF PROPERTIES. The Borrower (a) will
cause all of its properties and those of its Subsidiaries used or useful in the
conduct of its business or the business of its Subsidiaries to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment, (b) will cause to be made all necessary repairs, renewal,
replacements, betterments and improvements thereof, all as in the judgment of
the Borrower may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times, and (c)
will, and will cause each of its Subsidiaries to, continue to engage primarily
in the businesses now conducted by them and in related businesses; provided that
nothing in this Section 8.7 shall prevent the Borrower from discontinuing the
operation and maintenance of any of its properties or any of those of its
Subsidiaries if such discontinuance is, in the judgment of the Borrower,
desirable in the conduct of its; or their business and that do not in the
aggregate materially adversely affect the business of the Borrower and its
Subsidiaries on a consolidated basis.
<PAGE> 34
-28-
SECTION 8.8. INSURANCE The Borrower will, and will cause each
of its Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent and in accordance with the terms of the Security
Agreements. The Borrower will, and will cause each of its Subsidiaries to,
maintain insurance on the Mortgaged Properties in accordance with the terms of
the Mortgages.
SECTION 8.9. TAXES. The Borrower will, and will cause each of
its Subsidiaries to, duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property; provided that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if the Borrower or such Subsidiary shall have set aside on its books
adequate reserves with respect thereto; and provided further that the Borrower
and each Subsidiary of the Borrower will pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any lien that may have attached as security therefor.
SECTION 8.10. INSPECTION OF PROPERTIES AND BOOKS.
(a) The Borrower shall permit the Banks, through the Agent or
any Bank's designated representatives and agents, to visit and inspect
any of the properties of the Borrower or any of its Subsidiaries, to
examine the books of account of the Borrower and its Subsidiaries (and
to make copies thereof and extracts therefrom), and to discuss the
affairs, finances and accounts of the Borrower and its Subsidiaries
with, and to be advised as to the same by, its and their officers, all
at such reasonable times and intervals as the Agent or any of the Banks
may reasonably request; provided, that the Agent, the Banks and their
respective representatives and agents shall agree (i) to treat in
confidence information gained from such inspections, examinations and
discussions; (ii) not to disclose any such information to a third party
(other than a permitted participant or assignee or the legal counsel
and accountants of the Agent or any of the Banks), except as required
by applicable Federal, State or municipal laws or regulations or by a
court, administrative board or tribunal of competent jurisdiction; and
(iii) not to make use of such information for purposes unrelated to the
transactions contemplated in this Credit Agreement.
(b) Only when necessary to determine the Borrower's compliance
with the terms hereof or upon the receipt by the Agent or any of the
Banks of financial or other information from the Borrower or such
accountants, and, in each case, only after reasonable prior notice to
the Borrower, the Borrower authorizes the Agent and of the Banks to
communicate directly with the Borrower's independent certified public
<PAGE> 35
-29-
accountants and authorizes such accountants to disclose to the Agent
and/or any of the Banks any and all financial statements and other
supporting financial documents and schedules including copies of any
management letter with respect to the business, financial condition and
other affairs of the Borrower or any of its Subsidiaries. At the
request of the Agent or any of the Banks, the Borrower shall deliver a
letter addressed to such accountants instructing them to comply with
the provisions of this Section 8.10(b).
SECTION 8.11. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND
PERMITS. The Borrower will, and will cause each of its Subsidiaries to, comply
with (a) all material provisions of applicable laws and regulations wherever its
business is conducted, including all Environmental Laws, (b) the provisions of
its charter documents and by-laws, (c) all material agreements and instruments
by which it or any of its properties may be bound and (d) all applicable decrees
orders, and judgments. If any authorization, consent, approval, permit or
license from any officer, agency or instrumentality of any government shall
become necessary or required in order that the Borrower or any of its
Subsidiaries may fulfill any of its obligations hereunder or under any of the
other Loan Documents to which the Borrower or such Subsidiary is a party, the
Borrower will, or (as the case may be) will cause such Subsidiary to,
immediately take or cause to be taken all reasonable steps within the power of
the Borrower or such Subsidiary to obtain such authorization, consent, approval,
permit or license and furnish the Agent with evidence thereof.
SECTION 8.12. EMPLOYEE BENEFIT PLANS. The Borrower will, and
will cause each Subsidiary to, (i) promptly upon filing the same with the United
States Department of Labor or Internal Revenue Service, furnish to the Agent a
copy of the most recent actuarial statement required to be submitted under
Section 103(d) of ERISA and Annual Report, Form 5500, with all required
attachments, in respect of each Guaranteed Pension Plan and (ii) promptly upon
receipt or dispatch, furnish to the Agent and each of the Banks any notice,
report or demand sent or received in respect of a Guaranteed Pension Plan under
Sections 302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in
respect of a Multiemployer Plan, under Sections 4041A, 4202, 4219, 4242, or
4245 of ERISA.
SECTION 8.13. USE OF PROCEEDS. The Borrower will use the
proceeds of the Loans (i) to finance the Acquisitions, (ii) to refinance on the
Effective Date the Existing Indebtedness and (iii) for working capital and
general corporate purposes; provided, that the Borrower will not, and will not
permit any of its Subsidiaries to, use the proceeds of any of the Loans to
finance or pay for any Indebtedness or obligations arising in connection with
the operations or business of any of the Joint Ventures, including, without
limitation, any Indebtedness incurred by the Borrower or any of its Subsidiaries
on behalf of any Joint Venture in its capacity as a general partner or joint
ventures of such Joint Venture or otherwise or any Indebtedness incurred under
any management or operating contract between the Borrower or any of its
Subsidiaries and any of the Joint Ventures, and, provided, further, that nothing
set forth in this Section 8.13 shall be deemed to restrict the ability of the
Borrower and its Subsidiaries to pay Indebtedness permitted by the terms of
Section 9.1(h) hereof.
<PAGE> 36
-29-
SECTION 8.14. FURTHER ASSURANCES. The Borrower will, and will
cause each of its Subsidiaries to, cooperate with the Agent and each of the
Banks and execute such further instruments and documents as the Agent and each
of the Banks shall reasonably request to carry out to its satisfaction the
transactions contemplated by this Credit Agreement and the other Loan Documents.
SECTION 9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower
covenants and agrees that, so long as any Loan or Note is outstanding or any
Bank has any obligation to make any Loans:
SECTION 9.1. RESTRICTIONS ON INDEBTEDNESS. The Borrower will
not, and will not permit any of its Subsidiaries to, create, incur, assume,
guarantee or be or remain liable, contingently, by way of guarantee or
partnership liability or otherwise, with respect to any Indebtedness other than:
(a) Indebtedness to the Banks and the Agent arising under any
of the Loan Documents;
(b) (i) current liabilities of the Borrower or such Subsidiary
incurred in the ordinary course of business but excluding any
liabilities incurred through (A) the borrowing of money, or (B) the
obtaining of credit except for credit on an open account basis
customarily extended and in fact extended in connection with normal
purchases of goods and services and (ii) liabilities of the Borrower
(other indebtedness for borrowed money) under the Acquisition
Documents;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and
supplies to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 8.9;
(d) Indebtedness in respect of judgments or awards that have
been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which
the Borrower or such Subsidiary shall at the time in good faith be
prosecuting an appeal or proceedings for review and in respect of which
a stay of execution shall have been obtained pending such appeal or
review;
(e) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(f) obligations under Capitalized Leases not exceeding
$10,000,000 in aggregate amount at any time outstanding;
(g) Indebtedness incurred in connection with the acquisition
after the date hereof of any real or personal property by the Borrower
or such Subsidiary;
(h) Indebtedness of the Borrower or its Subsidiaries to the
Joint Ventures (other than Indebtedness arising in connection with
capital contributions to any Joint
<PAGE> 37
-31-
Venture required to be made pursuant to the terms and conditions of any
written joint venture agreement of such Joint Venture as in effect on
the date hereof) that (i) is incurred solely in connection with cash
management services provided by the Borrower to the Joint Ventures,
(ii) is subordinated on terms and conditions satisfactory to the
Majority Banks in all respects and (iii) does not exceed $3,000,000 in
aggregate amount at any time;
(i) Indebtedness of a wholly-owned Subsidiary to the Borrower
that has been assigned to the Agent on behalf of the Banks pursuant to
the Security Documents;
(j) Indebtedness of the Borrower or any of its Subsidiaries
arising in connection with required (pursuant to the terms and
conditions of any written joint venture agreement of any Joint Venture
as in effect on the date hereof) capital contributions to any of the
Joint Ventures in an aggregate amount not in excess of $2,000,000 at
any time;
(k) Indebtedness (other than that set forth above in this
Section 9.1) existing on the date hereof and listed and described on
Schedule 9.1 hereto; and
(l) Subordinated Debt.
SECTION 9.2. RESTRICTIONS ON LIENS. The Borrower will not, and
will not permit any of its Subsidiaries to, (a) create or incur or suffer to be
created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (c) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; (d) suffer to exist
for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise
transfer any accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse; provided that the Borrower and any
Subsidiary of the Borrower may create or incur or suffer to be created or
incurred or to exist:
(i) liens to secure taxes, assessments, other
government charges and claims for labor, material or supplies
to the extent that payment there for shall not at the time be
required to be made in accordance with the provisions of
Section 8.9;
<PAGE> 38
-32-
(ii) deposits or pledges made in connection with, or
to secure payment of, workmen's compensation, unemployment
insurance, old age pensions or other social security
obligations;
(iii) liens on properties in respect of judgments or
awards the Indebtedness with respect to which is permitted
by Section 9.1(d);
(iv) liens of carriers, warehousemen, mechanics and
materialmen, and other like liens on properties in existence
less than one hundred and twenty (120) days from the date of
creation thereof in respect of obligations not overdue;
(v) encumbrances on Real Estate consisting of
easements, rights of way, zoning restrictions, restrictions on
the use of real property and defects and irregularities in the
title thereto, landlord's or lessor's liens under leases to
which the Borrower or a Subsidiary of the Borrower is a party,
and other minor liens or encumbrances none of which interferes
materially with the use of the property affected in the
ordinary conduct of the business of the Borrower and its
Subsidiaries, which defects do not individually or in the
aggregate have a materially adverse effect on the business of
the Borrower individually or of the Borrower and its
Subsidiaries on a consolidated basis;
(vi) purchase money security interests in or purchase
money mortgages on real or personal property other than
Mortgaged Properties acquired after the date hereof to secure
purchase money Indebtedness of the type and amount permitted
by Section 9.1(g), incurred in connection with the acquisition
of such property, which security interests or mortgages cover
only the real or personal property so acquired;
(vii) liens and encumbrances on each Mortgaged
Property as and to the extent permitted by the Mortgage
applicable thereto; and
(viii) liens in favor of the Agent under the Loan
Documents; and
(ix) liens (other than those permitted above in this
Section 9.2) existing on the date hereof and listed on
Schedule 9.2 hereto;
Without limiting the foregoing, the Borrower will not, an will not
permit any of its Subsidiaries to, agree with any Person in any document,
agreement or instrument, whether evidencing any Indebtedness permitted by this
Agreement or otherwise, to any terms and conditions similar to those set forth
in this Section 9.2.
SECTION 9.3. RESTRICTIONS ON INVESTMENTS. The Borrower will
not, and will not permit any of its Subsidiaries to, make or permit to exist or
to remain outstanding any Investment except Investments in:
<PAGE> 39
-33-
(a) marketable direct or guaranteed obligations of the United
States of America that mature within one (1) year from the date of
purchase by the Borrower;
(b) demand deposits, certificates of deposit, bankers
acceptances and time deposits of any Bank or of any United States banks
having total assets in excess of $1,000,000,000;
(c) securities commonly known as "COMMERCIAL PAPER" issued by
a corporation organized and existing under the laws of the United
States of America or any state thereof that at the time of purchase
have been rated and the ratings for which are not less than "P 2" if
rated by Moody's Investors Services, Inc., and not less than "A 2" if
rated by Standard and Poor's;
(d) Investments with respect to Indebtedness permitted by
Section 9.1(i) so long as such entities remain wholly-owned
Subsidiaries of the Borrower if, and only if, such Subsidiaries have
guaranteed payment and performance of the Obligations and have executed
and delivered all Security Documents required by the terms hereof;
(e) Investments existing on the Effective Date by the Borrower
in wholly-owned Subsidiaries of the Borrower;
(f) Investments, not exceeding $5,000,000 in the aggregate, in
respect of the purchase by the Borrower after the date hereof of any
equity interests in any of the Joint Ventures;
(g) Investments after the date hereof consisting of mandatory
or required (pursuant to the terms and conditions of any written joint
venture agreement of any Joint Venture as in effect on the date hereof)
cash capital contributions to Joint Ventures existing on the date
hereof that do not exceed in the aggregate $1,000,000;
(h) Investments (not described above in this Section 9.3)
existing on the date hereof and listed on Schedule 9.3 hereto; and
(i) Investments consisting of guaranties of Subordinated Debt
incurred by the Borrower or any Subsidiary of the Borrower.
SECTION 9.4. DISTRIBUTIONS. If a Default or an Event of
Default shall have occurred and be continuing, the Borrower will not make, and
will not permit any of its Subsidiaries to make, any Distributions.
SECTION 9.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
(a) The Borrower will not, and will not permit any of its
Subsidiaries to, become a party to any merger or consolidation, or
agree to or effect any asset acquisition or stock acquisition (other
than the acquisition of assets in the ordinary course of business
consistent with past practices) except (i) the Acquisitions, (ii) the
<PAGE> 40
-34-
merger or consolidation of one or more of the wholly-owned Subsidiaries
of the Borrower with and into the Borrower, (iii) the merger or
consolidation of two or more whollyowned Subsidiaries of the Borrower,
(iv) acquisitions by the Borrower consisting of Investments permitted
by Sections 9.3(e), (f) and (g) hereof or (v) the acquisition by
RMI of certain equity interests of RCI in the RCI Joint Ventures.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, become a party to or agree to or effect any
disposition of assets, other than (i) the disposition of assets in the
ordinary course of business, consistent with past practices and (ii) in
any fiscal year of the Borrower, the sale or disposition of equity
interests in the Joint Ventures, so long as the aggregate fair market
value of all such sales and dispositions during such fiscal year is
less than $2,500,000.
SECTION 9.6. SALE AND LEASEBACK. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into any arrangement, directly
or indirectly, whereby the Borrower or any Subsidiary of the Borrower shall sell
or transfer any property owned by it in order then or thereafter to lease such
property or lease other property that the Borrower or any Subsidiary of the
Borrower intends to use for substantially the same purpose as the property being
sold or transferred.
SECTION 9.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower
will not, and will not permit any of its Subsidiaries to, (a) use any of the
Real Estate or any portion thereof for the handling, processing, storage or
disposal of Hazardous Substances, except in material compliance with all
applicable Environmental Laws, (b) cause or permit to be located on any of the
Real Estate any underground tank or other underground storage receptacle for
Hazardous Substances, (c) generate any Hazardous Substances on any of the Real
Estate, except in material compliance with all applicable Environmental Laws,
(d) conduct any activity at any Real Estate or use any Real Estate in any manner
so as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing or
dumping) or threatened release of Hazardous Substances on, upon or into the Real
Estate, except in material compliance with all applicable Environmental Laws, or
(e) otherwise conduct any activity at any Real Estate or use any Real Estate in
any manner that would result in a material violation of any Environmental Law or
bring such Real Estate into material violation of any Environmental Law.
SECTION 9.8. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor
any ERISA Affiliate will
(a) engage in any "PROHIBITED TRANSACTION" within the meaning
of Section 406 of ERISA or Section 4975 of the Code which could result
in a material liability for the Borrower or any of its Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an
"ACCUMULATED FUNDING DEFICIENCY", as such term is defined in Section
302 of ERISA, whether or not such deficiency is or may be waived; or
<PAGE> 41
-35-
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner
which, could result in the imposition of a lien or encumbrance on the
assets of the Borrower or any of its Subsidiaries pursuant to Section
302(f) or Section 4068 of ERISA; or
(d) permit or take any action which would result in the
aggregate benefit liabilities (with the meaning of Section 4001 of
ERISA) of all Guaranteed Pension Plans exceeding the value of the
aggregate assets of such Plans, disregarding for this purpose the
benefit liabilities and assets of any such Plan with assets in excess
of benefit liabilities.
SECTION 9.9. MEDICARE QUALIFICATION. The Borrower will not,
and will not permit any of its Subsidiaries to, engage in any activity in
material violation of any law or regulation related to the delivery of health
care or health care services or the payment for health care services, including,
but not limited to, 42 U.S.C. Section 1320a-7 et seq., 42 U.S.C. Section 1395 et
seq., 42 U.S.C. Section 1396 et seq., 42 U.S.C. Section 1307 et seq., 18 U.S.C.
Section 286, 18 U.S.C. Section 287, 18 U.S.C. Section 666; or which could result
in the exclusion of the Borrower or any of its Subsidiaries from any program
promulgated or established under any Medicare or Medicaid Laws or the exclusion
of the Borrower or any of its Subsidiaries from receiving provider payments
pursuant to any Medicare or Medicaid Laws.
SECTION 9.10. AMENDMENT OR MODIFICATION OF ACQUISITION
DOCUMENTS. In connection with any Acquisition for which the total purchase price
of the Acquisition Assets equals or exceeds $15,000,000, the Borrower shall not
effect or permit any amendment or modification of any Acquisition Documents in
any respect without the prior written consent of the Majority Banks.
SECTION 9.11. CHANGE OF FISCAL YEAR. Neither the Borrower nor
any of its Subsidiaries shall change its fiscal year without the prior written
consent of the Majority Banks, provided that, such consent shall not be
unreasonably withheld.
SECTION 10. FINANCIAL COVENANTS OF THE BORROWER. The Borrower covenants
and agrees that, so long as any Loan or Note is outstanding or any Bank has any
obligation to make any Loans:
SECTION 10.1. CONSOLIDATED OPERATING CASH FLOW TO TOTAL
INTEREST EXPENSE. The Borrower will not permit the ratio of Consolidated
Operating Cash Flow of the Borrower and its Subsidiaries to Consolidated Total
Interest Expense of the Borrower and its Subsidiaries for any period consisting
of four (4) consecutive fiscal quarters of the Borrower ending after the
Effective Date to be less than 3.0: 1.0 at any time.
SECTION 10.2. CONSOLIDATED OPERATING CASH FLOW TO CONSOLIDATED
FINANCIAL OBLIGATIONS. The Borrower will not permit the ratio of Consolidated
Operating Cash Flow of the Borrower and its Subsidiaries to Consolidated
Financial Obligations of the Borrower and its Subsidiaries for any period
consisting of four (4) consecutive fiscal quarters of the Borrower ending after
the Effective Date to be less than 1.5:1.0.
<PAGE> 42
-36-
SECTION 10.3. CONSOLIDATED TOTAL FUNDED DEBT TO CONSOLIDATED
OPERATING CASH FLOW. The Borrower will not permit the ratio of Consolidated
Total Funded Debt of the Borrower and its Subsidiaries to Consolidated Operating
Cash Flow of the Borrower and its Subsidiaries for any period consisting of four
(4) consecutive fiscal quarters of the Borrower ending after the Effective Date
to exceed 3.0:1.0.
SECTION 11. CLOSING CONDITIONS. The obligations of the Banks to make
the initial Revolving Credit Loan shall be subject to the satisfaction of the
following conditions precedent on or prior to August 15, 1996:
SECTION 11.1. LOAN DOCUMENTS. Each of the Loan Documents shall
have been duly executed and delivered by the respective parties thereto, shall
be in full force and effect and shall be in form and substance satisfactory to
each of the Banks. Each Bank shall have received a fully executed copy of each
such document.
SECTION 11.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of
the Banks shall have received from the Borrower and each of its Subsidiaries a
copy, certified by a duly authorized officer of such Person to be true and
complete, of each of (a) its charter or other incorporation or partnership
documents as in effect on such date of certification, and (b) its by-laws as in
effect on such date in each case as in effect on the Effective Date.
SECTION 11.3. CORPORATE ACTION. All corporate and partnership
action necessary for the valid execution, delivery and performance by the
Borrower and each of its Subsidiaries of this Credit Agreement and the other
Loan Documents to which it is or is to become a party shall have been duly and
effectively taken, and evidence thereof satisfactory to the Banks shall have
been provided to each of the Banks.
SECTION 11.4. INCUMBENCY CERTIFICATE. Each of the Banks shall
have received from the Borrower and each of its Subsidiaries an incumbency
certificate, dated as of the Effective Date, signed by a duly authorized officer
of such Person, and giving the name and bearing a specimen signature of each
individual who shall be authorized: (a) to sign, in the name and on behalf of
such Person, each of the Loan Documents to which such Person is or is to become
a party; (b) in the case of the Borrower, to make a Revolving Credit Loan
Request; and (c) to give notices and to take other action on its behalf under
the Loan Documents.
SECTION 11.5. LEGALITY OF TRANSACTIONS. No change in
applicable law shall have occurred as a consequence of which it shall have
become and continue to be unlawful (a) for any Bank or the Agent to perform any
of its agreements or obligations under any of the Loan Documents to which any
such Person is a party on the Effective Date or (b) for the Borrower to perform
any of its material agreements or obligations under any of the Loan Documents to
which it is a party on the Effective Date.
SECTION 11.6. VALIDITY OF LIENS. The Security Documents shall
be effective to create in favor of the Agent, for the ratable benefit of the
Banks, a legal, valid and enforceable first (except for Permitted Liens entitled
to priority under applicable law) security interest in and lien upon the
Collateral. All filings, recordings, deliveries of instruments and other actions
<PAGE> 43
-37-
necessary or desirable in the opinion of the Banks to protect and preserve such
security interests shall have been duly effected. The Banks shall have received
evidence thereof in form and substance satisfactory to the Banks.
SECTION 11.7. UCC SEARCH RESULTS. The Banks shall have
received the results of Uniform Commercial Code searches with respect to the
Collateral, indicating no liens other than Permitted Liens and otherwise in form
and substance satisfactory to the Banks.
SECTION 11.8. LANDLORD CONSENTS. The Borrower and its
Subsidiaries shall have used its best efforts to deliver to the Banks all
consents required for the Agent to receive, as part of the Security Documents, a
collateral assignment of each material leasehold of personal property, and a
Mortgage of each material leasehold of real property, together in each case with
such estoppel certificates as the Banks may reasonably request.
SECTION 11.9. CERTIFICATES OF INSURANCE. The Banks shall have
received (a) a certificate of insurance from an independent insurance broker
dated as of the Effective Date, identifying insurers, types of insurance,
insurance limits, and policy terms, and otherwise describing the insurance
obtained in accordance with the provisions of the Security Agreements and (b)
certified copies of all policies evidencing such insurance (or certificates
therefore signed by the insurer or an agent authorized to bind the insurer).
SECTION 11.10. DISCHARGE OF LIENS. The Banks shall have
received from the Borrower evidence reasonably satisfactory to the Agent that
all liens and encumbrances with respect to property of the Borrower, other than
Permitted Liens shall have been discharged in full.
SECTION 11.11. INTENTIONALLY OMITTED.
SECTION 11.12. PROCEEDINGS AND DOCUMENTS. All corporate,
partnership, governmental and other proceedings in connection with the
transactions contemplated by the Loan Documents, and all instruments and
documents incidental thereto, shall be in form and substance reasonably
satisfactory to the Banks and the Banks shall have received all such counterpart
originals or certified or other copies of all such instruments and documents as
the Banks shall have reasonably requested.
SECTION 11.13. INTENTIONALLY OMITTED.
SECTION 11.14. OPINIONS OF COUNSEL. Each of the Banks and the
Agent shall have received a favorable legal opinion addressed to the Banks and
the Agent, dated as of the Effective Date, in form and substance satisfactory to
the Bank, from:
(a) Gray Cary Ware & Freidenrich, counsel to the Borrower and
its Subsidiaries:
(b) local counsel to the Borrower and its Subsidiaries as
applicable; and
<PAGE> 44
-38-
(c) regulatory counsel to the Borrower and its Subsidiaries.
SECTION 11.15. CAPITAL STRUCTURE. The Banks shall be satisfied
with the capital structure of the Borrower and its subsidiaries on and as of the
Effective Date.
SECTION 11.16. FINANCIAL CONDITION. The Banks shall be
satisfied that the financial statements referred to in Section 7.5 fairly
present the business and financial condition of the Borrower and its
Subsidiaries as at and for the periods ending on the respective dates thereof,
and that there has been no material adverse change in the assets, business or
financial condition of the Borrower, since the applicable dates set forth in
Section 7.5 hereof.
SECTION 11.17. SOLVENCY CERTIFICATE. The Agent shall have
received from the Borrower and each of its Subsidiaries a certificate of the
chief financial officer of each such Person, addressed to the Agent and the
Banks, regarding the solvency of each such Person after the consummation of the
transactions contemplated herein and such certificate shall be in form and
substance satisfactory to the Banks.
SECTION 12. ACQUISITION CREDIT LOAN CLOSING CONDITIONS. The obligations
of the Banks to make any Acquisition Credit Loan shall be subject to the
satisfaction of the following conditions precedent on or prior to the Drawdown
Date of such Acquisition Credit Loan:
SECTION 12.1. ACQUISITION DOCUMENTS. Each of the Acquisition
Documents applicable to such Acquisition Credit Loan and the related Acquisition
shall have been duly executed and delivered by the respective parties thereto,
shall be in full force and effect and, if the total purchase price for the
applicable Acquisition Assets equals or exceeds $15,000,000, shall be in form
and substance satisfactory to each of the Banks. Each Bank shall have received a
fully executed copy of each such document.
SECTION 12.2. CORPORATE ACTION. All corporate and partnership
action necessary for the valid execution, delivery and performance by the
Borrower and each of its Subsidiaries of the applicable Acquisition Document to
which it is or is to become a party shall have been duly and effectively taken,
and, if the total purchase price for the applicable Acquisition Assets equals or
exceeds $15,000,000, evidence of such corporate and partnership action
satisfactory to the Banks shall have been provided to each of the Banks.
SECTION 12.3. DISCHARGE OF LIENS. If the total purchase price
for the applicable Acquisition Assets equals or exceeds $15,000,000, the Banks
shall have received from the Borrower evidence reasonably satisfactory to the
Agent that all liens and encumbrances with respect to property of the Borrower
or property to be acquired by the Borrower from any Seller or transferred to the
Borrower pursuant to or as a result of the transactions contemplated by the
applicable Acquisition Documents, other than Permitted Liens shall have been
discharged in full.
SECTION 12.4. PROCEEDINGS AND DOCUMENTS. If the total purchase
price for the applicable Acquisition Assets equals or exceeds $15,000,000, all
corporate, partnership,
<PAGE> 45
-39-
governmental and other proceedings in connection with the transactions
contemplated by the applicable Acquisition Documents and all instruments and
documents incidental thereto shall be in form and substance reasonably
satisfactory to the Banks and, regardless of the amount of such purchase price,
the Banks shall have received all such counterpart originals or certified or
other copies of all such instruments and documents as the Banks shall have
reasonably requested.
SECTION 12.5. CLOSING OF ACQUISITION. The Borrower shall
complete on the Drawdown Date of such Acquisition Credit Loan the purchase of
the applicable Acquisition Assets pursuant to the applicable Acquisition
Documents without recourse to any provision of such Acquisition Documents
permitting the waiver by the Borrower of any material condition, obligation,
covenant or other requirement without the prior written consent of the Majority
Banks. Upon the purchase of the Acquisition Assets pursuant to the applicable
Acquisition Documents, the Borrower will have valid and marketable title to all
of the assets and properties intended to be conveyed to the Borrower pursuant to
the such Acquisition Documents.
SECTION 12.6. OPINIONS OF COUNSEL. If the total purchase price
for the applicable Acquisition Assets equals or exceeds $15,000,000, each of the
Banks and the Agent shall have received a favorable legal opinion addressed to
the Banks and the Agent, dated as of the Drawdown Date of such Acquisition
Credit Loan, in form and substance satisfactory to the Bank, from counsel for
the applicable Seller and the Borrower, respectively, delivered in connection
with the applicable Acquisition, together with appropriate letters from such
counsel authorizing the Banks and the Agent to rely on said opinions.
SECTION 12.7. CAPITAL STRUCTURE. If the total purchase price
for the applicable Acquisition Assets equals or exceeds $15,000,000, the Banks
shall be satisfied with the capital structure of the Borrower and its
Subsidiaries (including, without limitation, the applicable Acquisition Assets)
on the Drawdown Date of such Acquisition Credit Loan.
SECTION 12.8. FINANCIAL CONDITION. If the total purchase price
for the applicable Acquisition Assets equals or exceeds $15,000,000, the Banks
shall be satisfied (i) that the financial information delivered to the Bank with
respect to the applicable Acquisition Assets is in form and detail satisfactory
to the Banks and fairly presents the business and financial condition of the
proposed Acquisition Assets and that there has been no material adverse change
in the business, assets or financial condition of the Acquisition Assets, the
Borrower and/or its Subsidiaries since the dates of such financial information,
(ii) that the Banks' due diligence review of the proposed Acquisition Assets,
including, without limitation, industry checkings and, if such Acquisition
Credit Loan to be made in connection with such Acquisition exceeds $15,000,000,
a review by the Agent's commercial finance examiners of the Acquisition Assets,
does not reveal to the Banks after the date hereof any materially adverse
information and (iii) with the documentation evidencing the agreement to
purchase the proposed Acquisition Assets.
<PAGE> 46
-40-
SECTION 12.9. ADDITIONAL GUARANTY. If applicable, any
corporation, partnership, joint venture or business associate acquired with the
proceeds of such Acquisition Credit Loan shall execute and deliver to the Agent
and the Banks a Guaranty satisfactory to the Banks and their counsel.
SECTION 12.10. APPROVALS. The Banks being reasonably satisfied
that all parties to the proposed Acquisition have received all necessary
regulatory approvals and evidence of compliance with all state and federal laws,
including but not limited to Regulation U, and state and federal securities
laws, applicable to any of the parties to such transactions.
SECTION 12.11. PRO FORMA CASH FLOW. The Banks' shall have
determined that the ratio of the pro forma Consolidated Operating Cash Flow of
the Borrower and its Subsidiaries to the pro forma Consolidated Financial
Obligations of the Borrower and its Subsidiaries for the period of four (4)
consecutive fiscal quarters of the Borrower ending on the last day of the fiscal
quarter ending immediately prior to the first anniversary of such proposed
Acquisition, in each case after giving effect to such Acquisition, does not
exceed 1.5:1.0.
SECTION 12.12. PURCHASE PRICE. The Banks' shall have
determined that the total purchase price to be paid by the Borrower in
connection with such Acquisition does not exceed the product of (a) 2.5 times
(b) the Borrower's Consolidated Operating Cash Flow for the period of four (4)
consecutive fiscal quarters of the Borrower ending immediately prior to the
closing of such Acquisition.
SECTION 12.13. PRO FORMA FUNDED DEBT The Banks' shall have
determined that the ratio of the pro forma Consolidated Total Funded Debt of the
Borrower and its Subsidiaries to the pro forma Consolidated Operating Cash Flow
of the Borrower and its Subsidiaries for the period of four (4) consecutive
fiscal quarters of the Borrower ending on the last day of the fiscal quarter
ending immediately prior to the first anniversary of such proposed Acquisition,
in each case after giving effect to such Acquisition, does not exceed 3.0:1.0.
SECTION 12.14. OTHER CONDITIONS. The Banks shall have
determined that all of the conditions precedent set forth in Section 12 shall
have been satisfied.
SECTION 12A. CONDITIONS TO ALL BORROWINGS. The obligations of the Banks
to make any Loan, including the Revolving Credit Loans, whether on or after the
Effective Date, shall also be subject to the satisfaction of the following
conditions precedent:
SECTION 12A.1 REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each
of the representations and warranties of any Person contained in the Acquisition
Documents, this Credit Agreement, the other Loan Documents or in any document or
instrument delivered pursuant to or in connection with this Credit Agreement
shall be true as of the date they were made and shall also be true at and as of
the time of the making of such Loan, with the same effect as if made at and as
of that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Credit Agreement the other Loan Documents or
the Acquisition Documents, and changes occurring in the ordinary course of
business that
<PAGE> 47
-41-
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing.
SECTION 12A.2 NO LEGAL IMPEDIMENT. No change shall have
occurred in any law or regulations thereunder or interpretations thereof that in
the reasonable opinion of any Bank would make it illegal for such Bank to make
any Loan.
SECTION 12A.3 GOVERNMENTAL REGULATION. Each Bank shall have
received such statements in substance and form reasonably satisfactory to such
Bank as such Bank shall require for the purpose of compliance with any
applicable regulations of the Comptroller of the Currency or the Board of
Governors of the Federal Reserve System.
SECTION 12A.4 PROCEEDINGS AND DOCUMENTS. All proceedings in
connection with the transactions contemplated by the Acquisition Documents this
Credit Agreement, the other Loan Documents and all other documents incident
thereto shall be satisfactory in substance and in form to the Banks and the
Agent and the Agent's Special Counsel, and the Banks and the Agent and such
counsel shall have received all information and such counterpart originals or
certified or other copies of such documents as the Agent, such Bank or such
counsel may reasonably request.
SECTION 13. EVENTS OF DEFAULT; ACCELERATION: ETC.
SECTION 13.1. EVENTS OF DEFAULT AND ACCELERATION. If any of
the following events ("EVENTS OF DEFAULT" or, if the giving of notice or the
lapse of time or both is required, then, prior to such notice or lapse of time,
"DEFAULTS") shall occur:
(a) the Borrower or any Subsidiary shall fail to pay any
principal of the Loans when the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of
maturity or at any other date fixed for payment;
(b) the Borrower or any of its Subsidiaries shall fail to pay
any interest on the Loans, any commitment fee or other sums due
hereunder or under any of the other Loan Documents, within five (5)
days of when the same shall become due and payable, whether at the
stated date of maturity or any accelerated date of maturity or at any
other date fixed for payment;
(c) the Borrower shall fail to comply with any of its
covenants contained in Sections 8.1, 8.5, 8.6, 8.8 and 8.13, 9 or
10 or any of the covenants contained in any of the Security Documents;
(d) the Borrower shall fail to comply with any of its
covenants contained in any of Sections 8.2, 8.3, 8.7, 8.9, 8.10,
8.11, 8.12 and 8.14 hereof and such non-compliance shall continue for
thirty (30) days after the occurrence thereof.
<PAGE> 48
-42-
(e) the Borrower or any of its Subsidiaries shall fail to
comply with any of its covenants contained in Section 8.4 hereof or
fail to perform any term, covenant or agreement contained herein or in
any of the other Loan Documents (other than those specified elsewhere
in this Section 13.1) for thirty (30) days after written notice of such
failure has been given to the Borrower by the Agent;
(f) the Subsidiaries shall fail to comply with any of their
respective covenants set forth in the Guarantees;
(g) any representation or warranty of the Borrower or any of
its Subsidiaries in this Credit Agreement or any of the other Loan
Documents or in any other document or instrument delivered pursuant to
or in connection with this Credit Agreement shall prove to have been
false in any material respect upon the date when made or deemed to have
been made or repeated;
(h) the Borrower or any of its Subsidiaries shall fail to pay
at maturity, or within any applicable period of grace, any obligations
(in excess of $1,000,000 in the aggregate) for borrowed money or credit
received or in respect of any Capitalized Leases, or fail to observe or
perform any material term, covenant or agreement contained in any
agreement by which it is bound, evidencing or securing borrowed money
or credit received or in respect of any Capitalized Leases for such
period of time as would permit (assuming the giving of appropriate
notice if required) the holder or holders thereof or of any obligations
(in excess of $1,000,000 in the aggregate) issued thereunder to
accelerate the maturity thereof;
(i) the Borrower or any of its Subsidiaries shall make an
assignment for the benefit of creditors, or admit in writing its
inability to pay or generally fail to pay its debts as they mature or
become due, or shall petition or apply for the appointment of a trustee
or other custodian, liquidator or receiver of the Borrower or any of
its Subsidiaries or of any substantial part of the assets of any such
Person or shall commence any case or other proceeding relating to any
such Person under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar
law of any jurisdiction, now or hereafter in effect, or shall take any
action to authorize or in furtherance of any of the foregoing, or if
any such petition or application shall be filed or any such case or
other proceeding shall be commence against any such Person shall
indicate its approval thereof, consent thereto or acquiescence therein;
(j) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or any
of its Subsidiaries bankrupt or insolvent, or approving a petition in
any such case or other proceeding, or a decree or order for relief is
entered in respect of any such Person in an involuntary case under
federal bankruptcy laws as now or hereafter constituted
(k) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty (30) days, whether or not consecutive,
any final (as to which the time
<PAGE> 49
-43-
for further appeals has expired or to which the appeals process has
been exhausted) judgment against the Borrower or any of its
Subsidiaries that, with other outstanding final judgments,
undischarged, against any such Person exceeds in the aggregate
$1,000,000;
(l) if any of the Loan Documents or any of the Security
Documents shall be canceled, terminated, revoked or rescinded otherwise
than in accordance with the terms thereof or with the express prior
written agreement, consent or approval of the Banks, or any action at
law, in equity or other legal proceeding to cancel, revoke or rescind
any of the Loan Documents shall be commenced by or on behalf of the
Borrower any of its Subsidiaries party thereto or any of their
respective stockholders, or any court or any other governmental or
regulatory authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the
effect that, any one or more of the Loan Documents or, in any material
respect, any Acquisition Document is illegal, invalid or unenforceable
in accordance with the terms thereof;
(m) if the Borrower shall fail to observe or perform any
material term, covenant or agreement contained in any Acquisition
Document;
(n) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and the Agent shall have
determined in its reasonable discretion that such event reasonably
could be expected to result in liability of the Borrower or any of its
Subsidiaries to the PBGC or such Guaranteed Pension Plan in an
aggregate amount exceeding $1,000,000 and such event in the
circumstances occurring reasonably could constitute grounds for the
termination of such Guaranteed Pension Plan by the PBGC or for the
appointment by the appropriate United States District Court of a
trustee to administer such Guaranteed Pension Plan; or a trustee shall
have been appointed by the United States District Court to administer
such Plan; or the PBGC shall have instituted proceedings to terminate
such Guaranteed Pension Plan;
(o) the Borrower or any of its Subsidiaries shall be indicted
for a federal crime, a punishment for which could include the
forfeiture of any assets of the Borrower or such Subsidiary having a
fair market value in excess of $1,000,000;
(p) the Borrower (or its successors or assigns) shall, at any
time, legally or beneficially own less than one hundred percent (100%)
of the Voting Stock of the Subsidiaries, as adjusted pursuant to any
stock split, stock dividend or recapitalization or reclassification of
the capital of any of the Subsidiaries and as further adjusted to
reflect the equity interests represented by any warrants or other
options to purchase or otherwise acquire any such stock; or
(q) the Borrower or any of its Subsidiaries shall pay, redeem
or otherwise satisfy any Subordinated Debt in contravention or
violation of the written subordination terms applicable thereto;
<PAGE> 50
-44-
then, and in any such event, so long as the same may be continuing, the Agent,
shall, at the written request of the Majority Banks by notice in writing to the
Borrower, declare all amounts owing with respect to this Credit Agreement, the
Notes and the other Loan Documents to be, and they shall thereupon forthwith
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the
Borrower; provided that in the event of any Event of Default specified in
Section 13.1(i) or 13.1(j), all such amounts shall become immediately due and
payable automatically and without any requirement of notice from the Agent.
SECTION 13.2. TERMINATION OF COMMITMENTS. If any one or more
of the Events of Default specified in Section 13.1(i) or Section 13.1(j) shall
occur, any unused portion of the credit hereunder shall forthwith terminate and
each of the Banks shall be relieved of all further obligations to make Loans to
the Borrower. If any other Event of Default shall have occurred and be
continuing, or if on any Drawdown Date the conditions precedent to the making of
the Loans to be made on such Drawdown Date are not satisfied, the Agent may, and
upon the request of the Majority Banks, shall, by notice to the Borrower,
terminate the unused portion of the credit hereunder, and upon such notice being
given such unused portion of the credit hereunder shall terminate immediately
and each of the Banks shall be relieved of all further obligations to make
Loans. No termination of the credit hereunder shall relieve the Borrower or any
of its Subsidiaries of any of the Obligations.
SECTION 13.3. REMEDIES; RIGHTS UNDER SECURITY DOCUMENTS.
(a) In case any one or more of the Events of Default shall
have occurred and be continuing, and whether or not the Agent shall
have accelerated the maturity of the Loans pursuant to Section 13.1,
each Bank may, subject to the terms of Section 13.3(b) hereof) if owed
any amount with respect to the Loans, proceed to protect and enforce
its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or
agreement contained in this Credit Agreement and the other Loan
Documents or any instrument pursuant to which the Obligations to such
Bank are evidenced, including as permitted by applicable law the
obtaining of the ex parte appointment of a receiver, and, if such
amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right of
such Bank. No remedy herein conferred upon any Bank or the holder of
any Note is intended to be exclusive of any other remedy and each and
every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or any other provision of law.
(b) Notwithstanding anything to the contrary set forth herein,
each of the parties hereto acknowledges and agrees that the respective
rights, benefits and privileges of the Agent and the Banks under each
of the Security Documents and all other instruments, documents and
agreements providing the benefit of any collateral security, guarantees
or subordination for the prompt payment and performance of the
Obligations are for the ratable and mutual benefit of the Banks, and
each of the rights,
<PAGE> 51
-45-
benefits and privileges and thereunder shall be exercised (or not
exercised) solely by the Agent but only at the direction and with the
consent and approval of the Majority Banks in accordance with Section
15 hereof.
SECTION 13.4. DISTRIBUTION OF COLLATERAL PROCEEDS. In the
event that, following the occurrence or during the continuance of any Default or
Event of Default, the Agent or any Bank, as the case may be, receives any monies
in connection with the enforcement of any of the Security Documents, or
otherwise with respect to the realization upon any of the Collateral, such
monies shall be distributed for application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of all reasonable costs,
expenses and disbursements which shall have been incurred or sustained
by the Agent (solely in its capacity as Agent and not as a Bank) in
connection with the collection of such monies by the Agent, for the
exercise, protection or enforcement by the Agent of all or any of the
rights, remedies, powers and privileges of the Agent under this Credit
Agreement or any of the other Loan Documents or in respect of the
Collateral or in support of any provision of adequate indemnity to the
Agent against any taxes or liens which by law shall have, or may have,
priority over the rights of the Agent to such monies:
(b) Second, to all other Obligations in such order or
preference as the Majority Banks may determine; provided, however, that
distributions in respect of such Obligations shall be made (i) pari
passu among Obligations with respect to the Agent's fee payable
pursuant to Section 5.2 and all other Obligations and (ii) Obligations
owing to the Banks with respect to each type of Obligation such as
interest, principal, fees and expenses, shall be made among the Banks
pro rata; and provided, further, that the Agent may in its discretion
make proper allowance to take into account any Obligations not then due
and payable;
(c) Third, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to the Banks and the Agent
of all of the Obligations, to the payment of any obligations required
to be paid pursuant to Section 9-504(1)(c) of the Uniform Commercial
Code of the State of Connecticut; and
(d) Fourth, the excess, if any, shall be returned to the
Borrower or to such other Persons as are entitled thereto.
SECTION 14. SETOFF. Regardless of the adequacy of any collateral,
during the continuance of any Event of Default, any deposits or other sums
credited by or due from any of the Banks to the Borrower and any securities or
other property of the Borrower in the possession of such Bank may be applied to
or set off by such Bank against the payment of Obligations and any and all other
liabilities, direct, or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of the Borrower to such Bank. Each of the
Banks agrees with each other Bank that (a) if an amount to be set off is to be
applied to Indebtedness of the Borrower to such Bank, other than Indebtedness
evidenced by the Notes held by such Bank or constituting Reimbursement
Obligations owed to such Bank, such
<PAGE> 52
-46-
amount shall be applied ratably to such other Indebtedness and to the
Indebtedness evidenced by all such Notes held by such Bank or constituting
Reimbursement Obligations owed to such Bank, and (b) if such Bank shall receive
from the Borrower, whether by voluntary payment, exercise of the right of
setoff, counterclaim, cross action, enforcement of the claim evidenced by the
Notes held by, or constituting Reimbursement Obligations owed to, such Bank by
proceedings against the Borrower at law or in equity or by proof thereof in
bankruptcy, reorganization, liquidation, receivership or similar proceedings, or
otherwise, and shall retain and apply to the payment of the Note or Notes held
by, or Reimbursement Obligations owed to, such Bank any amount in excess of its
ratable portion of the payments received by all of the Banks with respect to the
Notes held by, and Reimbursement Obligations owed to, all of the Banks, such
Bank will make such disposition and arrangements with the other Banks with
respect to such excess, either by way of distribution, pro tanto assignment of
claims, subrogation or otherwise as shall result in each Bank receiving in
respect of the Notes held by it or Reimbursement obligations owed it, its
proportionate payment as contemplated by this Credit Agreement; provided that if
all or any part of such excess payment is thereafter recovered from such Bank,
such disposition and arrangements shall be rescinded and the amount restored to
the extent of such recovery, but without interest.
SECTION 15. THE AGENT.
SECTION 15.1. AUTHORIZATION. The Agent is authorized to take
such action on behalf of each of the Banks and to exercise all such powers as
are hereunder and under any of the other Loan Documents and any related
documents delegated to the Agent, together with such powers as are reasonably
incident thereto, provided that no duties or responsibilities not expressly
assumed herein or therein shall be implied to have been assumed by the Agent.
The relationship between the Agent and the Banks is and shall be that of agent
and principal only, and nothing contained in this Credit Agreement or any of the
other Loan Documents shall be construed to constitute the Agent as a trustee for
any Bank.
SECTION 15.2. EMPLOYEES AND AGENTS. The Agent may exercise its
powers and execute its duties by or through employees or agents and shall be
entitled to take, and to rely on, advice of counsel concerning all matters
pertaining to its rights and duties under this Credit Agreement and the other
Loan Documents. The Agent may utilize the services of such Persons as the Agent
in its sole discretion may reasonably determine, and all reasonable fees and
expenses of any such Persons shall be paid by the Borrower.
SECTION 15.3. NO LIABILITY. Neither the Agent nor any of its
shareholders, directors, officers or employees nor any other Person assisting
them in their duties nor any agent or employee thereof, shall be liable for an
waiver, consent or approval given or any action taken, or omitted to be taken,
in good faith by it or them hereunder or under any of the other Loan Documents,
or in connection herewith or therewith, or be responsible for the consequences
of any oversight or error of judgment whatsoever, except that the Agent or such
other Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
<PAGE> 53
-47-
SECTION 15.4. NO REPRESENTATIONS. The Agent shall not be
responsible for the execution or validity or enforceability of this Credit
Agreement, the Notes, any of the other Loan Documents or any instrument at any
time constituting, or intended to constitute, collateral security for the Notes,
or for the value of any such collateral security or for the validity,
enforceability or collectibility of any such amounts owing with respect to the
Notes, or for any recitals or statements, warranties or representations made
herein or in any of the other Loan Documents or in any certificate or instrument
hereafter furnished to it by or on behalf of the Borrower or any of its
Subsidiaries, or be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or in
any instrument at any time constituting, or intended to constitute, collateral
security for the Notes or to inspect any of the properties, books or records of
the Borrower or any of its Subsidiaries. The Agent shall not be bound to
ascertain whether any notice, consent, waiver or request delivered to it by the
Borrower or any holder of any of the Notes shall have been duly authorized or is
true, accurate and complete. The Agent has not made nor does it now make any
representations or warranties, express or implied, nor does it assume any
liability to the Banks, with respect to the creditworthiness or financial
condition of the Borrower or any of its Subsidiaries. Each Bank acknowledges
that it has, independently and without reliance upon the Agent or any other
Bank, and based upon such information and documents as it has deemed
appropriate, made its own credit analysis and decision to enter into this Credit
Agreement.
SECTION 15.5. PAYMENTS.
(a) A payment by the Borrower to the Agent hereunder or under
any of the other Loan Documents for the account of any Bank shall
constitute a payment to such Bank. The Agent agrees promptly to
distribute to each Bank such Bank's pro rata share of payments received
by the Agent for the account of the Banks except as otherwise expressly
provided herein or in any of the other Loan Documents.
(b) If in the opinion of the Agent the distribution of any
amount received by it in such capacity hereunder, under the Note or
under any of the other Loan Documents could reasonably be expected to
involve it in liability, it may refrain from making distribution until
its right to make distribution shall have been adjudicated by a court
of competent jurisdiction. If a court of competent jurisdiction shall
adjudge that any amount received and distributed by the Agent is to be
repaid, each Person to whom any such distribution shall have been made
shall either repay to the Agent its proportionate share of the amount
so adjudged to be repaid or shall pay over the same in such manner and
to such Persons as shall be determined by such court.
(c) Notwithstanding anything to the contrary contained in this
Credit Agreement or any of the other Loan Documents, any Bank that
fails (i) to make available to the Agent its pro rata share of any Loan
or (ii) to comply with the provisions of Section 14 with respect to
making dispositions and arrangements with the other Banks, where such
Bank's share of any payment received, whether by setoff or otherwise,
is in excess of its pro rata share of such payments due and payable to
all of
<PAGE> 54
-48-
the Banks, in each case as, when and to the full extent required by the
provisions of this Credit Agreement, shall be deemed delinquent (a
"DELINQUENT BANK") and shall be deemed a Delinquent Bank until such
time as such delinquency is satisfied. A Delinquent Bank (regardless of
whether such Bank serves as the Agent) shall be deemed to have assigned
any and all payments due to it from the Borrower, whether on account of
outstanding Loans, interest, fees or otherwise, to the remaining
nondelinquent Banks for application to, and reduction of, their
respective pro rata shares of all outstanding Loans. The Delinquent
Bank hereby authorizes the Agent to distribute such payments to the
nondelinquent Banks in proportion to their respective pro rata shares
of all outstanding Loans. A Delinquent Bank shall be deemed to have
satisfied in full a delinquency when and if, as a result of application
of the assigned payments to all outstanding Loans of the nondelinquent
Banks, the Banks' respective pro rata shares of all outstanding Loans
have returned to those in effect immediately prior to such delinquency
and without giving effect to the nonpayment causing such delinquency.
SECTION 15.6. HOLDERS OF NOTES. The Agent may deem and treat
the payee of any Note as the absolute owner for all purposes hereof until it
shall have been furnished in writing with a different name by such payee or by a
subsequent holder, assignee or transferee.
SECTION 15.7. INDEMNITY. The Banks ratably agree hereby to
indemnify and hold harmless the Agent from and against any and all claims,
actions and suits (whether groundless or otherwise), losses, damages, costs,
expenses (including any expenses for which the Agent has not been reimbursed by
the Borrower as required by Section 16), and liabilities of every nature and
character arising out of or related to this Credit Agreement, the Notes, or any
of the other Loan Documents or the transactions contemplated or evidenced hereby
or thereby, or the Agent's actions taken hereunder or thereunder, except to the
extent that any of the same shall be directly caused by the Agent's willful
misconduct or gross negligence.
SECTION 15.8. AGENT AS BANK. In its individual capacity Bank
of Boston Connecticut shall have the same obligations and the same rights,
powers and privileges in respect to its Commitment and the Loans made by it, and
as the holder of any of the Notes, as it would have were it not also the Agent.
SECTION 15.9. RESIGNATION. The Agent may resign at any time by
giving sixty (60) days' prior written notice thereof to the Banks and the
Borrower; provided, that such resignation shall not be effective until the
appointment of a successor Agent as provided for herein. Upon any such
resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent
<PAGE> 55
-49-
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation, the provisions of
this Credit Agreement and the other Loan Documents shall continue in effect for
its benefit in respect of any actions taken or omitted to be taken by it while
it was acting as Agent.
SECTION 15.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT.
Each Bank hereby agrees that, upon learning of the existence of a Default or an
Event of Default, it shall promptly notify the Agent thereof. The Agent hereby
agrees that upon receipt of any notice under this Section 15.10 it shall
promptly notify the other Banks of the existence of such Default or Event of
Default.
SECTION 15.11. DUTIES IN THE CASE OF ENFORCEMENT. In case one
of more Events of Default have occurred and shall be continuing, and whether or
not acceleration of the Obligations shall have occurred, the Agent shall, if (a)
so requested by the Majority Banks and (b) the Majority Banks have provided to
the Agent such additional indemnities and assurances against expenses and
liabilities as the Agent may reasonably request, proceed to enforce the
provisions of the Security Documents authorizing the sale or other disposition
of all or any part of the Collateral and exercise all or any such other legal
and equitable and other rights or remedies as it may have in respect of such
Collateral. The Majority Banks may direct the Agent in writing as to the method
and the extent of any such sale or other disposition, the Banks hereby agreeing
to indemnify and hold the Agent, harmless from all liabilities incurred in
respect of all actions taken or omitted in accordance with such directions,
provided that the Agent need not comply with any such direction to the extent
that the Agent reasonably believes the Agent's compliance with such direction to
be unlawful or commercially unreasonable in any applicable jurisdiction.
SECTION 16. EXPENSES. The Borrower agrees to pay (a) the reasonable
out-of-pocket costs of producing and reproducing this Credit Agreement, the
other Loan Documents and the other agreements and instruments mentioned herein,
(b) any taxes (including any interest and penalties in respect thereto) payable
by the Agent or any of the Banks (other than taxes based upon the Agent's or any
of the Banks' net income) on or with respect to the transactions contemplated by
this Credit Agreement (the Borrower hereby agreeing to indemnify the Agent and
each Bank with respect thereto), (c) the reasonable fees, expenses and
disbursements of the Agent's Special Counsel or any local counsel to the Agent
or any Bank incurred in connection with the preparation, administration or
interpretation of the Loan Documents and other instruments mentioned herein,
each closing hereunder, and amendments, modifications, approvals, consents or
waivers hereto or hereunder, (d) the fees, expenses and disbursements of the
Agent incurred by the Agent in connection with the preparation, administration
or interpretation of the Loan Documents and other instruments mentioned herein,
including all title insurance premiums and surveyor, engineering and appraisal
charges, (e) all reasonable out-of-pocket expenses (including without limitation
reasonable attorneys' fees and costs, which attorneys may be employees of the
Agent or any Bank, and reasonable consulting, accounting, appraisal, investment
banking and similar
<PAGE> 56
-50-
professional fees and charges) incurred by the Agent or any Bank in connection
with (i) the enforcement of or preservation of rights under any of the Loan
Documents against the Borrower or any of its Subsidiaries or the administration
thereof after the occurrence of a Default or Event of Default (including
engineering, appraisal and investment banking charges) and (ii) any litigation,
proceeding or dispute whether arising hereunder or otherwise, in any way related
to the Agent's or the Banks' relationship with the Borrower or any of its
Subsidiaries and (f) all reasonable fees, expenses and disbursements of the
Agent or any Bank incurred in connection with Uniform Commercial Code searches
or filings or in connection with any mortgage recordings. The covenants of this
Section 16 shall survive payment or satisfaction of payment of amounts owing
with respect to the Notes.
SECTION 17. INDEMNIFICATION. The Borrower agrees to indemnify and hold
harmless the Agent and each of the Banks from and against any and all claims,
actions and suits whether groundless or otherwise, and from and against any and
all liabilities, losses, damages and expenses of every nature and character
arising out of this Credit Agreement or any of the other Loan Documents or any
of the Acquisition Documents or the transactions contemplated hereby or thereby
including, without limitation, (a) any actual or proposed use by the Borrower or
any of its Subsidiaries of the proceeds of any of the Loans, (b) any actual or
alleged infringement of any patent, copyright, trademark, service mark or
similar right of the Borrower or any of its Subsidiaries comprised in the
Collateral, (c) the Borrower or any of its Subsidiaries entering into or
performing this Credit Agreement or any of the other Loan Documents or any of
the Acquisition Documents or (d) with respect to the Borrower and its
Subsidiaries and their respective properties and assets, the violation of any
Environmental Law, the presence, disposal, escape, seepage, leakage, spillage,
discharge, emission, release or threatened release of any Hazardous Substances
or any action, suit, proceeding or investigation brought or threatened with
respect to any Hazardous Substances (including, but not limited to, claims with
respect to wrongful death, personal injury or damage to property), in each case
including, without limitation, the reasonable fees and disbursements of counsel
and allocated costs of internal counsel incurred in connection with any such
investigation, litigation or other proceeding, except where any of the foregoing
result from the gross negligence or willful misconduct of the Agent or any of
the Banks or any other indemnified party. In litigation, or the preparation
therefor, each Bank and the Agent shall be entitled to select its own counsel
and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly
the reasonable fees and expenses of such counsel; provided, that the Agent and
the Banks shall use reasonable efforts to employ common counsel in the absence
of conflicts between such parties. If, and to the extent that the obligations of
the Borrower under this Section 17 are unenforceable for any reason, the
Borrower hereby agrees to make the maximum contribution to the payment in
satisfaction of such obligations which is permissible under applicable law. The
covenants contained in this Section 17 shall survive payment or satisfaction in
full of all other Obligations.
SECTION 18. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
representations and warranties made herein, in the Notes, in any of the other
Loan Documents or in any documents or other papers delivered by or on behalf of
the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have
been relied upon by the Agent
<PAGE> 57
-51-
and the Banks, notwithstanding any investigation heretofore or hereafter made by
any of them, and shall survive the making by the Banks of any of the Loans, as
herein contemplated, and shall continue in full force and effect so long as any
amount due under this Credit Agreement or the Notes or any of the other Loan
Documents remains outstanding or any Bank has any obligation to make any Loans,
and for such further time as may be otherwise expressly specified in this Credit
Agreement. All statements contained in any certificate or other paper delivered
to the Agent or any of the Banks at any time by or on behalf of the Borrower or
any of its Subsidiaries pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by the
Borrower or such Subsidiary hereunder.
SECTION 19. ASSIGNMENT AND PARTICIPATION.
SECTION 19.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as
provided herein, each Bank may assign to one or more Persons all or a portion of
its interests, rights and obligations under this Credit Agreement and the other
Loan Documents (including all or a portion of its Commitment Percentage and
Commitment and the same portion of the Loans at the time owing to it, and the
Notes held by it); provided that (a) except in the case of an assignment to an
affiliate of any Bank, the Borrower, unless a Default or Event of Default shall
have occurred and be continuing, shall have given its prior written consent to
such assignment (which consent shall not be unreasonably withheld, (b) unless an
Event of Default shall have occurred and is continuing, each such assignee shall
be an Eligible Assignee, (c) each such assignment shall be of a constant, and
not a varying, percentage of all the assigning Bank's rights and obligations
under this Credit Agreement, (d) each assignment shall be in an amount that is
not less than $5,000,000 (e) except in the case of an assignment to an affiliate
of either Bank and unless a Default or Event of Default shall have occurred and
be continuing, each Bank which is a Bank on the date hereof shall retain, free
of any such assignment, an amount of its Commitment of not less than $5,000,000
and (I) the parties to such assignment shall execute and deliver to the Agent,
for recording in the Register (as hereinafter defined), an Assignment and
Acceptance, substantially in the form of Exhibit D hereto (an "ASSIGNMENT AND
ACCEPTANCE"), together with any Notes subject to such assignment upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five (5) Business Days after the execution thereof, (i) the assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Bank hereunder,
and (ii) the assigning Bank shall, to the extent provided in such assignment be
released from its obligations under this Credit Agreement.
SECTION 19.2. CERTAIN REPRESENTATIONS AND WARRANTIES;
LIMITATIONS; COVENANTS. By executing and delivering an Assignment and
Acceptance, the parties to the assignment thereunder confirm to and agree with
each other and the other parties hereto as follows: (a) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, the
assigning Bank makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with this Credit
<PAGE> 58
-52-
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, the other Loan Documents or any
other instrument or document furnished pursuant hereto; (b) the assigning Bank
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower and its Subsidiaries or any other
Person primarily or secondarily liable in respect of any of the Obligations, or
the performance or observance by the Borrower and its Subsidiaries or any other
Person primarily or secondarily liable in respect of any of the Obligations of
any of their obligations under this Credit Agreement or any of the other Loan
Documents or any other instrument or document furnished pursuant hereto or
thereto; (c) such assignee confirms that it has received a copy of this Credit
Agreement, together with copies of the most recent financial statements referred
to in Section 7.5 and Section 8.4 and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (d) such assignee will, independently and
without reliance upon the assigning Bank, the Agent or any other Bank and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Credit Agreement; (e) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Credit Agreement and the other Loan Documents as are delegated to the Agent by
the terms hereof or thereof, together with such powers as are reasonably
incidental thereto; (f) such assignee agrees that it will perform in accordance
with their terms all of the obligations that by the terms of this Credit
Agreement are required to be performed by it as a Bank; and (g) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance.
SECTION 19.3. REGISTER. The Agent shall maintain a copy of
each Assignment and Acceptance delivered to it and a register or similar list
(the "Register") for the recordation of the names and addresses of the Banks and
the Commitment Percentage of, and principal amount of the Loans owing to, the
Banks from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Agent and the Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Credit Agreement. The Register shall be available for
inspection by the Borrower and the Banks at any reasonable time and from time to
time upon reasonable prior notice.
SECTION 19.4. NEW NOTES. Upon its receipt of an Assignment and
Acceptance executed by the parties to such assignment, together with each Note
subject to such assignment, the Agent shall (a) record the information contained
therein in the Register, and (b) give prompt notice thereof to the Borrower and
the Banks (other than the assigning Bank). Within five (5) Business Days after
receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Agent, in exchange for each surrendered Note, a new Note to the
order of such Person in an amount equal to the amount assumed by such Person
pursuant to such Assignment and Acceptance and, if the assigning Bank has
retained some portion of its obligations hereunder, a new Note to the order of
the assigning Bank in an amount equal to the amount retained by it hereunder.
Such new Notes shall provide that they are replacements for the surrendered
Notes, shall be in an aggregate principal amount
<PAGE> 59
-53-
equal to the aggregate principal amount of the surrendered Notes, shall be dated
the effective date of such in Assignment and Acceptance and shall otherwise be
substantially the form of the assigned Notes. Within five (5) days of issuance
of any new Notes pursuant to this Section 19.4, the Borrower shall deliver an
opinion of counsel, addressed to the Banks and the Agent, relating to the due
authorization, execution and delivery of such new Notes and the legality,
validity and binding effect thereof, in form and substance satisfactory to the
Banks. The surrendered Notes shall be canceled and returned to the Borrower.
SECTION 19.5. PARTICIPATIONS. Each Bank may sell
participations to one or more banks or other entities in all or a portion of
such Bank's rights and obligations under this Credit Agreement and the other
Loan Documents; provided that (a) each such participation shall be in an amount
of not less than $5,000,000, (b) any such sale or participation shall not affect
the rights and duties of the selling Bank hereunder to the Borrower and (c) the
only rights granted to the participant pursuant to such participation
arrangements with respect to waivers, amendments or modifications of the Loan
Documents shall be the rights to approve waivers, amendments or modifications
that would reduce the principal of or the interest rate on any Loans, extend the
term or increase the amount of the Commitment of such Bank as it relates to such
participant, reduce the amount of any commitment fees to which such participant
is entitled, release any guaranty or release or discharge any lien on or
security interest in or extend any regularly scheduled payment date for
principal or interest.
SECTION 19.6. DISCLOSURE. The Borrower agrees that in addition
to disclosures made in accordance with standard and customary banking practices
any Bank may disclose information obtained by such Bank pursuant to this Credit
Agreement to assignees or participants and potential assignees or participants
hereunder; provided that such assignees or participants or potential assignees
or participants shall agree (a) to treat in confidence such information, (b) not
to disclose such information to a third party and (c) not to make use of such
information for purposes of transactions unrelated to such contemplated
assignment or participation.
SECTION 19.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE
BORROWER. If any assignee Bank is an Affiliate of the Borrower, then any such
assignee Bank shall have no right to vote as a Bank hereunder or under any of
the other Loan Documents for purposes of granting consents or waivers or for
purposes of agreeing to amendments or other modifications to any of the Loan
Documents or for purposes of making requests to the Agent pursuant to
Section 13.1 or Section 13.2, and the determination of the Banks shall for all
purposes of this Agreement and the other Loan Documents be made without regard
to such assignee Bank's interest in any of the Loans. If any Bank sells a
participating interest in any of the Loans to a participant, and such
participant is the Borrower or an Affiliate of the Borrower, then such
transferor Bank shall promptly notify the Agent of the sale of such
participation. A transferor Bank shall have no right to vote as a Bank hereunder
or under any of the other Loan Documents for purposes of granting consents or
waivers or for purposes of agreeing to amendments or modifications to any of the
Loan Documents or for purposes of making requests to the Agent pursuant to
Section 13.1 or Section 13.2 to the extent that such participation is
beneficially owned by the Borrower or any Affiliate of the Borrower, and the
determination of the Banks shall for all purposes of
<PAGE> 60
-54-
this Agreement and the other Loan Documents be made without regard to the
interest of such transferor Bank in the Loans to the extent of such
participation.
SECTION 19.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. If any
assignee Bank is not incorporated under the laws of the United States of America
or any state thereof, it shall, prior to the date on which any interest or fees
are payable hereunder or under any of the other Loan Documents for its account,
deliver to the Borrower and the Agent certification as to its exemption from
deduction or withholding of any United States federal income taxes. Anything
contained in this Section 19 to the contrary notwithstanding, any Bank may at
any time pledge all or any portion of its interest and rights under this Credit
Agreement (including all or any portion of its Notes) to any of the twelve
Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12
U.S.C. Section 341. No such pledge or the enforcement thereof shall release the
pledgor Bank from its obligations hereunder or under any of the other Loan
Documents.
SECTION 19.9. ASSIGNMENT BY BORROWER. The Borrower shall not
assign or transfer any of its rights or obligations under any of the Loan
Documents without the prior written consent of each of the Banks.
SECTION 20. NOTICES, ETC. Except as otherwise expressly provided in
this Credit Agreement, all notices and other communications made or required to
be given pursuant to this Credit Agreement or the Notes shall be in writing and
shall be delivered in hand, mailed by United States registered or certified
first class mail, postage prepaid, sent by overnight courier, or sent by
telegraph, telecopy, facsimile or telex and confirmed by delivery via courier or
postal service, addressed as follows:
(a) if to the Borrower, at Raytel Medical Corporation, 2755
Campus Drive, San Mateo, California 94403, Attention: E. Payson Smith,
Chief Financial Officer, and at 7 Waterside Crossing, Windsor,
Connecticut 06095, Attention: Alan Zinberg, President, or at such other
address for notice as the Borrower shall last have furnished in writing
to the Person giving the notice;
(b) if to the Agent or Bank of Boston Connecticut, at 100
Pearl Street, Hartford, Connecticut 06103, Attention: Christopher
Phelan, Vice President, or at such other address for notice as the
Agent or Bank of Boston Connecticut shall last have furnished in
writing to the Person giving the notice; and
(c) if to any other Bank, at such address for notice as such
Bank shall last have furnished in writing to the Person giving the
notice.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
<PAGE> 61
-55-
SECTION 21. GOVERNING LAW. THIS CREDIT AGREEMENT AND, EXCEPT AS
OTHERWISE SPECIFICALLY PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE
CONTRACTS UNDER THE LAWS OF THE STATE OF CONNECTICUT AND SHALL FOR ALL PURPOSES
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID STATE
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF CONNECTICUT OR
ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION
OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE
BORROWER BY CERTIFIED MAIL AT THE ADDRESS SPECIFIED IN Section 20. THE BORROWER
HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF
ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT
COURT.
SECTION 22. HEADINGS. The captions in this Credit Agreement are for
convenience of reference only and shall not define or limit the provisions
hereof.
SECTION 23. COUNTERPARTS. This Credit Agreement and any amendment
hereof may be executed in several counterparts and by each party on a separate
counterpart, each of which when so executed and delivered shall be an original,
and all of which together shall constitute one instrument. In proving this
Credit Agreement it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is sought.
SECTION 24. ENTIRE AGREEMENT, ETC. The Loan Documents and any other
documents executed in connection herewith or therewith express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Credit Agreement nor any term hereof may be changed,
waived, discharged or terminated, except as provided in Section 26.
SECTION 25. WAIVER OF JURY TRIAL. The Agent, the Borrower and each Bank
hereby waives its right to a jury trial with respect to any action or claim
arising out of any dispute in connection with this Credit Agreement, the Notes
or any of the other Loan Documents, any rights or obligations hereunder or
thereunder or the performance of such rights and obligations. Except as
prohibited by law, the Agent, the Borrower and each Bank hereby waives any right
it may have to claim or recover in any litigation referred to in the preceding
sentence any special, exemplary, punitive or consequential damages or any
damages other than, or in addition to, actual damages. The Agent, the Borrower
and each Bank (a) certifies that no representative, agent or attorney of any
party hereto has represented, expressly or otherwise, that such party would not,
in the event of litigation, seek to enforce the foregoing waivers and (b)
acknowledges that each party hereto have been induced to enter into this Credit
Agreement, the other Loan Documents to which they are a party by, among other
things, the waivers and certifications contained herein.
<PAGE> 62
-56-
SECTION 26. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or approval
required or permitted by this Credit Agreement to be given by all of the Banks
may be given, and any term of this Credit Agreement, the other Loan Documents or
any other instrument related hereto or mentioned herein may be amended, and the
performance or observance by the Borrower or any of its Subsidiaries of any
terms of this Credit Agreement, the other Loan Documents or such other
instrument or the continuance of any Default or Event of Default may be waived
(either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Borrower and the
written consent of the Majority Banks. Notwithstanding the foregoing, the rate
of interest on the Notes (other than interest accruing pursuant to Section 5.9
following the effective date of any waiver by the Majority Banks of the Default
or Event of Default relating thereto), the term of, or date of any payment due
and payable under) the Notes, the amount of the Commitments of the Banks, and
the amount of any fees hereunder may not be changed without the written consent
of the Borrower and the written consent of each Bank affected thereby; the
definition of Majority Banks may not be amended without the written consent of
all of the Banks; and the amount of the Agent's Fee payable for the Agent's
account and Section 15 may not be amended without the written consent of the
Agent. No waiver shall extend to or affect any obligation not expressly waived
or impair any right consequent thereon. No course of dealing or delay or
omission on the part of the Agent or any Bank in exercising any right shall
operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or
demand upon the Borrower shall entitle the Borrower to other or further notice
or demand in similar or other circumstances.
SECTION 27. SEVERABILITY. The provisions of this Credit Agreement are
severable and if any one clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Credit
Agreement in any jurisdiction.
SECTION 28. WAIVERS BY BORROWER. For good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Borrower
hereby waives the provisions of Sections 580a through 580d, 726 and 729.010
through 729.090 of the California Code of Civil Procedure and Section 1542 of
the California Civil Code.
SECTION 29. COMMERCIAL TRANSACTION; PREJUDGMENT REMEDY WAIVER. THE
BORROWER REPRESENTS, WARRANTS AND ACKNOWLEDGES THAT THE TRANSACTION OF WHICH
THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE A PART IS A "COMMERCIAL
TRANSACTION" WITHIN THE MEANING OF CHAPTER 903A OF CONNECTICUT GENERAL STATUTES,
AS AMENDED. THE BORROWER HEREBY WAIVES ITS RIGHT TO NOTICE AND PRIOR COURT
HEARING OR COURT ORDER UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a ET.
SEQ. AS AMENDED OR UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND
ALL PREJUDGMENT REMEDIES THE AGENT OR THE BANKS MAY EMPLOY TO ENFORCE THEIR
<PAGE> 63
-57-
RIGHTS AND REMEDIES HEREUNDER AND UNDER THE OTHER LOAN DOCUMENTS. MORE
SPECIFICALLY, BORROWER ACKNOWLEDGES THAT THE AGENT'S ATTORNEY AND/OR THE BANKS'
ATTORNEY MAY, PURSUANT TO CONN. GEN. STAT. Section 52-278F, ISSUE A WRIT FOR A
PREJUDGMENT REMEDY WITHOUT SECURING A COURT ORDER. THE BORROWER ACKNOWLEDGES AND
RESERVES ITS RIGHT TO NOTICE AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A WRIT
FOR PREJUDGMENT REMEDY AS AFORESAID AND THE AGENT AND THE BANKS ACKNOWLEDGES
BORROWER'S RIGHT TO SAID HEARING SUBSEQUENT TO THE ISSUANCE OF SAID WRIT.
SECTION 30. EFFECTIVE DATE. This Agreement shall become effective among
the parties hereto as of the Effective Date. Until the Effective Date, the terms
of the Original Loan Agreement shall remain in full force and effect.
<PAGE> 64
IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement of the date first set forth above.
RAYTEL MEDICAL CORPORATION
By: /s/ E. Payson Smith, Jr.
______________________________
Name: E. Payson Smith, Jr.
Title: Senior Vice President and
Chief Financial Officer
BANK OF BOSTON CONNECTICUT, for
itself and as Agent
By: /s/ Christopher Phelan
______________________________
Name: Christopher Phelan
Title: Vice President
BANQUE PARIBAS
By: /s/ Don L. Unruh
______________________________
Name: Don L. Unruh
Title: Assistant Vice President
By: /s/ Stanley P. Berkman
______________________________
Name: Stanley P. Berkman
Title: General Manager
Western Region
<PAGE> 65
EXHIBIT A-2
RAYTEL MEDICAL CORPORATION
PROMISSORY NOTE
$-----------------
Dated as of July ___, 1996
FOR VALUE RECEIVED, the undersigned, RAYTEL MEDICAL CORPORATION, a
Delaware corporation (hereinafter, together with its successors in title and
assigns, called the "BORROWER"), promises to pay on or before the Final Maturity
Date (as defined in the Credit Agreement to which reference herein is made to
the order of [INTERNATIONALE NEDERLANDEN [U.S.] CAPITAL CORPORATION]
(hereinafter, together with its successors in title and assigns, called the
"BANK"), at the Agent's Head Office, the principal sum of
____________________________ DOLLARS ($___________), in immediately available
funds or, if less, the aggregate unpaid principal amount of the Loans made by
the Bank to the Borrower pursuant to the Credit Agreement to which reference is
hereinafter made and to pay interest, in like money, on the unpaid principal
amount owing hereunder from time to time from the date hereof until payment in
full of such principal amount as provided in the Credit Agreement.
This Note is made and delivered by the Borrower pursuant to Section 2.4
of the Amended and Restructured Credit Agreement dated as of July __, 1996 by
and among the Borrower, the Bank and Bank of Boston Connecticut in its capacity
as agent for itself and the lenders therein named (as amended and in effect from
time to time, the "Credit Agreement"), and is entitled to the benefits and is
subject to the provisions of the Credit Agreement All capitalized terms used
herein which are defined in the Credit Agreement shall have the same meanings
herein as therein.
The Borrower also promises to pay interest on the unpaid principal
amount of the Loans outstanding until paid in full at the rates per annum set
forth in or established pursuant to the Credit Agreement. Such interest shall be
payable on such dates as are determined from time to time pursuant to the Credit
Agreement and shall be calculated as therein provided.
The Borrower has the right in certain circumstances to prepay the
principal of this Note on the terms and conditions specified in the Credit
Agreement.
<PAGE> 66
-2-
If any Default or Event of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
The Borrower and all guarantors and endorsers hereby waive presentment,
demand, protest and notice of any kind in connection with the delivery,
acceptance, performance and enforcement of this Note, and also hereby assent to
extensions of time of payment or forbearance or other indulgences without
notice.
This Note and the obligations of the Borrower hereunder shall be
governed by, and interpreted and determined in accordance with, the laws of the
State of Connecticut.
THE BORROWER HEREBY REPRESENTS, COVENANTS AND AGREES THAT THE PROCEEDS
OF THE LOANS SHALL BE USED FOR GENERAL COMMERCIAL PURPOSES AND AS FURTHER
PROVIDED IN THE CREDIT AGREEMENT. AND THAT THIS NOTE IS PART OF A "COMMERCIAL
TRANSACTION" AS DEFINED BY THE STATUTES OF THE STATE OF CONNECTICUT. THE
BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND PRIOR COURT HEARING OR COURT
ORDER UNDER CONNECTICUT GENERAL STATUES SECTIONS 52-278A ET SEQ. AS AMENDED OR
UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT
REMEDIES THE BANK MAY EMPLOY TO ENFORCE ITS RIGHTS AND REMEDIES HEREUNDER. MORE
SPECIFICALLY, THE BORROWER ACKNOWLEDGES THAT BANK'S ATTORNEY MAY, PURSUANT TO
CONNECTICUT GENERAL STATUES, SECTION 52-278F, ISSUE A WRIT FOR A PREJUDGMENT
REMEDY WITHOUT SECURING A COURT ORDER. THE BORROWER ACKNOWLEDGES AND RESERVES
ITS RIGHT TO NOTICE AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A WRIT FOR
PREJUDGMENT REMEDY BY BANK'S ATTORNEY. THE BANK ACKNOWLEDGES THE BORROWER'S
RIGHT TO SAID HEARING SUBSEQUENT TO THE ISSUANCE OF SAID WRIT.
<PAGE> 67
-3-
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its corporate name by its duly authorized officer on the day and in the year
first above written.
RAYTEL MEDICAL CORPORATION
By:
---------------------------
Chief Executive Officer
<PAGE> 68
SCHEDULE 2
DEFINITIONS
The following terms shall have the meanings set forth in this Schedule 2
or elsewhere in the provisions of the Credit Agreement:
Acquisition. The acquisition by the Borrower of any Acquisition Assets
pursuant to the terms of the applicable Acquisition Documents.
Acquisition Assets. Either (a) the issued and outstanding capital stock
of, or business assets of any corporation, partnership or business involved in
the medical services industry or (b) any new equipment purchased by the Borrower
that is to be used in the Borrower's medical services business.
Acquisition Credit Loans. Any Revolving Credit Loan the proceeds of which
are used or intended for use in connection with any Acquisition.
Acquisition Documents. Any and all documents, agreements and instruments
executed or to be executed in connection with any Acquisition, together with all
schedules, exhibits, and annexes thereto, each in form and substance
satisfactory to the Agent and the Banks.
Affiliate. Any Person that would be considered to be an affiliate of the
Borrower under Rule 144 (a) of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities.
Agent. Bank of Boston Connecticut when acting as agent for the Banks and
any successor Agent under the Credit Agreement.
Agent's Head Office. The Agent's head office located at 100 Pearl Street,
Hartford, Connecticut 06103, or at such other location as the Agent may
designate from time to time.
Agent's Special Counsel. Bingham, Dana & Gould LLP or such other counsel
as may be approved by the Agent.
Applicable Base Rate Margin. See Section 2.5(a) hereof.
Applicable LIBOR Rate Margin. See Section 2.5(b) hereof.
Balance Sheet Date. March 31, 1996.
Banks. Bank of Boston Connecticut and the other lending institutions and
any other Person who becomes an assignee of any rights and obligations of the
Banks pursuant to Section 19 of the Credit Agreement.
<PAGE> 69
-2-
Base Rate. The higher of (a) the annual rate of interest announced from
time to time by The First National Bank of Boston at its head office in Boston,
Massachusetts, as its "base rate" and (b) one-half of one percent (1/2%) above
the overnight federal funds effective rate, as published by the Board of
Governors of the Federal Reserve System, as in effect from time to time.
Base Rate Principal. See Section 3.4.
Borrower. As defined in the preamble hereto.
Borrower Guaranty. The Guaranty dated February 26, 1993 executed and
delivered by the Borrower to the Agent on behalf of the Banks.
Borrower Partnership Pledge Agreement. The Pledge and Security Agreement
dated February 26, 1993 between the Borrower and the Agent.
Borrower Stock Pledge Agreement. The Stock Pledge Agreement dated as of
February 26, 1993 between the Borrower and the Agent and in form and substance
satisfactory to the Agent.
Business Day. Any day on which banking institutions in Hartford,
Connecticut and New York, New York, are open for the transaction of banking
business.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); provided that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with generally accepted
accounting principles.
Capital Expenditures. Amounts paid or indebtedness incurred by the
Borrower or any of its Subsidiaries in connection with the purchase or lease by
the Borrower or any of its Subsidiaries of Capital Assets that would be required
to be capitalized and shown on the balance sheet of such Person in accordance
with generally accepted accounting principles.
Capitalized Leases. Leases under which the Borrower or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
CERCLA. See Section 7.15.
Code. The Internal Revenue Code of 1986.
Collateral. All of the property, rights and interests of the Borrower
and its Subsidiaries that are or are intended to be subject to the security
interests and mortgages created by the Security Documents.
<PAGE> 70
-3-
Commitment Percentage. With respect to each Bank, the percentage set forth
on Schedule 1 hereto as such Bank's percentage of the aggregate Commitments of
all of the Banks.
Commitments. With respect to each Bank, the amount set forth on
Schedule 1 hereto as the amount of such Bank's commitment to make Revolving
Credit Loans to the Borrower, as the same may be reduced from time to time in
accordance with the terms and conditions of the Credit Agreement; or if such
commitment is terminated pursuant to the provisions hereof, zero.
Consents to Collateral Assignment. Each Consent to Collateral
Assignment, dated on or prior to the Drawdown Date of any Acquisition Credit
Loan, by and among the Borrower, the applicable Seller and the Agent and in form
and substance satisfactory to the Agent and the Bank.
Consolidated or consolidated. With reference to any term defined
herein, shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, as the case may be, consolidated in accordance with generally
accepted accounting principles.
Consolidated Financial Obligations With respect to any fiscal period,
an amount equal to the sum of all payments on indebtedness of the Borrower, any
of its Subsidiaries or any other Person (excluding indebtedness in respect of
contingent obligations of RMI arising solely in its capacity as a general
partner or joint venturer of any of the Joint Ventures) that become due and
payable or that are to become due and payable during such fiscal period pursuant
to any agreement or instrument to which the Borrower or any of its Subsidiaries
or any other Person is a party relating to the borrowing of money or the
obtaining of credit or in respect of Capitalized Leases. Demand obligations
shall be deemed to be due and payable during any fiscal period during which such
obligations are Outstanding.
Consolidated Operating Cash Flow. For any period, an amount equal to (a)
the sum of (i) Earnings Before Interest and Taxes for any Person for such
period, plus (ii) depreciation, amortization and all other noncash charges of
such Person for such period, less (b) the sum of (i) cash payments by such
Person for all taxes paid during such period, plus (ii) cash Capital
Expenditures made by such Person during such period to the extent permitted by
Section 10.3, plus (iii) minority interest expenses paid in cash by such Person
for such period, provided that any extraordinary or non-recurring gains or
losses shall be excluded from the calculation of Consolidated Operating Cash
Flow.
Consolidated Total Funded Debt. For any period, the aggregate amount of
all Indebtedness of any Person and its Subsidiaries relating to the borrowing of
money or the obtaining of credit or in respect of capitalized leases outstanding
during such period; provided, that, with respect to the Borrower and its
Subsidiaries the definition of "Consolidated Total Funded Debt" hereunder shall
expressly exclude any Indebtedness of the Borrower or any of its Subsidiaries
arising in connection with the Joint Ventures.
<PAGE> 71
-4-
Consolidated Total Interest Expense. For any period, the aggregate
amount of interest required to be paid or accrued by any Person during such
period on all Indebtedness of such Person Outstanding during all or any part of
such period, whether such interest was or is required to be reflected as an item
of expense or capitalized, including payments consisting of interest in respect
of Capitalized Leases and including commitment fees, agency fees, facility fees,
balance deficiency fees and similar fees or expense in connection with the
borrowing of money.
Conversion Request. Any notice given by the Borrower to the Agreement of
the Borrower's election to convert or continue a Loan in accordance
with Sections 2.7 or 4.5 hereof.
Credit Agreement. This Amended and Restated Credit Agreement, including
the Schedules and Exhibits hereto.
Debt Service Coverage Ratio. With respect to any fiscal period, the
ratio of the Borrower's Consolidated Operating Cash Flow to its Consolidated
Financial Obligations for such period.
Default. See Section 13.1.
Distribution. The declaration or payment of any dividend on or in respect
of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly through a Subsidiary of the
Borrower or otherwise; the return of capital by the Borrower to its Shareholders
as such; or any other distribution on or in respect of any shares of any class
of capital stock of the Borrower.
Dollars or Dollars. The lawful currency of the United States of America.
Domestic Lending Office. Initially, the office of each Bank designated as
such on Schedule 1 hereto; thereafter such other office of such Bank, if any,
that shall be making or maintaining Revolving Credit Base Rate Loans.
Drawdown Date. The date on which any Loan is made or is to be made under
the Credit Agreement.
Earnings Before Interest and Taxes. The consolidated earnings (or loss)
from the operations of any Person for any period, after all expenses and other
proper charges but before payment or provision for any income taxes or interest
expense for such period, determined in accordance with generally accepted
accounting principles, excluding any extraordinary or non-recurring gains.
Effective Date. The date on which the Agent determines all of the
conditions set forth in Sections 11 and 12A are met.
<PAGE> 72
-5-
Eligible Assignee. Any bank having total assets in excess of
$5,000,000,000 and a rating of not less than BBB by Standard & Poors Corporation
(or an equivalent rating by another credit rating agency of national
recognition).
Employee Benefit Plan. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
Environmental Laws. See Section 7.20(a).
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA Affiliate. Any Person which is treated as a single employer with the
Borrower under Section 414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
Event of Default. See Section 13.1.
Generally Accepted Accounting Principles. (a) When use in Section 10,
whether directly or indirectly through reference to a capitalized term used
therein, means (i) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and it
predecessors in effect for the fiscal year ended on the Balance Sheet Date, and
(ii) to the extent consistent with such principles the accounting practice of
the Borrower reflected in its financial statements for the year ended on the
Balance Sheet Date, and (b) when used in general other than as provided above,
means principles that are (i) consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors as in
effect from time to time, and (ii) consistently applied with past financial
statements of the Borrower adopting the same principles provided that in each
case referred to in this definition of "generally accepted accounting
principles" a certified public accountant would, insofar as the use of such
accounting principles is pertinent be in a position to deliver an unqualified
opinion (other than a qualifications regarding changes in generally accepted
accounting principles) as to financial statements in which such principles have
been properly applied.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of Section 3(3) of ERISA maintained or contributed to by the Borrower or
any ERISA Affiliate the benefits of which are guaranteed on termination in full
or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Guarantees. The Guarantees, each dated as of February 26, 1993 or to be
dated on or after the Effective Date and otherwise in form and substance
satisfactory to the Bank, made by the Subsidiaries in favor of the Agent
pursuant to which the Subsidiaries guarantee to the Agent the payment and
performance of the obligations.
<PAGE> 73
-6-
Hazardous Substances. See Section 7.21(b)
H-S-R Act. See Section 7.3.
Indebtedness. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect; (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness
f others, including any obligation to supply funds to or in any manner to
invest in, directly or indirectly, the debtor, to purchase indebtedness, or to
assure the owner of indebtedness against loss, through an agreement to purchase
goods, supplies, or services for the purpose of enabling the debtor to make
payment of the indebtedness held by such owner or otherwise, and the obligations
to reimburse the issuer in respect of any letters of credit.
Interest Payment Date. As to any Loan, the first day of each calendar
month.
Interest Period. With respect to each Loan, (a) initially, the period
commencing on the Drawdown Date of such Loan (or with respect to the Term Loan,
the Revolving Credit Termination Date) and ending on the last day of one of the
periods set forth below, as selected by the Borrower in a Revolving Loan Request
(i) for (A) any Revolving Credit Base Rate Loan or (B) any portion of the Term
Loan bearing interest at an interest rate determined by reference to the Base
Rate, the last day of the fiscal quarter; and (ii) for (A) any LIBOR Rate Loan
or (B) any portion of the Term Loan bearing interest at an interest rate
determined by reference to LIBOR Rate, 1, 2, 3, or 6 months; and (b) thereafter,
each period commencing on the last day of the next preceding Interest Period
applicable to such Loan and ending on the last day of one of the periods set
forth above, as selected by the Borrower in a Conversion Request; provided that
all of the foregoing provisions relating to Interest Periods are subject to the
following:
(A) if any Interest Period with respect to (1) a LIBOR Rate Loan or (2)
any portion of the Term Loan bearing interest at an interest rate determined by
reference to the LIBOR Rate would otherwise end on a day that is not a LIBOR
Business Day, that Interest Period shall be extended to the next succeeding
LIBOR Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest Period
shall end on the immediately preceding LIBOR Business Day;
(B) if any Interest Period with respect to (1) a Revolving Credit Base
Rate Loan or (2) any portion of the Term Loan bearing interest at an interest
rate determined by reference to the Base Rate would end on a day that is not a
Business Day, that Interest Period shall end on the next succeeding Business
Day;
<PAGE> 74
-7-
(C) if the Borrower shall fail to give notice as provided in
Section 2.7, the Borrower shall be deemed to have requested a conversion of the
affected LIBOR Rate Loan to a Revolving Credit Base Rate Loan on the last day of
the then current Interest Period with respect thereto;
(D) if the Borrower shall fail to give notice as provided in
Section 4.5, the Borrower shall be deemed to have requested a conversion of the
interest rate applicable to relevant portion of the Term Loan from an interest
rate determined by reference to the LIBOR Rate to one based on the Base Rate on
the last day of the then current Interest Period with respect thereto;
(E) any Interest Period relating to (1) any LIBOR Rate Loan or (2) any
portion of the Term Loan bearing interest at an interest rate determined by
reference to the LIBOR Rate that begins on the last LIBOR Business Day of a
calendar month (or on a day or which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
LIBOR Business Day of a calendar month; and
(F) any Interest Period relating to (1) any LIBOR Rate Loan or (2) any
portion of the Term Loan bearing interest at an interest rate determined by
reference to the LIBOR Rate that would otherwise extend beyond the Revolving
Credit Termination Date or the Maturity Date, as the case may be, shall end on
the Revolving Credit Termination Date or the Maturity Date, as the case may be.
Investments. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances. capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
Joint Ventures. Collectively, the RII Joint Ventures and the RMI Joint
Ventures, each, singly, a "JOINT VENTURE".
Leverage Ratio. With respect to any fiscal period, the ratio of the
Borrower's Consolidated Total Funded Debt to its Consolidated Operating Cash
Flow for such period.
<PAGE> 75
-8-
LIBOR Business Day. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or such
other LIBOR interbank market as may be selected by the agent in its sole
discretion acting in good faith.
LIBOR Lending Office. Initially, the office of each Bank designated as
such in Schedule 1 hereto; thereafter, such other office of such bank, if any,
that shall be making or maintaining LIBOR Rate Loans.
LIBOR Rate. For any Interest Period with respect to a LIBOR Rate Loan
or any portion of the Term Loan bearing interest at an interest rate determined
by reference to the LIBOR Rate, the rate of interest equal to (a) the rate
determined by the Agent at which Dollar deposits for such Interest Period are
offered based on information presented on Telerate Page 3750 as of 11:00 a.m.
London time on the second LIBOR Business Day prior to the final day of such
Interest Period divided by (b) a number equal to 1.00 minus the LIBOR Reserve
Rate.
LIBOR Reserve Rate. For any day with respect to a LIBOR Rate Loan, the
maximum rate (expressed as a decimal) at which any lender subject thereto would
be required to maintain reserves under Regulation D of the Board of Governors of
the Federal Reserve System (or any successor or similar regulations relating to
such reserve requirements) against "Eurocurrency Liabilities" (as that term is
used in Regulation D), if such liabilities were outstanding. The LIBOR Reserve
Rate shall be adjusted automatically on and as of the effective date of any
change in the LIBOR Reserve Rate.
Loan Documents. This Credit Agreement, the Notes, the Security Documents
and the Subordination Agreements.
Loans. The Revolving Credit Loans and the Term Loan.
Majority Banks. As at any date, the Banks holding at least Sixty-six and
two thirds (66 2/3%) percent of the outstanding principal amount of the Notes on
such date; and if no such principal is outstanding, the Bank whose aggregate
Commitments constitute at least sixty-six and two thirds (66 2/3%) percent of
the aggregate Commitments.
Maturity Date. August 1, 2003.
Medicare and Medicaid Laws. Any and all portions of Title 42 of the United
States Code relating to the Medicare or Medicaid acts and any and all rules and
regulations established in connection therewith or pursuant thereto.
MIP. Medical Imaging Partners, L.P., a Delaware limited partnership, with
its principal place of business located at 7 Waterside Crossing, Windsor,
Connecticut 06095.
MIP Partnership Pledge Agreements. The Pledge and Security Agreements
dated as of February 26, 1993 between MIP and the Agent.
Mortgaged Property. Any Real Estate which is subject to any Mortgage.
<PAGE> 76
-9-
Mortgages. The several mortgages and deeds of trust dated as of February
26, 1993 or to be dated on or after the Effective Date from the Borrower and its
Subsidiaries to the Agent with respect to the leasehold interests of the
Borrower and its Subsidiaries in the Real Estate and in form and substance
satisfactory to the Agent.
Multiemployer Plan. Any multiemployer plan within the meaning of
Section 3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
Net Income. The net income (or deficit) of any Person, after deduction
of all expenses, taxes, and other proper charges, determined in accordance with
generally accepted accounting principles.
Net Working Capital Changes. For any fiscal period, the net change from
the immediately preceding like fiscal period in (a) both billed and unbilled
Accounts Receivable of any Person, (b) current accounts payable of such Person,
(c) current accruals and accretions (exclusive of interest accruals and
accretions) of such Person and (d) inventory of such Person; provided, that, the
calculation of "Net Working Capital Changes" shall be made without reference to
such Person's cash, the current portion of such Person's long term Indebtedness
and, in the case of the Borrower and its Subsidiaries, any Indebtedness arising
in connection with the Loans.
Note Record. The Record with respect to a Revolving Credit Note or the
Converted Loan, as the case may be.
Notes. See Section 2.4 of the Credit Agreement.
Obligations. All indebtedness, obligations and liabilities of any of the
Borrower and its Subsidiaries to the Agent and the Banks, individually or
collectively, existing on the date of this Credit Agreement or arising
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured, arising
by contract, operation of law or otherwise, arising or incurred under this
Credit Agreement or any of the other Loan Documents or in respect to any of the
Loans made or any of the Notes, or other instruments at any time evidencing any
thereof.
Outstanding. With respect to the Loans, the aggregate unpaid principal
thereof as of any date of determination.
Partnership Pledge Agreements. Collectively, the RII Subsidiaries
Partnership Pledge Agreements, the RMI Partnership Pledge Agreements, the MIP
Partnership Pledge Agreements, the Borrower Partnership Pledge Agreement, and
any other partnership pledge agreement dated on or after the Effective Date that
is delivered by any direct or indirect Subsidiary of the Borrower to the Agent,
and each, singly, a "PARTNERSHIP PLEDGE AGREEMENT".
PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of
ERISA and any successor entity or entities having similar responsibilities.
<PAGE> 77
-10-
Permitted Liens. Liens, security interests and other encumbrances
permitted by Section 9.2.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
RCL. Raytel Cardiovascular Labs, Inc., a Delaware corporation with its
principal place of business located at 7 Waterside Crossing, Windsor,
Connecticut 06095.
Real Estate. All real property at any time owned or leased (as lessee or
sublessee) by the Borrower or any of its subsidiaries.
Record. The grid attached to any Note, or the continuation of such grid,
or any other similar record, including computer records, maintained by the Banks
with respect to any Loan referred to in such Note.
Revolving Credit Base Rate Loans. Each Revolving Credit Loan bearing
interest calculated by reference to the Base Rate.
Revolving Credit LIBOR Rate Loans. Each Revolving Credit Loan bearing
interest calculate by reference to the LIBOR Rate.
Revolving Credit Loan Request. See Section 2.6 of the Credit Agreement.
Revolving Credit Loans. Revolving credit loans made or to be made by the
Banks to the Borrower pursuant to Section 2 of the Credit Agreement.
Revolving Credit Termination Date. August 1, 1998.
RIE. Raytel Imaging East, Inc., a Delaware corporation with its principal
place of business located at 7 Waterside Crossing, Windsor, Connecticut 06095.
RII. Raytel Imaging Holdings, Inc., a Delaware corporation, with its
principal place of business located at 7 Waterside Crossing, Windsor,
Connecticut 06095.
RII Joint Ventures. Those joint ventures and general partnerships
identified on Exhibit F to the Credit Agreement as RII Joint Ventures.
RII Subsidiaries Partnership Pledge Agreements. The Pledge and Security
Agreements to be dated on or before the Effective Date between each of RIW, RIE,
RIMA and the Agent and in form and substance satisfactory to the Agent.
RII Stock Pledge Agreement. The Stock Pledge Agreement dated on or before
the Effective Date between RII and the Agreement and in form and substance
satisfactory to the Agent.
RIMA. Raytel Imaging Mid-Atlantic, Inc., a Delaware corporation with its
principal place of business located at 7 Waterside Crossing, Windsor,
Connecticut 06095.
<PAGE> 78
-11-
RIW. Raytel Imaging West, Inc., a Delaware corporation with its principal
place of business located at 7 Waterside Crossing, Windsor, Connecticut 06095.
RMI. Raytel Medical Imaging, Inc., a Delaware corporation with its
principal place of business located at 7 Waterside Crossing, Windsor,
Connecticut 06095.
RMI Joint Ventures. Collectively, the general partnerships and joint
ventures listed on Exhibit G hereof, each, singly, a "RMI JOINT VENTURE".
RMI Partnership Pledge Agreements. The Pledge and Security Agreements
dated February 26, 1993, between RMI and the Agent and in form and substance
satisfactory to the Agent.
Security Agreements. The several Security Agreements dated as of February
26, 1993 or to be dated on or after the Effective Date, between the Borrower and
each of its Subsidiaries and the Agent and in form and substance satisfactory to
the Agent.
Security Documents. The Guarantees, the Borrower Guaranty, the Borrower
Stock Pledge Agreement, the RII Stock Pledge Agreement, the Security Agreements,
the Mortgages, the Consent to Collateral Assignment and the Partnership Pledge
Agreements.
Seller. Any Person who is designated as the "seller" in any Acquisition
Document.
Subordinated Debt. All indebtedness of the Borrower or any of its
Subsidiaries incurred in connection with any Acquisition the payment and
performance of which is subordinated in writing to the payment and performance
of the Obligations upon such terms and conditions as are satisfactory to the
Agent.
Subsidiary. Any corporation, association, trust, partnership or other
business entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
of votes) of the Outstanding Voting Stock or partnership or other equity
interests; provided, that no Joint Venture shall be deemed to be a Subsidiary
for the purposes set forth in the Loan Documents.
Type. As to any Revolving Credit Loan, its nature as a Revolving Credit
Base Rate Loan or a LIBOR Rate Loan.
Term Loan. Revolving Credit Loans converted to a term loan on the
Revolving Credit Termination Date pursuant to Section 4 of the Credit Agreement.
Total Commitment. The aggregate amount of all of the Commitments in effect
from time to time.
Voting Stock. Stock or similar equity interests, of any class or classes
(however designated, the holders of which are at the time entitled, as such
holders, to vote for the election of a majority of the directors (or Persons
performing similar functions) of the
<PAGE> 79
-12-
corporation, association, trust or other business entity involved, whether
or not the right to vote exists by reason of the happening of a contingency.
<PAGE> 80
RULES OF INTERPRETATION.
(a) A reference to any document or agreement hall include such document
or agreement as amended, modified or supplemented from time to time in
accordance with its terms and the terms of this Credit Agreement
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted Successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by generally accepted
accounting principles, which terms are defined in the Uniform Commercial Code as
in effect in the State of Connecticut, have the meanings assigned to them
therein.
(h) Reference to a particular "Section" refers to that section of this
Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof', "hereunder" and words of like import
shall refer to this Credit Agreement as a whole and not to any particular
section or subdivision of this Credit Agreement.
<PAGE> 81
SCHEDULE 1(1)
<TABLE>
<CAPTION>
COMMITMENT COMMITMENT
BANK AMOUNT PERCENTAGES
- ---- ------ -----------
<S> <C> <C>
Bank of Boston Connecticut $15,000,000 60%
Bankque Paribas $10,000,000 40%
</TABLE>
- --------
(1) As amended to reflect a partial assignment of participation by Bank
of Boston Connecticut to Bank Paribas pursuant to an Assignment and Acceptance
dated as of August 23, 1996 and effective September 2, 1996.
<PAGE> 82
SCHEDULE 7.2
<PAGE> 83
SCHEDULE 7.4
ASSETS OWNED
None
<PAGE> 84
SCHEDULE 7.7
MATERIAL CHANGES
None
<PAGE> 85
SCHEDULE 7.9
LITIGATION
None
<PAGE> 86
SCHEDULE 7.10
MATERIAL ADVERSE CONTRACTS, ETC.
None
<PAGE> 87
SCHEDULE 7.11
COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC.
None
<PAGE> 88
SCHEDULE 7.12
TAX STATUS
None.
<PAGE> 89
SCHEDULE 7.17
CERTAIN TRANSACTION
Indebtedness represented by that certain Straight Note dated as of July 25, 1996
from F. David Rolo and Linda Rolo to Raytel Medical Corporation in the original
principal amount of $400,000.00.
<PAGE> 90
SCHEDULE 7.20
ENVIRONMENTAL COMPLIANCE
None
<PAGE> 91
SCHEDULE 9.1
INDEBTEDNESS
<PAGE> 92
SCHEDULE 9.2
LIENS
<PAGE> 93
SCHEDULE 9.3
INVESTMENTS
<PAGE> 94
RAYTEL MEDICAL CORPORATION
RAYTEL CARDIAC SERVICES, INC. 100%
RAYTEL IMAGING HOLDINGS INC. 100%
Raytel Medical Imagings, Inc. 100%
-----------------------------
Medical Imaging Partners 1%
Mass Mobile Imaging JV 51%
Raytel Imaging Network, Inc. 100%
----------------------------
Raytel Imaging West Inc. 100%
------------------------
San Luis Obispo Medical Imaging Center var%
CIFIMI Joint Venture 100%
Raytel Imaging East Inc. 100%
------------------------
Forest Hills Imaging Venture 80%
5 East 82nd Street Imaging Venture 80%
Raytel Imaging Mid-Atlantic Inc. 100%
--------------------------------
MRI Diagnostic Partners I-1986 88.5%
MRI Building Partners, L.P.-1986 10%
Orlando Diagnostic Center 5%
Imaging Center of Washington Township 100%
RAYTEL CARDIOVASCULAR LABS, INC. 100%
Raytel Granada Hills Inc. 100%
-------------------------
MEDICAL IMAGING PARTNERS 99%
<PAGE> 95
EXHIBIT E
FORM OF COMPLIANCE CERTIFICATE
Delivered Pursuant to Section 8.4(c) of
the Amended and Restated Credit Agreement
dated as of August 14, 1996
(the "CREDIT AGREEMENT")
The undersigned, the Chief Financial Officer of Raytel Medical
Corporation (the "COMPANY"), hereby certifies as follows:
FINANCIAL COVENANTS
1. Consolidated Operating Cash Flow to Total Interest Expense for the period of
four (4) consecutive fiscal quarters ended ___________, 199 ;
(i) Consolidated Operating Cash Flow
for such period $
(ii) Consolidated Total Interest Expense
for such period $
(iii) Ratio for such period
(iv) Minimum Ratio permitted by
Section 10.1 of the Credit Agreement 3.0:1.0
2. Consolidated Operating Cash Flow to Consolidated Financial Obligations for
the period of four (4) consecutive fiscal quarters ended _____________, 199 :
(i) Consolidated Operating Cash Flow
for such period $
(ii) Consolidated Financial Obligations
for such fiscal period $
(iii) Ratio for such period
(iv) Minimum Ratio permitted by
Section 10.2 of the Credit Agreement 1.5:1.0
3. Consolidated Total Funded Debt to Consolidated Operating Cash Flow for the
four (4) consecutive fiscal quarters ended _________, 199 :
(i) Consolidated Total Funded Debt
at , 199 $
------------ ----------------------
(ii) Consolidated Operating Cash Flow
<PAGE> 96
-2-
for such period $
(iii) Ratio for such period
(iv) Maximum Ratio permitted by the
Credit Agreement 3.0:1.0
EVENTS OF DEFAULT
No Event of Default, or event or condition which with notice or the
lapse of time or both would constitute an Event of Default, has occurred and is
continuing on the date hereof.
RAYTEL MEDICAL CORPORATION
By:
-------------------------------
Chief Financial Officer
Dated:
-------------------------------
<PAGE> 1
EXHIBIT 10.43
RAYTEL MEDICAL CORPORATION
PROMISSORY NOTE
$15,000,000
Dated as of September 2, 1996
FOR VALUE RECEIVED, the undersigned, RAYTEL MEDICAL CORPORATION, a
Delaware corporation (hereinafter, together with its successors in title and
assigns, called the "BORROWER"), promises to pay on or before the Final Maturity
Date (as defined in the Credit Agreement to which reference herein is made to
the order of BANK OF BOSTON CONNECTICUT (hereinafter, together with its
successors in title and assigns, called the "BANK"), at the Agent's Head Office,
the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000), in immediately
available funds or, if less, the aggregate unpaid principal amount of the Loans
made by the Bank to the Borrower pursuant to the Credit Agreement to which
reference is hereinafter made and to pay interest, in like money, on the unpaid
principal amount owing hereunder from time to time from the date hereof until
payment in full of such principal amount as provided in the Credit Agreement.
This Note is made and delivered by the Borrower pursuant to Section 2.4
of the Amended and Restructured Credit Agreement dated as of July __, 1996 by
and among the Borrower, the Bank and Bank of Boston Connecticut in its capacity
as agent for itself and the lenders therein named (as amended and in effect from
time to time, the "Credit Agreement"), and is entitled to the benefits and is
subject to the provisions of the Credit Agreement All capitalized terms used
herein which are defined in the Credit Agreement shall have the same meanings
herein as therein.
The Borrower also promises to pay interest on the unpaid principal
amount of the Loans outstanding until paid in full at the rates per annum set
forth in or established pursuant to the Credit Agreement. Such interest shall be
payable on such dates as are determined from time to time pursuant to the Credit
Agreement and shall be calculated as therein provided.
The Borrower has the right in certain circumstances to prepay the
principal of this Note on the terms and conditions specified in the Credit
Agreement.
<PAGE> 2
-2-
If any Default or Event of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
The Borrower and all guarantors and endorsers hereby waive presentment,
demand, protest and notice of any kind in connection with the delivery,
acceptance, performance and enforcement of this Note, and also hereby assent to
extensions of time of payment or forbearance or other indulgences without
notice.
This Note and the obligations of the Borrower hereunder shall be
governed by, and interpreted and determined in accordance with, the laws of the
State of Connecticut.
THE BORROWER HEREBY REPRESENTS, COVENANTS AND AGREES THAT THE PROCEEDS
OF THE LOANS SHALL BE USED FOR GENERAL COMMERCIAL PURPOSES AND AS FURTHER
PROVIDED IN THE CREDIT AGREEMENT. AND THAT THIS NOTE IS PART OF A "COMMERCIAL
TRANSACTION" AS DEFINED BY THE STATUTES OF THE STATE OF CONNECTICUT. THE
BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND PRIOR COURT HEARING OR COURT
ORDER UNDER CONNECTICUT GENERAL STATUES SECTIONS 52-278A ET SEQ. AS AMENDED OR
UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT
REMEDIES THE BANK MAY EMPLOY TO ENFORCE ITS RIGHTS AND REMEDIES HEREUNDER. MORE
SPECIFICALLY, THE BORROWER ACKNOWLEDGES THAT BANK'S ATTORNEY MAY, PURSUANT TO
CONNECTICUT GENERAL STATUES, SECTION 52-278F, ISSUE A WRIT FOR A PREJUDGMENT
REMEDY WITHOUT SECURING A COURT ORDER. THE BORROWER ACKNOWLEDGES AND RESERVES
ITS RIGHT TO NOTICE AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A WRIT FOR
PREJUDGMENT REMEDY BY BANK'S ATTORNEY. THE BANK ACKNOWLEDGES THE BORROWER'S
RIGHT TO SAID HEARING SUBSEQUENT TO THE ISSUANCE OF SAID WRIT.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its corporate name by its duly authorized officer on the day and in the year
first above written.
RAYTEL MEDICAL CORPORATION
By: /s/ E. Payson Smith, Jr.
---------------------------
Name: E. Payson Smith, Jr.
Title: Senior Vice President
& Chief Financial Officer
<PAGE> 1
EXHIBIT 10.44
RAYTEL MEDICAL CORPORATION
PROMISSORY NOTE
$10,000,000
Dated as of September 2, 1996
FOR VALUE RECEIVED, the undersigned, RAYTEL MEDICAL CORPORATION, a
Delaware corporation (hereinafter, together with its successors in title and
assigns, called the "BORROWER"), promises to pay on or before the Final Maturity
Date (as defined in the Credit Agreement to which reference herein is made to
the order of BANQUE PARIBAS (hereinafter, together with its successors in title
and assigns, called the "BANK"), at the Agent's Head Office, the principal sum
of TEN MILLION DOLLARS ($10,000,000) in immediately available funds or, if less,
the aggregate unpaid principal amount of the Loans made by the Bank to the
Borrower pursuant to the Credit Agreement to which reference is hereinafter made
and to pay interest, in like money, on the unpaid principal amount owing
hereunder from time to time from the date hereof until payment in full of such
principal amount as provided in the Credit Agreement.
This Note is made and delivered by the Borrower pursuant to Section 2.4
of the Amended and Restated Credit Agreement dated as of August 14, 1996 by and
among the Borrower, the Bank and Bank of Boston Connecticut in its capacity as
agent for itself and the lenders therein named (as amended and in effect from
time to time, the "CREDIT AGREEMENT"), and is entitled to the benefits and is
subject to the provisions of the Credit Agreement All capitalized terms used
herein which are defined in the Credit Agreement shall have the same meanings
herein as therein. This Note replaces in part a certain Promissory Note dated
August 14, 1996, in the original principal amount of $6,000,000, previously
executed and delivered by the Borrower to Banque Paribas.
The Borrower also promises to pay interest on the unpaid principal
amount of the Loans outstanding until paid in full at the rates per annum set
forth in or established pursuant to the Credit Agreement. Such interest shall be
payable on such dates as are determined from time to time pursuant to the Credit
Agreement and shall be calculated as therein provided.
The Borrower has the right in certain circumstances to prepay the
principal of this Note on the terms and conditions specified in the Credit
Agreement.
If any Default or Event of Default shall occur, the entire unpaid
principal amount of this Note and all of the unpaid interest accrued thereon may
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
The Borrower and all guarantors and endorsers hereby waive presentment,
demand, protest and notice of any kind in connection with the delivery,
acceptance, performance and enforcement of this Note, and also hereby assent to
extensions of time of payment or forbearance or other indulgences without
notice.
<PAGE> 2
-2-
This Note and the obligations of the Borrower hereunder shall be
governed by, and interpreted and determined in accordance with, the laws of the
State of Connecticut.
THE BORROWER HEREBY REPRESENTS, COVENANTS AND AGREES THAT THE PROCEEDS
OF THE LOANS SHALL BE USED FOR GENERAL COMMERCIAL PURPOSES AND AS FURTHER
PROVIDED IN THE CREDIT AGREEMENT. AND THAT THIS NOTE IS PART OF A "COMMERCIAL
TRANSACTION" AS DEFINED BY THE STATUTES OF THE STATE OF CONNECTICUT. THE
BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND PRIOR COURT HEARING OR COURT
ORDER UNDER CONNECTICUT GENERAL STATUES SECTIONS 52-278A ET SEQ. AS AMENDED OR
UNDER ANY OTHER STATE OR FEDERAL LAW WITH RESPECT TO ANY AND ALL PREJUDGMENT
REMEDIES THE BANK MAY EMPLOY TO ENFORCE ITS RIGHTS AND REMEDIES HEREUNDER. MORE
SPECIFICALLY, THE BORROWER ACKNOWLEDGES THAT BANK'S ATTORNEY MAY, PURSUANT TO
CONNECTICUT GENERAL STATUES, SECTION 52-278F, ISSUE A WRIT FOR A PREJUDGMENT
REMEDY WITHOUT SECURING A COURT ORDER. THE BORROWER ACKNOWLEDGES AND RESERVES
ITS RIGHT TO NOTICE AND A HEARING SUBSEQUENT TO THE ISSUANCE OF A WRIT FOR
PREJUDGMENT REMEDY BY BANK'S ATTORNEY. THE BANK ACKNOWLEDGES THE BORROWER'S
RIGHT TO SAID HEARING SUBSEQUENT TO THE ISSUANCE OF SAID WRIT.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its corporate name by its duly authorized officer on the day and in the year
first above written.
RAYTEL MEDICAL CORPORATION
By: /s/ E. Payson Smith, Jr.
--------------------------
E. Payson Smith, Jr.
Senior Vice President and
Chief Financial Officer
<PAGE> 1
EXHIBIT 13.1
FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Fiscal Year Ended
======================================================================================
September 30, September 30, September 30, September 30, September 27,
(in thousands, except per share data) 1996 1995 1994 1993 1992
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Total revenues $ 72,515 $ 63,462 $ 58,775 $ 46,694 $ 29,707
Operating costs and selling, general and
administrative expenses 56,412 47,353 44,821 34,653 20,115
Depreciation and amortization 5,590 5,806 5,880 6,215 6,291
Non-recurring tender offer expense -- 1,050 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 10,513 9,253 8,074 5,826 3,301
Interest expense 514 2,118 2,463 2,361 1,870
Other (income) (591) (347) (305) (106) (282)
Minority interest 762 1,161 1,099 1,359 1,030
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 9,828 6,321 4,817 2,212 683
Provision for income taxes 3,248 1,960 1,004 311 437
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 6,580 4,361 3,813 1,901 246
Extraordinary item, net of related tax benefit 449 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 6,131 $ 4,361 $ 3,813 $ 1,901 $ 246
====================================================================================================================================
Net income per share before extraordinary item $ .80 $ .78 $ .69 $ .35 $ .05
====================================================================================================================================
Net income per share $ .75 $ .78 $ .69 $ .35 $ .05
====================================================================================================================================
Weighted average common shares and dilutive
equivalents outstanding 8,194 5,617 5,548 5,458 4,933
====================================================================================================================================
Fiscal Year Ended
======================================================================================
September 30, September 30, September 30, September 30, September 27,
(in thousands) 1996 1995 1994 1993 1992
====================================================================================================================================
CONSOLIDATED BALANCE SHEET DATA:
Total assets $68,030 $ 46,768 $ 50,245 $ 51,171 $ 37,835
Long-term debt and capital lease obligations (1) 7,576 14,550 20,518 27,577 19,269
Total stockholders' equity 48,878 21,499 17,160 13,378 5,166
</TABLE>
(1) Includes current portion of long-term debt and capital lease obligations
plus unamortized debt discount.
17
RAYTEL
<PAGE> 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 Raytel Medical Corporation's ("Raytel" or the "Company") 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 Section , that could cause actual results to differ materially
from historical results or those anticipated. In this Section , the words
"anticipates," "believes," "expects," "intends," "future" and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof.
OVERVIEW
The Company generates substantially all of its revenues from the provision of
transtelephonic pacemaker monitoring services for cardiac pacemaker patients
("Pacing"), cardiac event detection services ("CEDS"), diagnostic imaging
services and cardiac catheterization procedures. Beginning on February 1, 1996,
revenue is also being provided from the operation of the Raytel Heart Center at
Granada Hills ("RHCGH"). As of September 18, 1996, revenue is also being
provided from the management of the Southeast Texas Cardiology Associates, P.A.
("SETCA"), a physician practice.
In January 1996, the Company signed an agreement with Stanford Health
Services whereby the Company will provide diagnostic cardiac services at a
cardiac catheterization center to be developed and managed by the Company. This
facility is currently under construction. A second agreement, with Granada Hills
Community Hospital, became effective February 1, 1996 and provided for the
creation of RHCGH, the Company's first integrated heart center. The Company is
responsible for the day-to-day operations of RHCGH, including administrative
support and other non-medical aspects of the program.
Effective June 11, 1996, the Company acquired certain assets and assumed
certain liabilities of Cardio Data Services, Inc.. The Company has continued to
operate the acquired business under the name "Cardio Data Services" ("CDS"). CDS
provides clinical transtelephonic pacemaker monitoring, cardiac event detection
and Holter monitoring services. The purchase price of the transaction was
$14,254,000 and of such amount $13,985,000 was allocated to the acquisition of
intangible assets, the majority of which will be amortized over 25 years.
On September 18, 1996, the Company acquired all of the nonmedical assets of
SETCA and entered into a long-term management service agreement whereby the
Company will manage the non-medical aspects of the practice. The Company has
assumed responsibility for providing office space as well as marketing
activities and other non-medical management services. Total consideration for
the transaction was cash and transaction costs of $4,010,000, promissory notes
of $2,289,000 and 122,068 shares of Common Stock to be delivered at future dates
valued at $852,000.
In December 1995, the Company completed the initial public offering of its
Common Stock which yielded net proceeds, after underwriting discounts and
expenses, of $20,400,000. The Company used approximately $6,000,000 of the
proceeds of the offering to pay the remaining balance of a term loan from two
banks, approximately $2,101,000 to repurchase certain outstanding redeemable
warrants and $5,000,000 to repay substantially all of a subordinated note of the
Company. The remaining proceeds were used for working capital, general corporate
purposes and a portion of the purchase price for an acquisition.
18
RAYTEL
<PAGE> 3
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain data derived
from the Consolidated Statements of Operations as a percentage of total
revenues:
<TABLE>
<CAPTION>
Fiscal Year Ended
=====================================================
September 30, September 30, September 30,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0%
Operating costs and selling, general and administrative expenses 77.8 74.6 76.3
Depreciation and amortization 7.7 9.1 10.0
Non-recurring tender offer expense -- 1.7 --
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 14.5 14.6 13.7
Interest expense and other (income) expense (.1) 2.8 3.7
Minority interest 1.1 1.8 1.8
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 13.5 10.0 8.2
Provision for income taxes 4.5 3.1 1.7
Income before extraordinary item 9.0 6.9 6.5
Extraordinary item .6 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net income 8.4% 6.9% 6.5%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fiscal Year Ended September 30, 1996 Compared to Fiscal Year Ended September 30,
1995
The operations of RHCGH are included in the Company's Consolidated Statements of
Operations since February 1, 1996, the effective date of the Company's agreement
with Granada Hills Community Hospital. Accordingly, RHCGH's operations are
included for eight months of fiscal 1996, but are not included in fiscal 1995.
The operations of CDS are included in the Company's Consolidated Statements of
Operations since June 11, 1996, the effective date of the Company's acquisition
of CDS. Accordingly, the operations of CDS are included for approximately four
months of fiscal 1996, but are not included for fiscal 1995.
Revenues. Total revenues increased by $9,053,000, or 14.3%, from $63,462,000 in
fiscal 1995 to $72,515,000 in fiscal 1996, due primarily to the inclusion of the
revenues from RHCGH and CDS, partially offset by a decrease in Pacing revenues.
Operating Expenses. Operating costs and selling, general and administrative
expenses increased by $9,059,000, or 19.1%, from $47,353,000 in fiscal 1995 to
$56,412,000 in fiscal 1996, due primarily to the inclusion of costs and expenses
from RHCGH and CDS operations. Operating costs and selling, general and
administrative expenses as a percentage of total revenues increased slightly due
primarily to the inclusion of revenues and expenses related to RHCGH, where
operating expenses were slightly in excess of revenues.
Depreciation and Amortization. Depreciation and amortization expense decreased
by $216,000, or 3.7%, from $5,806,000 in fiscal 1995 to $5,590,000 in fiscal
1996, and declined as a percentage of revenues from 9.1% for fiscal 1995 to 7.7%
for fiscal 1996.
Non-Recurring Tender Offer Expense. The costs of an unsuccessful tender offer
for a public company of $1,050,000 were charged off in fiscal 1995.
19
RAYTEL
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Income. As a result of the foregoing factors, operating income
increased by $1,260,000, or 13.6%, from $9,253,000 in fiscal 1995 to $10,513,000
in fiscal 1996.
Interest Expense. Interest expense decreased by $1,604,000, or 75.7%, from
$2,118,000 in fiscal 1995 to $514,000 in fiscal 1996 primarily due to the final
repayment of term debt in the first quarter of fiscal 1996, the repayment of a
subordinated note during fiscal 1996 and a reduction in the principal amount
outstanding under equipment loans and capital leases.
Income Taxes. The provision for income taxes increased by $1,288,000, or 65.7%,
from $1,960,000 in fiscal 1995 to $3,248,000 in fiscal 1996 as a result of
increased taxable income and a higher effective tax rate in the current period.
Extraordinary Item. An extraordinary noncash charge of $449,000, net of the
related tax benefit, for the write-off of unamortized debt discount and
capitalized debt issuance expense, was recorded during the year ended September
30, 1996. This charge resulted from the repayment of indebtedness and the
repurchase of certain redeemable warrants from the net proceeds of the initial
public offering.
Net Income. As a result of the foregoing factors, net income increased by
$1,770,000, or 40.6%, from $4,361,000 in fiscal 1995 to $6,131,000 in fiscal
1996. Excluding the extraordinary item, net income would have increased by
$2,219,000, or 50.9%, to $6,580,000 for the year ended September 30, 1996.
Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended September 30,
1994
The operations of two catheterization laboratories are included in the Company's
Consolidated Statements of Operations since September 1, 1994, the date of their
acquisition. Accordingly, the operations of the catheterization laboratories are
included for all 12 months of fiscal 1995 but for only one month of fiscal 1994.
Revenues. Total revenues increased by $4,687,000, or 8.0%, from $58,775,000 in
fiscal 1994 to $63,462,000 in fiscal 1995. CEDS revenues increased by $2,719,000
over the prior period primarily due to an increase in the number of enrollments
and a higher average reimbursement rate. The remaining increase was primarily
due to the inclusion of revenues from the two catheterization laboratories and,
to a lesser extent, increased revenues for diagnostic imaging services.
Operating Expenses. Operating costs and selling, general and administrative
expenses increased by $2,532,000, or 5.6%, from $44,821,000 in fiscal 1994 to
$47,353,000 in fiscal 1995 primarily as a result of increased revenues.
Operating costs and selling, general and administrative expenses as a percentage
of total revenues remained relatively unchanged.
Depreciation and Amortization. Depreciation and amortization expense was
relatively unchanged but declined as a percentage of revenues from 10.0% in
fiscal 1994 to 9.1% in fiscal 1995.
Non-Recurring Tender Offer Expense. The costs of an unsuccessful tender offer
for a public company of $1,050,000 were charged off in fiscal 1995.
Operating Income. As a result of the foregoing factors, operating income
increased by $1,179,000, or 14.6%, from $8,074,000 in fiscal 1994 to $9,253,000
in fiscal 1995. Excluding the non-recurring tender offer expenses, operating
income would have increased by 27.6% to $10,303,000.
Interest Expense. Interest expense decreased by $345,000, or 14.0%, from
$2,463,000 in fiscal 1994 to $2,118,000 in fiscal 1995, primarily due to a
decrease in term debt and a reduction in the principal amount outstanding under
equipment loans and capital leases, offset by a slight increase in applicable
interest rates.
20
RAYTEL
<PAGE> 5
Income Taxes. The provision for income taxes increased by $956,000, or 95.2%,
from $1,004,000 in fiscal 1994 to $1,960,000 in fiscal 1995 as a result of
increased taxable income and a higher effective tax rate in the current period.
Net Income. As a result of the foregoing factors, net income increased by
$548,000, or 14.4%, from $3,813,000 in fiscal 1994 to $4,361,000 in fiscal 1995.
Excluding the non-recurring tender offer expense, net income would have
increased by $1,272,000, or 33.3%, to $5,085,000 in fiscal 1995.
BUSINESS ENVIRONMENT AND FUTURE RESULTS
The Company's future operating results may be affected by various trends in the
healthcare industry as well as by a variety of other factors, some of which are
beyond the Company's control.
The healthcare industry is undergoing significant change as third-party
payors attempt to control the cost, utilization and delivery of healthcare
services. Substantially all of the Company's revenues are derived from Medicare,
HMOs, and 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. Although the Company's total revenues
have increased in each of the last three fiscal years, revenue growth of the
Company's Pacing operations during that period has been negatively impacted by
Medicare reimbursement rate reductions in certain geographic areas. Additional
reimbursement rate reductions applicable to the Company's Pacing procedures
became effective on January 1, 1996. These reductions had a negative effect on
the Company's operating results for fiscal 1996 and, unless modified, will
continue to have some negative effect on its ongoing operating results. The
Company cannot predict with any certainty whether or when additional reductions
or changes in Medicare or other third-party reimbursement rates or policies will
be implemented. There can be no assurance that future changes, if any, will not
adversely affect the amounts or types of services that may be reimbursed to the
Company, or that future reimbursement of any service offered by the Company will
be sufficient to cover the costs and overhead allocated to such service.
The Company's investments in two ventures ("Ventures") that operate four of
the consolidated imaging centers are expected to terminate on or before July 30,
1997. Revenues contributed by these Ventures were $3,924,000, $4,903,000 and
$4,834,000 for the years ended September 30, 1996, 1995 and 1994, respectively.
From time to time Congress considers legislation to reduce Medicare and
Medicaid expenditures. Future legislation of this type could have a material
adverse effect on the Company's business, financial condition and operating
results.
A key element of the Company's long-range strategy is the development and
operation of integrated heart centers and the acquisition of cardiac healthcare
providers and the assets of physician practices and other businesses related to
its current operations. In January 1996, the Company entered into an agreement
for the development of a heart center which began operations on February 1, 1996
and in September 1996, the Company acquired all of the non-medical assets of a
physician practice and entered into a long-term management service agreement.
The success of the Company's existing and future heart centers will depend upon
several factors, including the Company's ability to: obtain, and operate in
compliance with, appropriate licenses; control costs and realize operating
efficiencies; educate patients, referring physicians and third-party payors
about the benefits of such heart centers; and provide cost-effective services
that meet or exceed existing standards of care.
Providers of healthcare services are subject to numerous federal, state and
local laws and regulations that govern various aspects of their business. There
can be no assurance that the Company will be able to obtain regulatory approvals
that may be required to expand its services or that new laws or regulations will
not be enacted or adopted that will have a material adverse effect on the
Company's business, financial condition or operating results.
21
RAYTEL
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The healthcare businesses in which the Company is engaged are highly
competitive. The Company expects competition to increase as a result of ongoing
consolidations and cost-containment pressures, among other factors.
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in the Company's operating
results, shortfalls in such operating results from levels forecasted by
securities analysts and other events or factors. In addition, the stock market
has, from time to time, experienced extreme price and volume fluctuations that
have particularly affected the market prices of companies in the healthcare
service industries and that have often been unrelated to the operating
performance of the affected companies. Announcements of changes in reimbursement
policies of third-party payors, regulatory developments, economic news and other
external factors may have a significant impact on the market price of healthcare
stocks.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity was materially improved as a result of the completion of
the initial public offering of its Common Stock in December 1995 and its receipt
of $20,400,000 in net proceeds therefrom. The Company acquired CDS in June 1996
for cash in the amount of $14,254,000 and SETCA in September 1996 for cash in
the amount of $4,010,000. At September 30, 1996, the Company had working capital
of $16,204,000, compared to $15,547,000 at September 30, 1995. At September 30,
1996, the Company had cash and temporary cash investments of $5,737,000. At
September 30, 1996, $2,376,000 was outstanding under the Company's new
$25,000,000 line of credit.
The Company batch-bills Medicare insurance carriers for most cardiac
testing services performed during the first five months of each calendar year.
This practice results in a temporary build-up of accounts receivable during the
Company's second and third fiscal quarters and the collection of these
receivables primarily during the subsequent fourth fiscal quarter and the first
quarter of the following fiscal year.
The Company has a new revolving line of credit with two banks in the amount
of $25,000,000 to fund working capital needs, future acquisitions, equipment
purchases and other business needs. Amounts outstanding under the line of credit
bear interest based on a defined formula and is subject to certain covenants.
The line of credit expires in August 1998 at which time any outstanding balance
converts to a five year term loan.
The Company's long-term capital requirements will depend on numerous
factors, including the rate at which the Company develops and opens new heart
centers or acquires existing heart centers or other businesses, if any. The
Company believes that its cash and cash equivalent balances, together with
amounts available from bank borrowings and cash generated by its operating
activities, will be adequate to meet the Company's anticipated needs for working
capital and capital expenditures through fiscal year 1997.
In September 1996, the Company won an administrative decision related to a
billing dispute with a New York Medicare carrier. The Company billed the carrier
at a reimbursement rate which was in effect at the time the Company acquired the
CardioCare division from Medtronic, Inc. in 1993. The reimbursement rate was
confirmed by the carrier after the acquisition. Following an audit of the
carrier by the Healthcare Finance Administration ("HCFA"), the Company was
ordered to return approximately $4 million to Medicare, a decision the Company
immediately appealed. The Company was notified on September 23, 1996, that an
administrative judge found that the Company was without fault and is entitled to
reimbursement of the approximately $4 million in question.
The Company had fully accrued for the disputed amount in its historical
financial statements. The amount to be reimbursed to the Company is fully
reserved in these financial statements as prior to November 8, 1996 (the
"sign-off" date), HCFA still had a right to file an appeal and the Company had
not received the cash.
22
RAYTEL
<PAGE> 7
PERCENTAGE OF CONSOLIDATED REVENUES
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
==========================================================
1996 1995 1994
===========================================================================================================================
<S> <C> <C> <C>
Pacing, CEDS and Holter revenues 60% 65% 66%
Diagnostic imaging service revenues 28% 32% 33%
Heart Center and other revenues 12% 3% 1%
===========================================================================================================================
Total 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 1996
=========================================================================
(000's omitted, except per share amounts) December 31, March 31, June 30, September 30,
===================================================================================================================================
<S> <C> <C> <C> <C>
Net revenues $15,816 $18,046 $18,906 $19,747
===================================================================================================================================
Income before income taxes and extraordinary item $ 2,113 $ 2,734 $ 2,572 $ 2,409
Provision for income taxes 845 1,093 659 651
===================================================================================================================================
Income before extraordinary item 1,268 1,641 1,913 1,758
Extraordinary item, net of related tax benefit 402 -- -- 47
===================================================================================================================================
Net income $ 866 $ 1,641 $ 1,913 $ 1,711
===================================================================================================================================
Net income per share before extraordinary item(1) $ .20 $ .19 $ .22 $ .20
Net income per share(1) $ .14 $ .19 $ .22 $ .19
===================================================================================================================================
Fiscal Year Ended September 30, 1995
=========================================================================
December 31, March 31, June 30, September 30,
===================================================================================================================================
Net revenues $15,605 $15,798 $16,148 $15,911
===================================================================================================================================
Income before income taxes $ 1,085 $ 1,275 $ 2,103 $ 1,858
Provision for income taxes 336 395 652 577
===================================================================================================================================
Net income $ 749 $ 880 $ 1,451 $ 1,281
===================================================================================================================================
Net income per share(1) $ .13 $ .16 $ .26 $ .23
</TABLE>
(1) Quarterly per share earnings do not necessarily equal the total per share
earnings reported for the year as a result of the dilutive effect of
common stock equivalents on the calculation of per share earnings.
23
RAYTEL
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
September 30, September 30,
(000's omitted, except shares) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,737 $ 4,983
Receivables, net 21,753 22,415
Prepaid expenses and other 1,472 1,286
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 28,962 28,684
Investment in and advances to unconsolidated entities and partnerships 74 158
Property and equipment, less accumulated depreciation and amortization 9,156 8,598
Intangible assets, less accumulated amortization 29,838 9,328
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $68,030 $46,768
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,703 $ 4,275
Current portion of capital lease obligations 562 1,047
Accounts payable 2,861 2,189
Accrued liabilities 6,632 5,626
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 12,758 13,137
Long-term debt, net of current portion 3,842 7,718
Capital lease obligations, net of current portion 469 984
Redeemable warrants -- 1,600
Deferred liabilities 983 749
Minority interest in consolidated entities 1,100 1,081
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 19,152 25,269
===========================================================================================================================
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock (Note 7) -- 7
Common stock (Note 7) 8 2
Additional paid-in capital 55,585 31,410
Common stock to be issued, 122,068 shares in 1996 (Note 1) 852 --
Accumulated deficit (7,567) (9,920)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 48,878 21,499
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $68,030 $46,768
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
RAYTEL
<PAGE> 9
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
September 30, September 30, September 30,
(000's omitted, except per share amounts) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net patient and service revenues $71,711 $63,087 $57,906
Other revenues 804 375 869
=====================================================================================================================
Total revenues 72,515 63,462 58,775
=====================================================================================================================
Costs and expenses:
Operating costs 27,582 20,687 18,685
Selling, general and administrative 28,830 26,666 26,136
Depreciation and amortization 5,590 5,806 5,880
Non-recurring tender offer expense -- 1,050 --
=====================================================================================================================
Total costs and expenses 62,002 54,209 50,701
=====================================================================================================================
Operating income 10,513 9,253 8,074
Interest expense 514 2,118 2,463
Other expense (income) (591) (347) (305)
Minority interest 762 1,161 1,099
=====================================================================================================================
Income before income taxes and extraordinary item 9,828 6,321 4,817
Provision for income taxes 3,248 1,960 1,004
=====================================================================================================================
Income before extraordinary item 6,580 4,361 3,813
Extraordinary item, net of related tax benefit 449 -- --
=====================================================================================================================
Net income $ 6,131 $ 4,361 $ 3,813
=====================================================================================================================
Net income per share before extraordinary item $ .80 $ .78 $ .69
=====================================================================================================================
Net income per share (Note 14) $ .75 $ .78 $ .69
=====================================================================================================================
Weighted average common shares and dilutive equivalents
outstanding (Note 14) 8,194 5,617 5,548
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
RAYTEL
<PAGE> 10
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Additional Common
Preferred Stock Common Stock Paid-in Stock to
(000's omitted, except shares) Shares Amount Shares Amount Capital be Issued
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 3,742,288 $ 7 1,041,921 $ 2 $ 31,463 $ --
--------- ---------- --------- ---------- ---------- --------
Net income for the year -- -- -- -- -- --
Options exercised -- -- 2,913 -- 4 --
Repurchase of shares (2,497) -- (1,030) -- (20) --
Change of equity interest
in subsidiary -- -- -- -- (15) --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 3,739,791 7 1,043,804 2 31,432 --
Net income for the year -- -- -- -- -- --
Options exercised 1,361 -- -- -- 3 --
Repurchase of shares -- -- (4,121) -- (25) --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1995 3,741,152 7 1,039,683 2 31,410 --
Net income for the year -- -- -- -- -- --
Conversion of preferred stock
to common stock (3,741,152) (7) 3,741,152 3 4 --
Issuance of common stock in
payment of preferred dividends -- -- 472,250 -- 3,778 --
Retirement of fractional shares -- -- (230) -- -- --
Payment of warrants -- -- -- -- (501) --
Sale of common stock in initial
public offering -- -- 2,875,000 3 20,397 --
Value of 122,068 shares to
be issued -- -- -- -- -- 852
Warrants exercised -- -- 15,760 -- 63 --
Options exercised -- -- 189,309 -- 434 --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 0 $ 0 8,332,924 $ 8 $ 55,585 $ 852
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Stockholders'
(000's omitted, except shares) Deficit Equity
===================================================================
<S> <C> <C>
Balance at September 30, 1993 $ (18,094) $ 13,378
---------- ----------
Net income for the year 3,813 3,813
Options exercised -- 4
Repurchase of shares -- (20)
Change of equity interest
in subsidiary -- (15)
- -------------------------------------------------------------------
Balance at September 30, 1994 (14,281) 17,160
Net income for the year 4,361 4,361
Options exercised -- 3
Repurchase of shares -- (25)
- -------------------------------------------------------------------
Balance at September 30, 1995 (9,920) 21,499
Net income for the year 6,131 6,131
Conversion of preferred stock
to common stock -- --
Issuance of common stock in
payment of preferred dividends (3,778) --
Retirement of fractional shares -- --
Payment of warrants -- (501)
Sale of common stock in initial
public offering -- 20,400
Value of 122,068 shares to
be issued -- 852
Warrants exercised -- 63
Options exercised -- 434
- -------------------------------------------------------------------
Balance at September 30, 1996 $ (7,567) $ 48,878
===================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
RAYTEL
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
September 30, September 30, September 30,
(000's omitted) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,131 $ 4,361 $ 3,813
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization 5,590 5,806 5,880
Minority interest 762 1,161 1,099
Other, net 245 1,390 467
Changes in operating accounts:
Receivables, net 850 (1,090) (1,143)
Prepaid expenses and other (105) (107) (238)
Accounts payable 651 (228) 748
Accrued liabilities and other 574 (2,638) 1,653
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,698 8,655 12,279
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (3,022) (2,244) (1,423)
Purchases of net assets and physician practice (18,264) -- --
Other, net 350 104 10
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (20,936) (2,140) (1,413)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from initial public offering 20,400 -- --
Repurchase of warrants (2,101) -- --
Income distributions to noncontrolling investors (738) (1,446) (1,577)
Principal repayments of debt (13,442) (5,911) (7,419)
Proceeds from line of credit 2,376 -- --
Other, net 497 (22) (16)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 6,992 (7,379) (9,012)
Net increase (decrease) in cash and cash equivalents 754 (864) 1,854
Cash and cash equivalents at beginning of period 4,983 5,847 3,993
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,737 $ 4,983 $ 5,847
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $ 454 $ 1,605 $ 2,025
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 3,309 $ 1,774 $ 1,584
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
RAYTEL
<PAGE> 12
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND DESCRIPTION OF THE COMPANY
Since 1990, Raytel Medical Corporation ("Raytel" or the "Company") or its
predecessor companies, have been in the medical service business. The Company
provides a variety of medical services, focusing on the needs of patients with
cardiovascular disease and is the leading provider in the United States of
remote cardiac monitoring and testing services utilizing transtelephonic
technology. Also, the Company is developing integrated heart centers that are
located within existing hospitals and acquiring cardiology-related physician
practices. Since 1990, the Company has acquired and/or entered into agreements
with various medical service businesses. The significant transactions occurring
during the past three fiscal years are described below:
(a) In January 1996, the Company signed an agreement with Stanford Health
Services whereby the Company will provide diagnostic cardiac services at a
cardiac catheterization center to be developed and managed by the Company.
This facility is currently under construction. A second agreement, with
Granada Hills Community Hospital, became effective February 1, 1996 and
provided for the creation of the Company's first integrated heart center,
the Raytel Heart Center at Granada Hills ("RHCGH"). The Company is
responsible for the day-to-day operations of RHCGH, including
administrative support and other non-medical aspects of the program.
(b) Effective June 11, 1996, the Company acquired certain assets and
assumed certain liabilities of Cardio Data Services, Inc. The Company has
continued to operate the acquired business under the name "Cardio Data
Services" ("CDS"). CDS provides clinical transtelephonic pacemaker
monitoring, cardiac event detection and Holter monitoring services. The
purchase price of the transaction was $14,254,000 and of such amount
$13,985,000 was allocated to the acquisition of intangible assets, the
majority of which will be amortized over 25 years.
Unaudited pro forma consolidated financial information for the years
ended September 30, 1996 and 1995, as though the acquisition of CDS had
occurred at the beginning of fiscal 1995, is as shown in the table below:
<TABLE>
<CAPTION>
September 30,
=========================
(in thousands, except per share amount) 1996 1995
===========================================================================
<S> <C> <C>
Revenues $79,427 $73,341
Net income $ 6,262 $ 4,321
Net income per share $ .76 $ .77
Weighted average shares outstanding 8,194 5,617
</TABLE>
(c) On September 18, 1996, the Company acquired all of the non-medical
assets of Southeast Texas Cardiology Associates, P.A. ("SETCA") and
entered into a long-term management service agreement whereby the Company
will manage the non-medical aspects of the practice. The Company has
assumed responsibility for providing office space as well as marketing
activities and other non-medical management services.
Total consideration for the transaction was cash and transaction costs
of $4,010,000, promissory notes of $2,289,000 and 122,068 shares of Common
Stock to be delivered at future dates valued at $852,000. The shares of
Common Stock were valued at a discount from the estimated fair value of a
delivered share after considering all relevant factors, including, but not
limited to, normal discounts for marketability due to the time delay in
delivery of the shares. The recorded amounts for the aggregate number of
shares of Common Stock to be delivered were discounted 40% from comparable
cash sales of Common Stock. The scheduled issuance of the shares of Common
Stock that the Company is committed to deliver are 24,414 in 1997, 12,207
in 1998, 12,207 in 1999, 36,620 in 2000 and 36,620 in 2001.
The Company's acquisitions have been accounted for as purchases in
accordance with generally accepted accounting principles and, accordingly,
acquired assets and assumed liabilities were recorded at their estimated fair
values at the acquisition date. In certain acquisitions, there was an excess of
the purchase price over the net tangible assets acquired which was allocated to
identifiable intangible assets and goodwill (See Note 5).
In December 1995, the Company completed the initial public offering of its
Common Stock (the "Offering") which yielded net proceeds, after underwriting
discounts and expenses, of $20,400,000. The Company used approximately
$6,000,000 of the proceeds of the Offering to pay the remaining balance of a
term loan from two banks, approximately $2,101,000 to repurchase certain
outstanding redeemable warrants and $5,000,000 to repay substantially all of a
subordinated note. The remaining proceeds were used for working capital, general
corporate purposes and a portion of the purchase price for CDS.
28
RAYTEL
<PAGE> 13
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries.
At September 30, 1996, the Company owned four imaging centers and held
interests in eight others through investments in various joint ventures and
limited partnerships (the "Ventures"). Five Ventures operating seven of the
centers are consolidated for financial reporting purposes, as the Company owns
more than 50% of those Ventures and/or controls their assets and operations. The
other two are accounted for using the equity method.
Two of the Ventures that operate four of the consolidated imaging centers
are expected to terminate on or before July 30, 1997. Revenues contributed by
these Ventures were $3,924,000, $4,903,000 and $4,834,000 for the years ended
September 30, 1996, 1995 and 1994, respectively.
Minority interests in consolidated entities represent the investment of
third-parties in certain consolidated Ventures.
All significant intercompany accounts and transactions are eliminated in
consolidation.
Revenue Recognition. Net patient and service revenues are recognized at
established rates when the services are provided. Contractual allowances are
calculated for services provided at less than the established rates as approved
by Medicare or other third-party payors and are recorded as deductions from
revenue. Imaging center revenues principally represent net fees of the
consolidated Ventures for services provided to patients net of physician fees
and certain expenses.
Other revenues include income and other revenue from unconsolidated
entities and equity earnings of unconsolidated entities.
Cash Equivalents. For purposes of reporting cash flows, the Company considers
temporary investments with original maturities of three months or less to be
cash equivalents. The temporary investments are stated at cost, which
approximates market.
Property and Equipment. Property and equipment are stated at cost. Depreciation
is provided on the straight-line method over the estimated useful lives of the
assets which range from three to ten years. Capital leases are recorded at the
present value of the future minimum lease payments. Capital leases are amortized
over the terms of the related lease on a straight-line basis.
Management Service Agreements. Management service agreements consist of the
costs of purchasing the rights to manage medical groups. The agreements contain
an initial noncancelable 40-year term. Under these long-term agreements, the
medical groups have agreed to provide medical services on an exclusive basis
only through facilities managed by the Company. The agreements are noncancelable
except for performance defaults. In the event a medical group breaches the
agreement, or if the Company terminates with cause, the medical group is
required to repurchase all related assets, including the unamortized portion of
any intangible assets, including the management service agreement, at the then
net book value. Management service agreements are being amortized over twenty
years.
Intangible Assets. Intangible assets principally consist of the excess of cost
over the fair value of the net tangible assets acquired. Such intangible assets
represent physician referrals and patient lists, joint venture/partnership
interests, non-compete covenants, organization costs, capitalized debt issuance
expense and goodwill.
Amortization of organization costs, capitalized debt issuance expense and
goodwill is provided on the straight-line basis. Amortization of physician
referrals and patient lists and joint venture/partnership interests is provided
based upon the ratio of expected annual revenues to expected total revenues to
be generated over the estimated life of the asset. The amortization periods of
the intangibles range from two to twenty-five years, with physician referrals
and patient lists being amortized over fifteen years and goodwill being
amortized over ten to twenty-five years.
Income Taxes. The Company and its subsidiaries file consolidated federal and
state income tax returns.
The Company has adopted Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes ("SFAS 109"). This statement requires an asset
and liability approach in determining deferred income taxes. SFAS 109 also
requires that the benefits realized from the utilization of tax loss
carry-forwards be reflected as a reduction of the provision for income taxes and
not as an extraordinary item.
Extraordinary Item. An extraordinary noncash charge of $449,000, net of the
related tax benefit, for the write-off of unamortized debt discount and the
write-off of capitalized debt issuance expense was recorded during the year
ended September 30, 1996. This charge resulted from the early repayment of
indebtedness and the repurchase of certain redeemable warrants from the net
proceeds of the Offering.
29
RAYTEL
<PAGE> 14
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Tender Offer Expense. Represents the costs incurred in an unsuccessful tender
offer for the stock of a public company.
Use of Estimates. The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and the related disclosures. Actual results could differ from those
estimates.
New Accounting Standards. The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by the Company are to be reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. The Company is required to adopt SFAS 121 during
the fiscal year ended 1997. The adoption of this accounting standard is not
expected to have a material adverse impact on the financial statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"). SFAS 123 requires the Company either to adopt a method of accounting for
stock options at "fair value" in its financial statements or to retain its
existing method and disclose the pro forma effects of using this "fair value"
method beginning in fiscal year 1997. The Company intends to retain its existing
method of accounting for stock options and to include the required pro forma
disclosures in the notes to its consolidated financial statements. Accordingly,
Statement No. 123 will have no effect on the Company's consolidated financial
position or results of operations.
Fair Value of Financial Instruments. The carrying amounts of all financial
instruments approximate fair value.
NOTE 3. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
September 30,
=========================
(in thousands) 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Patient and service receivables $26,671 $29,247
Less allowance for doubtful accounts (5,855) (7,709)
- -------------------------------------------------------------------------------------
20,816 21,538
Other receivables 937 877
- -------------------------------------------------------------------------------------
Total $21,753 $22,415
- -------------------------------------------------------------------------------------
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
=========================
(in thousands) 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Equipment, furniture and fixtures $15,667 $12,456
Leasehold improvements 3,642 3,723
Equipment held under capital lease 4,575 4,575
- -------------------------------------------------------------------------------------
23,884 20,754
Less accumulated depreciation and amortization (14,728) (12,156)
- -------------------------------------------------------------------------------------
$ 9,156 $ 8,598
- -------------------------------------------------------------------------------------
</TABLE>
Depreciation expense was $3,667,000, $3,825,000 and $3,734,000 for the
years ended September 30, 1996, 1995 and 1994, respectively.
30
RAYTEL
<PAGE> 15
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
September 30,
---------------------
(in thousands) 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 19,800 $ 4,443
Physician referrals and patient lists 10,658 10,621
Management service agreements 7,144 --
Other 5,529 6,082
- -------------------------------------------------------------------------
43,131 21,146
Less accumulated amortization (13,293) (11,818)
- -------------------------------------------------------------------------
$ 29,838 $ 9,328
- -------------------------------------------------------------------------
</TABLE>
Amortization expense related to intangible assets totaled $1,923,000,
$1,981,000 and $2,146,000 for the years ended September 30, 1996, 1995 and 1994,
respectively.
NOTE 6. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
September 30,
---------------------
(in thousands) 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Promissory notes(a) $ 2,846 $ --
Line of credit(b) 2,376 --
Subordinated note payable (c) -- 5,960
Term loan and receivables facility(d) -- 6,000
Other(e) 1,323 559
Unamortized debt discount(d) -- (526)
- -------------------------------------------------------------------------
6,545 11,993
Less current maturities (2,703) (4,275)
- -------------------------------------------------------------------------
$ 3,842 $ 7,718
- -------------------------------------------------------------------------
</TABLE>
(a) In connection with the SETCA transaction, the Company assumed two
promissory notes with variable interest rates. Both notes were paid off
subsequent to September 30, 1996. Also, the Company issued $2,289,000 in
promissory notes bearing interest at 12%. The interest is due and payable
quarterly beginning December 15, 1996. The principal balance is due in two
equal annual installments in years 2001 and 2002.
(b) In August 1996, the Company entered into a new line of credit for
$25,000,000. Under terms of the agreement with two banks, this credit
facility can be used to fund acquisitions of physician practices,
facilities and equipment, as well as for working capital purposes. The
Company can draw amounts under the line of credit until August 15, 1998,
at which date amounts outstanding will convert into a term loan which will
amortize on a semi-annual basis for the five years thereafter. The
Company's access to the line of credit is subject to the maintenance of
certain financial covenants related to the Company's level of indebtedness
and cash flow. The interest rate is based upon the LIBOR rate plus 150
basis points or the bank's prime rate at the option of the Company. At
September 30, 1996, the interest rate was 8.25%. The line is
collateralized by substantially all of the assets of the Company and its
subsidiaries.
(c) The subordinated note was paid off with proceeds from the Offering.
(d) The term loan and receivables facility (the "Credit Facilities") included
a beginning term loan of $15,000,000 (the "Term Loan") and working capital
facilities of up to $10,000,000 (the "Receivables Facility") based upon
55% to 60% of Eligible Receivables (as defined in the Credit Facilities
agreement). The term loan was paid off with proceeds from the Offering.
The Credit Facilities were cancelled and replaced with the new line of
credit.
(e) Other debt includes a balance due in connection with the RHCGH transaction
payable in annual installments of $100,000 through 2006. Also included are
nonrecourse notes payable in monthly installments through October 2001
with varying maturities at interest rates ranging from 9.8% to 10.2%. The
majority of these notes are collateralized by the equipment purchased.
Long-term debt (excluding capital lease obligations) maturing within each
of the five years subsequent to September 30, 1996, is as follows:
1997-$2,703,000; 1998-$461,000; 1999-$182,000; 2000-$165,000; and
2001-$1,309,000.
31
RAYTEL
<PAGE> 16
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. PREFERRED STOCK AND COMMON STOCK
Effective upon the closing of the Offering in December 1995, all outstanding
Preferred Stock was converted into Common Stock. Upon the completion of the
Offering, 2,000,000 shares of undesignated Preferred Stock were authorized for
issuance. The Company's Board of Directors has the authority to issue such
Preferred Stock in one or more series and to establish its terms which may be
greater than the rights of the Common Stock. As of September 30, 1996, no such
shares had been issued.
The previously outstanding shares of Preferred Stock were entitled to
receive dividends. Upon the completion of the initial public offering, all
accumulated dividends on the Preferred Stock were paid with Common Stock in
amounts determined by dividing the total accumulated dividends by the Offering
price.
There are 20,000,000 shares of Common Stock, $.001 par value, authorized.
The accompanying consolidated financial statements reflect a one-for-two
reverse stock split approved by the Board of Directors on September 28, 1995 for
all periods presented.
NOTE 8. STOCK OPTIONS AND WARRANTS
Warrants. Warrants to purchase 66,044 shares of Common Stock at an exercise
price of $4.00 per share are outstanding.
The warrants expire on September 30, 1997.
In connection with the Credit Facilities, warrants were issued to the banks
to purchase 5% of the fully diluted common stock of certain subsidiaries under
certain circumstances. Such warrants were valued at $750,000 and $850,000,
respectively, and were being amortized over the life of the term loan. The
warrants were repurchased from proceeds of the Offering.
Warrant amortization expense, which is included in interest expense,
related to the debt discounts totaled $60,000, $363,000 and $363,000 for the
years ended September 30, 1996, 1995 and 1994, respectively.
In accordance with the terms of a 1993 acquisition, upon completion of the
Offering, the Company issued the seller warrants to purchase 231,200 shares of
Common Stock at an exercise price of $8.40 per share. At September 30, 1996, all
such warrants are outstanding. The warrants will expire five years from the
effective date of such Offering.
Stock Option Plans. The Company has options outstanding from two separate
plans, the 1983 Incentive Stock Option Plan as Amended February 25, 1993 (the
"1983 Option Plan") and the 1990 Stock Option Plan (the "1990 Option Plan").
Generally, the 1983 Option Plan and the 1990 Option Plan (together the "Plans")
have similar terms. Terms for the Plans, including exercise price, are set by
the Board of Directors. The exercise price for Incentive Stock Options must be
granted at not less than the fair market value of the underlying stock at the
date of grant. The exercise price for nonqualified options may be set at not
less than 85% of fair market value. Options that are granted have a term of five
to ten years from the date of grant. Vesting occurs ratably over a period
ranging from two to four years beginning with the effective date of grant.
Effective upon the closing of the Offering, and the conversion of Preferred
Stock into Common Stock in December 1995, all options outstanding to purchase
Preferred Stock were converted into options to purchase Common Stock.
In September 1995, the Company's Board of Directors adopted the 1995
Outside Directors Stock Option Plan (the "Directors Plan"). The Directors Plan
was approved by the stockholders. The Directors Plan provides for the grant of
6,000 nonstatutory stock options to nonemployee directors of the Company on the
date on which the optionee first becomes a nonemployee director of the Company.
Thereafter, the annual grant would be a maximum of 6,000 shares, as defined.
Total vesting occurs, based on a formula, no sooner than three years nor longer
than five years. The exercise price per share of all options granted under the
Directors Plan shall be equal to the fair market value of a share of the
Company's Common Stock on the date of grant.
32
RAYTEL
<PAGE> 17
Option activity for the above plans is summarized as follows (including
the effect of the conversion of the Preferred to Common)
<TABLE>
<CAPTION>
Outstanding Stock Options
-------------------------------------------
Shares Number
Available of Shares Price Per Share
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances, September 30, 1993 602,356 612,440 $1.40 - $ 2.38
Options canceled 1,765 (2,097) 1.50
Options exercised -- (2,913) 1.50
Available shares canceled (150,733) -- --
Options granted (112,498) 112,498 5.40
Additional options authorized 200,000 -- --
- --------------------------------------------------------------------------------------------
Balances, September 30, 1994 540,890 719,928 1.40 - 5.40
Options canceled 4,090 (13,384) 1.50 - 5.40
Options exercised -- (1,361) 1.50 - 5.40
- --------------------------------------------------------------------------------------------
Balances, September 30, 1995 544,980 705,183 1.40 - 5.40
Options canceled 17,587 (20,099) 1.50 - 9.50
Options exercised -- (189,309) 1.40 - 5.40
Options granted (626,275) 626,275 8.00 - 11.88
Additional options authorized 700,000 -- --
- --------------------------------------------------------------------------------------------
Balances, September 30, 1996 636,292 1,122,050 $1.40 - $11.88
- --------------------------------------------------------------------------------------------
</TABLE>
NOTE 9. LEASE COMMITMENTS
The Company leases two of its facilities under agreements which expire in 2001
and 1999, respectively. The Company also leases real estate and various
equipment under noncancelable leases classified as operating leases.
Certain subsidiaries and Ventures of the Company lease office space. These
leases are noncancelable and expire on various dates through 2008 and are
treated as operating leases. Certain subsidiaries and Ventures also lease
equipment under terms which qualify as capital leases.
At September 30, 1996, the future minimum rental payments for each fiscal
year thereafter under all leases are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Ending Leases Leases
- ------------------------------------------------------------------------------
<C> <C> <C>
1997 $ 3,441 $ 633
1998 3,063 411
1999 2,396 84
2000 1,914 --
2001 1,835 --
Thereafter 3,759 --
- -------------------------------------------------------------------
Total 1,128
Less amount representing interest (97)
-------
Present value-minimum lease payments 1,031
Less current portion (562)
-------
$ 469
-------
</TABLE>
33
RAYTEL
<PAGE> 18
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 1,751 $ 364 $ 389
State 1,497 1,245 966
- --------------------------------------------------------------------------------
3,248 1,609 1,355
- --------------------------------------------------------------------------------
Deferred:
Federal -- 351 (351)
- --------------------------------------------------------------------------------
Total $ 3,248 $ 1,960 $ 1,004
- --------------------------------------------------------------------------------
</TABLE>
At September 30, 1996 and 1995, the Company had $2,324,000 and $4,511,000,
respectively, of deferred tax assets. The Company has recorded a 100% valuation
allowance against these amounts.
The tax effect of the primary temporary differences giving rise to the
Company's deferred tax assets and liabilities at September 30, 1996 and 1995,
are as follows (in thousands):
<TABLE>
<CAPTION>
Current Asset (Liability) Long-Term Asset (Liability)
------------------------- ---------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating loss carryforward $ -- $ 326 $ -- $ --
Depreciation and amortization 424 132 803 2,496
Reserves for accounts receivable and unbilled costs and fees 544 1,029 -- --
Other, net 235 717 318 (189)
- -------------------------------------------------------------------------------------------------------------------------
1,203 2,204 1,121 2,307
Valuation allowance (1,203) (2,204) (1,121) (2,307)
- -------------------------------------------------------------------------------------------------------------------------
Total deferred income taxes $ -- $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Reconciliation of the federal statutory rate to the Company's effective tax rate
is as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30,
---------------------------------------------------------------
1996 1995 1994
----------------- ----------------- -------------------
Amount Rate Amount Rate Amount Rate
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at the statutory rate $ 3,342 34.0% $ 2,149 34.0% $ 1,638 34.0%
State income taxes, net of federal benefit 988 10.0 822 13.0 638 13.2
Federal tax benefit of the utilization of net
operating loss and credit carryforwards (1,082) (11.0) (1,011) (16.0) (1,272) (26.4)
- -------------------------------------------------------------------------------------------------------------------
Total $ 3,248 33.0% $ 1,960 31.0% $ 1,004 20.8%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1996, the Company had no federal net operating loss or unused
credit carryforwards.
34
RAYTEL
<PAGE> 19
NOTE 11. EMPLOYEE BENEFIT PLANS
The Raytel Medical Corporation Pension Plan (the "Pension Plan") is a defined
contribution benefit plan which covers substantially all employees.
Contributions to the Pension Plan are based upon a percentage of an employee's
covered compensation, as defined. Total expense under the Pension Plan amounted
to $503,000, $466,000 and $372,000 for the years ended September 30, 1996, 1995
and 1994, respectively.
The Company maintains a tax-qualified Retirement Savings Plan (the "401(k)
Plan") which covers substantially all employees. Eligible employees may make
salary deferral (before tax) contributions up to a specified maximum. The
Company makes a matching contribution of 25% of the amount deferred. Total
expense under the 401(k) Plan amounted to $133,000, $124,000 and $124,000 for
the years ended September 30, 1996, 1995 and 1994, respectively.
In September 1993, the Company adopted an executive deferred compensation
plan. Executive officers and key employees of the Company are eligible to
participate at the discretion of the Board of Directors. Participants may defer
a portion of their compensation, as defined.
NOTE 12. PRINCIPAL CUSTOMERS
All services performed by the Company are performed in the United States. No one
customer accounted for more than 10% of total Company net patient and service
revenues. However, certain sources of payment for the services, such as
Medicare, HMOs, commercial insurers and other third party payors, do or could
account for more than 10% of payments received.
NOTE 13. CONTINGENCIES
The Company is involved in a dispute with a partner in one of the Ventures. In
1992, this partner filed an action against the Company and its subsidiaries and
certain other defendants seeking the dissolution of the Venture, and unspecified
damages. The Company has filed a counterclaim seeking removal of the partner as
manager of the Venture, damages and enforcement of the Venture agreement.
In addition to the foregoing matter, the Company is from time to time a
party to various unrelated claims and disputes associated with various aspects
of its ongoing business operations. In management's opinion, none of these
claims or disputes are expected, either individually or in the aggregate, to
have a material adverse effect on the Company's financial position or results of
operations.
NOTE 14. NET INCOME PER SHARE
Net income per share is based on the weighted average number of common shares
and common equivalent shares outstanding. Income per share amounts and the
related number of shares used in the computation for all periods presented have
been adjusted to reflect the one-for-two reverse stock split. Also, all
previously outstanding preferred shares and accumulated preferred dividends were
converted to Common Stock for all periods presented for purposes of the income
per share calculation. Also, those shares under commitments to be issued at
specified future dates are considered as outstanding for per share calculations.
NOTE 15. DEFERRED LITIGATION AWARD
In September 1996, the Company won an administrative decision related to a
billing dispute with a New York Medicare carrier. The Company billed the carrier
at a reimbursement rate which was in effect at the time the Company acquired the
CardioCare division from Medtronic, Inc. in 1993. The reimbursement rate was
confirmed by the carrier after the acquisition. Following an audit of the
carrier by the Healthcare Finance Administration (HCFA), the Company was ordered
to return approximately $4 million to Medicare, a decision the Company
immediately appealed. The Company was notified on September 23, 1996, that an
administrative judge found that the Company was without fault and is
entitled to the reimbursement of approximately $4 million in question.
The Company had fully accrued for the disputed amount in its historical
financial statements. The amount to be reimbursed to the Company is fully
reserved in these financial statements as prior to November 8, 1996 (the
"sign-off" date) HCFA still had a right to file an appeal and the Company had
not received the cash.
35
RAYTEL
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
RAYTEL MEDICAL CORPORATION:
We have audited the accompanying consolidated balance sheets of Raytel Medical
Corporation and Subsidiaries as of September 30, 1996 and 1995 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three year period ended September 30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Raytel Medical Corporation and Subsidiaries as of September 30, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the years in the three year period ended September 30, 1996 in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
- -----------------------
ARTHUR ANDERSEN LLP
Hartford, Connecticut
November 8, 1996
36
RAYTEL
<PAGE> 21
CORPORATE INFORMATION
BOARD OF DIRECTORS AND OFFICERS
Richard F. Bader
Chairman of the Board of Directors
and Chief Executive Officer
Allan Zinberg
President, Chief Operating Officer and Director
David Rollo, M.D.
Senior Vice President Medical Affairs,
Medical Director and Director
E. Payson Smith, Jr.
Senior Vice President and Chief Financial Officer
Swapan Sen
Vice President, General Manager,
Medical Facility Operations
Michael O. Kokesh
Vice President, General Counsel and Secretary
John F. Lawler, Jr.
Vice President, Corporate Controller
Thomas J. Fogarty, M.D.
Professor of Surgery at
Stanford University Medical School,
General Partner Three Arch Ventures, L.P.
Albert J. Henry
Chairman of the Board and
Chief Executive Officer of Henry & Co.
Gene I. Miller
General Partner of the Peregrine Venture Funds
Timothy J. Wollaeger
General Partner of Kingsbury Associates, L.P.
CORPORATE OFFICES
Raytel Medical Corporation
2755 Campus Drive, Suite 200
San Mateo, California 94403
Tel: (415) 349-0800
Fax: (415) 349-8850
http://www.raytel.com
ANNUAL MEETING OF STOCKHOLDERS
Raytel Medical Corporation's Annual Meeting of Stockholder's
will be held on Thursday, March 6, 1997 beginning at
11 a.m. PST at the Hotel Sofitel, located at 2700 Harbor
Way in Redwood Shores, CA. All stockholders are invited
to attend.
INVESTOR RELATIONS
A copy of the Company's Annual Report 10-K, as filed with
the Securities and Exchange Commission, may be obtained
by writing to Investor Relations at the Company's
Corporate Offices.
STOCK LISTING
The Common Stock of Raytel Medical Corporation has traded
on the NASDAQ National Market under the symbol RTEL
since November 30, 1995.
TRANSFER AGENT
Boston Equiserve, L.P.
150 Royall Street
Boston, Massachusetts 02021
LEGAL COUNSEL
Gray Cary Ware & Freidenrich, P.C.
Palo Alto, California
INDEPENDENT AUDITORS
Arthur Andersen, L.L.P.
Hartford, Connecticut
STOCK DATA NASDAQ SYMBOL: RTEL
The number of stockholders of record at September 30, 1996,
was 610.
The Company's common stock is traded over-the-counter
and is quoted on the Nasdaq National Market. The Company
went public in December 1995. The following table shows the
high and low sales price as reported by Nasdaq for the fiscal
quarters for the year ended September 30, 1996.
<TABLE>
<CAPTION>
High Low
- --------------------------------------------------------
<S> <C> <C>
First quarter $ 9 1/4 $ 8 1/2
Second quarter $11 3/4 $ 8 5/8
Third quarter $15 1/2 $ 9 3/4
Fourth quarter $13 3/4 $ 9 7/8
</TABLE>
The Company has not paid cash dividends during the year
ended September 30, 1996.
37
RAYTEL
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report incorporated by reference in this Form 10-K into Raytel Medical
Corporation's S-8 filing dated September 10, 1996 (Registration No. 333-11697).
/s/ Arthur Anderson LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
November 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)RAYTEL
MEDICAL CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 5737
<SECURITIES> 0
<RECEIVABLES> 21753<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28962
<PP&E> 23884
<DEPRECIATION> (14728)
<TOTAL-ASSETS> 68030
<CURRENT-LIABILITIES> 12758
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 488870
<TOTAL-LIABILITY-AND-EQUITY> 68030
<SALES> 0
<TOTAL-REVENUES> 72515
<CGS> 0
<TOTAL-COSTS> 62002
<OTHER-EXPENSES> 171
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 514
<INCOME-PRETAX> 9828
<INCOME-TAX> 3248
<INCOME-CONTINUING> 6580
<DISCONTINUED> 0
<EXTRAORDINARY> 449
<CHANGES> 0
<NET-INCOME> 6131
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
<FN>
<F1>(RECEIVABLES) REPRESENTS NET RECEIVABLES
<F2>(LOSS PROVISION) INCLUDED IN (TOTAL COSTS)
</FN>
</TABLE>
