<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, 1997. (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)
<TABLE>
<S> <C>
DELAWARE 94-2787342
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
2755 CAMPUS DRIVE, SUITE 200, SAN MATEO, CA 94403
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(650) 349-0800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 16(B) OF THE ACT: NONE
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. [X]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of November 28, 1997 was $95,417,970 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 28, 1997 was 8,917,210.
DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
DOCUMENT WHERE INCORPORATED
- --------------------------------------------------------------------------------------------
<S> <C>
Annual Report to Stockholders for fiscal year
ended September 30, 1997 Part II
Proxy Statement for the Annual Meeting to be
held on March 5, 1998 Part III
</TABLE>
================================================================================
<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 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.
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.
Raytel currently manages one hospital-based heart center in Southern
California and has entered into an agreement to develop and manage a second
hospital-based heart center in Texas. The Company also owns and operates eight
free-standing cardiovascular diagnostic facilities and two hospital-based
cardiac catheterization laboratories and manages three physician practices,
including a 20-physician multi-specialty medical group located in Port St.
Lucie, Florida. In addition, the Company provides outpatient diagnostic imaging
services through operating and investment interests in four free-standing
imaging centers.
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 (650) 349-0800.
RECENT CORPORATE DEVELOPMENTS
During the fiscal year ended September 30, 1997, the Company expanded its
CVD healthcare service operations and its physician practice management business
through several strategic transactions.
Acquisition of Nonmedical Assets of Southeast Texas Cardiology Associates,
P.A.
In September 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 agreement
to manage the nonmedical aspects of the medical practice.
Acquisition of Nonmedical Assets of Comprehensive Cardiology Consultants, a
Medical Group, Inc.
In November 1996, the Company acquired certain nonmedical assets and
assumed certain liabilities of Comprehensive Cardiology Consultants, a Medical
Group, Inc., a cardiology practice in Granada Hills, California, and entered
into a long-term agreement to manage the nonmedical aspects of the medical
practice.
2
<PAGE> 3
Cardiac Surgery Services
In June 1997, the Company, through an affiliated professional corporation
owned by F. David Rollo, M.D., who serves as the Company's Executive Medical
Director and a member of the Board of Directors, entered into an exclusive
contract with Granada Hills Community Hospital (at which the Company operates a
heart center) to provide cardiac surgery services at the hospital. Through this
affiliated professional corporation, the Company contracted with a leading
cardiovascular surgeon to provide cardiac surgery services at the hospital.
Acquisition of Cardiovascular Ventures, Inc.
In August 1997, the Company acquired all of the outstanding capital stock
of Cardiovascular Ventures, Inc. ("CVI"). CVI owns and operates seven
free-standing outpatient cardiovascular diagnostic facilities located in Texas,
Louisiana and Maryland, and owns and manages a 20-physician multi-specialty
medical practice in Port St. Lucie, Florida. The aggregate purchase price was
$21,600,000 consisting of cash in the amount of $15,780,000; contingent
promissory notes in the aggregate principal amount of $820,000; and 500,000
shares of Common Stock of the Company.
The Baptist Hospital of Southeast Texas
In October 1997, the Company entered into an agreement with The Baptist
Hospital of Southeast Texas under which the Company will develop a portion of
the hospital as an on-site heart center, which the Company will manage along
with the existing cardiac catheterization facility located at the hospital.
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 57 million people in the
United States suffer from one or more forms of CVD, and coronary heart disease
(heart attack) caused 487,490 deaths in the United States during 1994, or 1 out
of every 4.7 deaths. During 1997, as many as 1.5 million Americans will have a
new or recurrent heart attack, and about one-third of them will die. According
to AHA estimates, the medical costs associated with the treatment of CVD in 1997
will be approximately $158.5 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
3
<PAGE> 4
local access to a wider range of complementary specialists and diagnostic
equipment as well as management, marketing and administrative resources. 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 management of outcomes and 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 opportunities that arise as a result of the
trends toward consolidation of healthcare service providers. Raytel intends to
explore opportunities to establish heart centers
4
<PAGE> 5
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, 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 which is
awaiting licensing by the California Department of Health Services (see Item 3.
Legal Proceedings) and is in negotiations for the development of an additional
facility in Beaumont, Texas. As a result of the CVI acquisition, the Company
acquired eight additional free-standing diagnostic cardiovascular facilities,
one of which is associated with the multi-specialty medical practice in Florida.
Four of the eight cardiovascular diagnostic facilities are located in Texas, two
are located in Louisiana and one is located in Maryland.
The Company has also entered into a 10-year agreement with Granada Hills
Community Hospital ("GHCH") in Southern California under which it is managing an
existing, on-site heart center. In October 1997, the Company entered into a
10-year agreement with The Baptist Hospital of Southeast Texas in Beaumont,
Texas to develop and manage a fully integrated heart center with a cardiac
catheterization laboratory. 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 to 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.
Cardiovascular Diagnostic Facilities
The Company operates two hospital-based cardiac catheterization
laboratories (the "Catheterization Laboratories"). In August 1997, the Company
acquired CVI, which is the owner and operator of eight free-standing
cardiovascular diagnostic facilities (the "Cardiovascular Diagnostic
Facilities"). 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
5
<PAGE> 6
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.
The Cardiovascular Diagnostic Facilities acquired from CVI are located in
Houston, Dallas, San Antonio and Fort Worth, Texas; East New Orleans and
Alexandria, Louisiana; Towson, Maryland; and Port St. Lucie, Florida. All of
these Cardiovascular Diagnostic Facilities are owned by limited partnerships,
and the Company, through a separate wholly-owned subsidiary for each limited
partnership, serves as the corporate general partner which serves as the
day-to-day manager of each facility. The Company owns a majority interest in
seven of the facilities and owns 100% of the Florida facility. The limited
partnerships have a term of 20 years or more in all but one facility and that
one expires on December 31, 2001. In three of the Cardiovascular Diagnostic
Facilities, the Company provides nuclear cardiology diagnostic services in
addition to the cardiac catheterization procedures described above. Several of
the remaining five Cardiovascular Diagnostic Facilities may be expandable in the
future to include nuclear cardiology diagnostic services.
The two hospital-based facilities, located at Southmore Hospital in
Pasadena, Texas, a suburb of Houston, and Mesquite Hospital in Mesquite, Texas,
a suburb of Dallas, 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. 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.
Physicians practicing at the Cardiovascular Diagnostic Facilities and the
Catheterization Laboratories are not obligated to refer patients to or practice
at these facilities and in many cases also practice at nearby hospitals.
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. In September 1997, the
regional office of Licensing and Certification of the California Department of
Health Services denied the request for a license to operate the facility. The
Company has filed an administrative appeal of the decision by the regional
office and the status of the appeal is still pending. In addition, the Company
has filed a Petition for Writ of Mandate requesting that the Superior Court of
California order the Department of Health Services to issue the appropriate
license. See "Item 3. Legal Proceedings." 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.
Raytel Heart Center at Granada Hills Community Hospital
The Company has entered into an agreement with GHCH, 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 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
6
<PAGE> 7
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 services at the
facility are the responsibility of the hospital and its medical staff. If
implemented as originally contemplated by the Company and the hospital, under
Phase II, the duties and responsibilities of the parties 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.
In December 1997, the Company filed a demand for arbitration pursuant to
the terms of its 10-year agreement with GHCH requesting that an independent
arbitrator order GHCH to comply with the provisions of the agreement (see Item
3, Legal Proceedings). At the present time, the Company cannot predict when
Phase II of the agreement will be implemented.
Through an affiliated medical group, the Company and GHCH entered into an
exclusive agreement for Raytel to be the exclusive provider of cardiac surgery
services at the hospital and to manage the hospital's cardiovascular surgery
program. The Company has entered into an agreement with a leading cardiothoracic
surgeon to provide the cardiac surgery services at the hospital. The initial
term of the agreement is nine years, coinciding with the term of the agreement
with the hospital to manage the heart program. The affiliated medical group is
owned by F. David Rollo, M.D., who serves as the Company's Executive Medical
Director and a member of the Company's Board of Directors. The Company, through
a subsidiary, provides management services to the medical group.
Raytel Heart Center at The Baptist Hospital of Southeast Texas
In October 1997, the Company entered into an agreement with The Baptist
Hospital of Southeast Texas in Beaumont, Texas, pursuant to which Raytel will
develop and manage an integrated heart center located on the premises of the
hospital. The Baptist Hospital is a general, acute care hospital. The hospital's
heart program includes cardiac catheterization procedures, stress testing,
ultrasound and other diagnostic services, cardiovascular and cardiothoracic
surgical procedures and cardiac rehabilitation programs. The agreement is
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. During the term of the agreement, the parties have each agreed to
refrain from competitive activities.
RAYTEL PHYSICIAN PRACTICE MANAGEMENT
The Company expanded its physician practice management business during
fiscal 1997 through its acquisitions of cardiology practices in Beaumont, Texas,
and Granada Hills, California. Through its acquisition of Cardiovascular
Ventures, Inc. ("CVI") in August 1997, the Company acquired a 20-physician
multi-specialty medical group which focuses on cardiology, located in Port St.
Lucie, Florida.
RAYTEL CARDIAC MONITORING SERVICES
The Company is the largest provider of cardiac monitoring and testing
services in the United States utilizing transtelephonic pacemaker monitoring
("TTM"), cardiac event detection ("CEDS") and Holter monitoring 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. The Company has also offered Holter
monitoring services since its acquisition of assets from Cardio Data Services,
Inc. in June 1996.
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 80,000 patients with implanted pacemaker systems.
7
<PAGE> 8
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
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, 1997, Raytel tested over 39,000 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 centers 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. 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.
8
<PAGE> 9
Holter Monitoring Services
Since its acquisition of assets from Cardio Data Services, Inc. in June
1996, the Company has offered Holter monitoring services, and 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 51,000
patients annually. Holter monitoring 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.
Training and Quality Assurance
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 seven free-standing imaging centers (the
"Imaging Centers"). The Company also operates the Raytel Imaging Network, a
specialized preferred provider network currently consisting of 474 independent
imaging centers located from Virginia to New York, including five 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 magnetic resonance imaging (MRI), computed tomography ("CT"),
nuclear medicine, radiography/fluoroscopy ("R/F"), ultrasound, general x-ray and
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 sedating agents) and subject the patient either to sound waves
(ultrasound), X-rays (CT, R/F and X-ray mammography) or radio waves and magnetic
fields (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 four states. All of the Imaging Centers
offer MRI services, and four offer other imaging modalities. The Company owns
four of the Imaging Centers and holds its interests in the other three through
investments in limited partnerships (the "Ventures"), to which the Company
provides
9
<PAGE> 10
management services, including data processing, billing and collection,
accounting, marketing services and operational supervision.
The Ventures were established for fixed terms. During the year ended
September 30, 1997 the Company sold its interest in an imaging center in
Orlando, Florida, and its interest in an imaging center in Manhattan expired in
accordance with its original term. In addition, its joint ventures with Medical
Diagnostics, Inc., under which it operated three Imaging Centers in
Massachusetts, also expired in accordance with its original terms. The three
remaining Ventures 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 independent diagnostic imaging centers. In
addition, the Company's purchasing power allows it to provide participating
centers with supplies, such as contrast agents, film and other medical and
technical supplies, 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, Delaware, Maryland, New York
and Virginia. The Network currently provides diagnostic imaging services under
referral arrangements with approximately 90 organizations administering
healthcare programs covering more than 600,000 individual participants.
SALES AND MARKETING
The Company's marketing activities are directed at managed care
organizations, cardiologists 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 16 full-time regional field managers who direct
a network of over 350 part-time salespersons and independent sales
representatives, 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
10
<PAGE> 11
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.
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 marketing 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, Cardiovascular Diagnostic Facilities and
Catheterization Laboratories
The Company markets the services of its heart centers, cardiovascular
diagnostic facilities and catheterization laboratories using the basic approach
employed with the Imaging Centers. Each facility undertakes marketing activities
specifically structured for its local or regional market. The manager of each
facility initiates and maintains contact with local referring physicians. The
Company's central sales organization supports 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 coordinates 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 negotiates contacts with managed care organizations. This group also
assists the center manager in addressing the needs of such organizations.
Raytel Physician Practice Management Services
The Company markets services of the physician practices it manages through
a team approach tailored to the needs of each physician practice, in the same
fashion used to market the services of the Imaging Centers and its heart centers
and other cardiac facilities.
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, cardiac event detection services, and Holter monitoring
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,
1997 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 cardiac
testing operations are centralized at the Company's facilities in Connecticut.
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
11
<PAGE> 12
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 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, physician
practices, heart centers and other cardiac facilities that it manages.
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.
On August 5, 1997, President Clinton signed the Balanced Budget Act of 1997
("BBA") into law. Two of the areas affected most profoundly by this law are (1)
fraud and abuse, and (2) the effort of the federal government to use its
purchasing power to expand health care options for Medicare beneficiaries while
using pressure from increased competition to control costs. The fraud and abuse
provisions build on many of the provisions that were enacted by the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"). In addition to
the specific changes, the fraud and abuse provisions of the BBA signify an
apparent shift to the Office of the Inspector General of the Department of
Health and Human Services (the "OIG") of not only enforcement power, but policy
making authority as well. In addition, the BBA broadened the authority for the
Health Care Financing Administration ("HCFA") to enter into contracts for
providing
12
<PAGE> 13
managed care to Medicare beneficiaries by expanding the type of managed care
options available to Medicare beneficiaries.
On October 31, 1997, the Secretary of the Department of Health and Human
Services ("HHS") published final regulations implementing a number of changes
proposed in June 1997. One of the changes replaced the independent physiological
laboratory ("IPL") with the creation of the independent diagnostic testing
facility (the "IDTF"). An IDTF is a diagnostic facility, distinct from a
physician's office or hospital, that does not directly use test results to treat
patients. The facility exists to perform diagnostic testing procedures. The
Company's cardiac monitoring and testing services currently operate as an IPL.
By June 1998, the Company will have replaced all its designations as an IPL with
the new designation as an IDTF, as required by the new regulations.
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's existing heart centers, cardiovascular diagnostic facilities
and catheterization laboratories derive a substantial portion of their revenue
from payments made under the Medicare program, and the Company anticipates that
future facilities will also derive significant revenues from these sources. 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 six month working capital
deficiency during the start-up phase for newly developed cardiac 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
13
<PAGE> 14
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. In the
Health Insurance Portability Act of 1996 ("HIPAA") and the Balanced Budget Act
of 1997 ("BBA"), Congress expanded the government fraud and abuse controls in a
number of ways and added a provision for obtaining advisory opinions from the
Office of the Inspector General of HHS regarding physician self-referral
compliance with the Stark Legislation.
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 three diagnostic imaging centers through
investments in the Ventures. 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
14
<PAGE> 15
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. In 1996, the Company applied for a license for its free-standing
cardiac catheterization laboratory in Fremont, California under a pilot program.
Although this 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. The regional office of the California Department of Health Services
notified the Company by letter dated September 8, 1997 that its application for
the license was denied. The Company has filed a notice of appeal with the
Department of Health Services appealing the decision by the regional office for
Licensing and Certification, and has also filed a petition for a writ of mandate
with the California Superior Court requesting that the court order the
Department to issue the license. There can be no assurance that the court will
enter the order requested by the Company or that the Company will be successful
in its appeal of the decision denying the application. 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.
MEDICAL MALPRACTICE INSURANCE
In general, 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. In the case of HIPSL, a wholly-owned
subsidiary, the Company employs approximately 20 physicians, who are performing
medical services as members of a multi-specialty medical group. The other
licensed professionals in this practice, such as registered nurses, nurse
practitioners and technicians, perform their professional duties under the
direct supervision of the physicians. With the exception of the physician
employees of HIPSL, the Company's employees do not practice medicine. However,
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
15
<PAGE> 16
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.
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 the 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.
Cardiac catheterization and other cardiac diagnostic and therapeutic
procedures, as well as diagnostic imaging procedures, are performed in
hospitals, private physicians' offices, clinics operated by group practices of
physicians and independent catheterization facilities. Although the Company and
its affiliates operate in locations throughout the United States, competition
focuses on physician referrals at the local market level. Principal competitors
in each of the Company's markets are hospital and physician affiliated
facilities, some of which may have greater financial and other resources than
the Company, more experience and greater name recognition than the local
managers and physicians associated with the Company's Imaging Centers,
Cardiovascular Diagnostic Facilities and Catheterization Laboratories, 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 these 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, 1997, the Company employed approximately 827 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, San Mateo, California, and Port St. Lucie, Florida. The Windsor
facility, consisting of approximately 33,000 square feet, is occupied under a
lease expiring in July 1999. In August 1997, the Windsor facility was expanded
by the addition of
16
<PAGE> 17
approximately 8,500 square feet in an adjoining building that is occupied under
a lease expiring in November 2002. The New York facility, consisting of
approximately 23,300 square feet, is occupied under a lease expiring in
September 2001. The Haddonfield facility, consisting of approximately 11,000
square feet, is occupied under a lease expiring in June 1999. The San Mateo
facility, consisting of approximately 2,400 square feet, is occupied under a
lease expiring in June 1998. The Port St. Lucie facility, consisting of
approximately 2,868 square feet, is occupied under a lease expiring in December
2002. 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. Through its acquisition of
CVI in August 1997, the Company acquired eight Cardiovascular Diagnostic
Facilities in Texas, Louisiana, Maryland and Florida. As a result of its
acquisition of CVI, the Company leases a total of approximately 89,000 square
feet in these facilities. The Company generally considers its properties to be
in good condition and suitable for the Company's anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
In September 1997, the Company's application for a license to operate a
free-standing diagnostic catheterization facility in Fremont, California, was
denied by the California Department of Health Services. The Company filed an
administrative appeal requesting that the Department of Health Services
reconsider the denial of the application by the regional office of Licensing and
Certification. In addition, in November 1997, the Company filed a Petition for
Writ of Mandate requesting that the Superior Court of the State of California
for the County of Sacramento order the Department of Health Services to issue
the appropriate license, or in the alternative, to find that the Department of
Health Services lacks jurisdiction to regulate the operation of the diagnostic
catheterization facility.
In December 1997, the Company filed a demand for binding arbitration
pursuant to the terms of its 10-year agreement with GHCH requesting that an
independent arbitrator order GHCH to comply with the provisions of the
agreement. The Company alleged in this demand that GHCH breached its agreement
by failing to negotiate the terms of the definitive agreement and by failing to
make available certain cardiac surgery facilities and professional personnel on
a timely basis to permit the Company to fulfill its contractual obligations
under the agreement. The Company also alleged that GHCH has breached its
agreement by failing to make required payments on a timely basis under the terms
of the agreement. The Company is requesting declaratory relief as well as
monetary damages.
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.
17
<PAGE> 18
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
31 of the Company's 1997 Annual Report to Stockholders.
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 9
of the Company's 1997 Annual Report to Stockholders.
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 10 to 15 of the
Company's 1997 Annual Report to Stockholders.
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 16 to 29 of the Company's
1997 Annual Report to Stockholders.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
18
<PAGE> 19
PART III
Certain information required by Part III is omitted from this 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 -- Executive Officers and 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
"Section 16(a) Beneficial Ownership Reporting Compliance."
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."
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS:Report of Independent Public Accountants
Consolidated Statements of Operations for the Years Ended September
30, 1997, 1996 and 1995
Consolidated Balance Sheets as of September 30, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended September 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended September
30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Supplementary Data: Quarterly Financial Data (unaudited)
2. FINANCIAL STATEMENT SCHEDULES:
Report of Independent Public Accountants
Schedule II -- Valuation and Qualifying Accounts
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, 1997
The Company filed one report on Form 8-K during the quarter ended September
30, 1997. The report was filed on September 2, 1997 and reported under Item 2
the acquisition of Cardiovascular Ventures, Inc.
20
<PAGE> 21
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
By: /s/ RICHARD F. BADER
------------------------------------
Richard F. Bader
Chairman and Chief Executive Officer
Dated: December 30, 1997
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
- ---------------------------------- ---------------------------------- ------------------
<C> <S> <C>
/s/ RICHARD F. BADER Chairman of the Board and Chief December 16, 1997
- ---------------------------------- Executive Officer (Principal
(Richard F. Bader) Executive Officer)
/s/ ALLAN ZINBERG President, Chief Operating Officer December 16, 1997
- ---------------------------------- and Director
(Allan Zinberg)
/s/ E. PAYSON SMITH, JR. Senior Vice President and Chief December 16, 1997
- ---------------------------------- Financial Officer (Principal
(E. Payson Smith, Jr.) Financial and Accounting Officer)
/s/ THOMAS J. FOGARTY Director December 16, 1997
- ----------------------------------
(Thomas J. Fogarty)
/s/ ALBERT J. HENRY Director December 16, 1997
- ----------------------------------
(Albert J. Henry)
Director December __, 1997
- ----------------------------------
(Gene I. Miller)
/s/ F. DAVID ROLLO Director December 16, 1997
- ----------------------------------
(F. David Rollo)
/s/ DAVID E. WERTHEIMER Director December 16, 1997
- ----------------------------------
(David E. Wertheimer)
</TABLE>
21
<PAGE> 22
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, 1997 and September 30, 1996 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, 1997 included in this
Form 10-K, and have issued our report thereon dated November 13, 1997. 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 13, 1997
22
<PAGE> 23
SCHEDULE II
RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED SEPTEMBER 30,1997, 1996 AND 1995
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END OF
DESCRIPTION OF YEAR EXPENSES OTHER(1) DEDUCTIONS YEAR
- ---------------------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
September 30, 1997
Allowance for doubtful
accounts............... $5,855,000 $5,387,000 $1,946,000 $(6,999,000) $6,189,000
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
</TABLE>
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ---------- ------------------------------------------------------------------------------
<C> <S>
2.1 (1) Stock Purchase Agreement, dated as of August 11, 1997, by and among Raytel
Medical Corporation, Cardiovascular Ventures, Inc. ("CVI") and the
stockholders of CVI, together with the form of the Escrow Agreement attached
thereto as Exhibit B and the form of the Contingent Promissory Note attached
thereto as Exhibit M.
3.1 (2) Restated Certificate of Incorporation of the Registrant.
3.2 (3) Bylaws of the Registrant, as amended.
*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.
10.22(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.
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ---------- ------------------------------------------------------------------------------
<C> <S>
+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(9) 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(10) 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(11) 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(12) Employee Stock Purchase Plan dated May 8, 1996.
10.42(12) 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(12) Promissory Note in the amount of $15,000,000 between the Registrant and Bank
of Boston Connecticut dated September 2, 1996.
10.44(12) Promissory Note in the amount of $10,000,000 between the Registrant and Banque
Paribas dated September 2, 1996.
10.45 First Amendment to Amended and Restated Credit Agreement, dated June 4, 1997
among the Registrant, Bank of Boston Connecticut and Banque Paribas, and Bank
of Boston Connecticut, as agent.
10.46 Second Amendment to Amended and Restated Credit Agreement, dated September 26,
1997 among the Registrant, Bank of Boston Connecticut and Banque Paribas, and
Bank of Boston Connecticut, as agent.
10.47 Promissory Note in the amount of $27,000,000 between the Registrant and Bank
of Boston Connecticut dated September 26, 1997.
10.48 Promissory Note in the amount of $18,000,000 between the Registrant and Banque
Paribas dated September 26, 1997.
10.49(13) Stock Purchase Agreement, dated as of August 11, 1997, by and among Raytel
Medical Corporation, Cardiovascular Ventures, Inc. and the stockholders of
CVI, together with the form of the Escrow Agreement attached thereto as
Exhibit B and the form of the Contingent Promissory Note attached thereto as
Exhibit M.
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ---------- ------------------------------------------------------------------------------
<C> <S>
10.50 Noncompetition Agreement, dated as of August 15, 1997, by and between David E.
Wertheimer and Raytel Medical Corporation.
10.51 Employment Agreement, dated as of January 1, 1996, by and between David E.
Wertheimer, M.D., and Heart Institute of Port St. Lucie, Inc., an indirect
wholly-owned subsidiary of Registrant as a result of the CVI acquisition.
10.52 Amendment to Employment Agreement, dated as of March 17, 1997, by and between
David E. Wertheimer, M.D., and The Heart Institute of Port St. Lucie, Inc., an
indirect wholly-owned subsidiary of Registrant as a result of the CVI
acquisition.
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.
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.
(1) Incorporated by reference to identically numbered exhibit to the
Registrant's Form 8-K Reports filed on August 29, 1997 (the "August 1997
Form 8-K").
(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.
(9) Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K
Report filed on October 3, 1996 (the "October 1996 Form 8-K").
(10) Incorporated by reference to Exhibit 2.2 to the October 1996 Form 8-K.
(11) Incorporated by reference to Exhibit 2.3 to the October 1996 Form 8-K.
(12) Incorporated by reference to identically numbered exhibits to the
Registrant's Form 10-K Report for the year ended September 30, 1996.
(13) Incorporated by reference to Exhibit 2.1 to the August 1997 Form 8-K.
26
<PAGE> 1
EXHIBIT 10.45
FIRST AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"AMENDMENT") dated as of June 4, 1997, is by and among Raytel Medical
Corporation (the "BORROWER"), Bank of Boston Connecticut and Banque Paribas
(collectively, the "BANKS") and Bank of Boston Connecticut, as agent for the
Banks (in such capacity, the "AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks and the Agent entered into a certain
Amended and Restated Credit Agreement dated as of August 14, 1996 (the "CREDIT
AGREEMENT"); and
WHEREAS, the Borrower has requested that the Credit Agreement be amended
in certain respects; and
WHEREAS, the Agent and the Banks have agreed to amend the Credit
Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein without definition
that are defined in the Credit Agreement shall have the same meanings herein as
therein.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT.
SECTION 2.1. AMENDMENT TO SECTION 2. Section 2 of the Credit
Agreement is hereby amended by adding a new Section 2.9 to the end of
such Section as follows:
"Section 2.9 Settlement; Application of Repayments
of Revolving Credit Loans.
(a) Bank of Boston Connecticut may, but is not
required to, fund all Revolving Credit Loans made in accordance
with the provisions of this Agreement. Prior to each Settlement,
(i) all payments of the principal of the Revolving Credit Loans
shall be credited to the account of Bank of Boston Connecticut,
and (ii) the outstanding amount of Revolving Credit Loans made by
Bank of Boston Connecticut may exceed Bank of Boston
Connecticut's Commitment Percentage of the outstanding amount of
Revolving Credit Loans.
(b) The Banks shall effect Settlements (i) on the
last Business Day of each week, (ii) within one Business Day
after each other date on which
<PAGE> 2
-2-
borrowings of Revolving Credit Loans (net of payments of
principal of Revolving Credit Loans by the Borrower) or payments
of principal of Revolving Credit Loans (net of borrowings of
Revolving Credit Loans by the Borrower) exceed $1,000,000 and
(iii) on the Revolving Credit Maturity Date or such other date on
which the Revolving Credit Loans shall become due and payable in
full (each such date, a "Settlement Date"). On the Business Day
prior to each such Settlement Date, the Agent shall give
telephonic notice to the Banks of (A) the respective outstanding
amount of Revolving Credit Loans made by each Bank as at the
close of business on the prior day, (B) the amount that any Bank,
as applicable (the "Settling Bank"), shall pay to effect a
Settlement (the "Settlement Amount") and (C) the portion (if any)
of the aggregate Settlement Amount to be paid to each Bank. A
statement of the Agent submitted to the Banks with respect to any
amounts owing hereunder shall be prima facie evidence of the
amount due and owing. Each Settling Bank shall, not later than
11:00 a.m. (Hartford, Connecticut time) on each Settlement Date,
effect a wire transfer of immediately available funds to the
Agent at its head office in the amount of such Bank's Settlement
Amount. The Agent shall, as promptly as practicable during normal
business hours on each Settlement Date, effect a wire transfer of
immediately available funds to each Bank of the Settlement Amount
to be paid to such Bank. All funds advanced by any Bank as a
Settling Bank pursuant to this ss.2.9(b) shall for all purposes
be treated as a Revolving Credit Loan made by such Settling Bank
to the Borrower and all funds received by any Bank pursuant to
this ss.2.9(b) shall for all purposes be treated as repayment of
amounts owed by the Borrower with respect to Revolving Credit
Loans made by such Bank.
(c) The Agent may (unless notified to the contrary
by a Settling Bank by 2:00 p.m. (Hartford, Connecticut time) on
the Settlement Date) assume that each Settling Bank has made
available to the Agent on such Settlement Date the Settlement
Amount, and the Agent may (but shall not be required to), in
reliance upon such assumption, make available to each applicable
Bank its share (if any) of the aggregate Settlement Amount. If
the Settlement Amount of such Settling Bank is made available to
the Agent by such Settling Bank (or, conversely, if the Agent
makes the Settlement Amount available to a Bank entitled thereto)
on a date after such Settlement Date, such Settling Bank shall
pay the Agent (or, conversely, the Agent shall pay such Bank
entitled to such Settlement Amount) 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 annual interest
rate paid by the Agent or such Bank, as applicable, for federal
funds acquired by the Agent or such Bank, as applicable during
each day included in such period times (ii) the Settlement
Amount, times (iii) a fraction, the numerator of which is the
number of days that elapse from and including such Settlement
Date to but not including the date on which the Settlement Amount
shall become immediately available to the Agent or such Bank, as
applicable, and the denominator of which is 365.
<PAGE> 3
-3-
Upon payment of such amount the Settling Bank shall be deemed to
have delivered the Settlement Amount of such Settling Bank on the
Settlement Date and shall become entitled to interest payable by
the Borrower with respect to such Bank's Settlement Amount as if
such share were delivered on the Settlement Date. If the
Settlement Amount is not in fact made available to the Agent by
the Settling Bank within three (3) Business Days of such
Settlement Date, the Agent shall be entitled to debit the
Borrower's account with the Agent to recover such amount from the
Borrower and if the Borrower's account with the Agent does not
contain sufficient funds the Borrower agrees to deposit into the
account such amount, with interest thereon at the rate per annum
applicable to any Revolving Credit Loans made on such Settlement
Date. The failure or refusal of any of the Banks to make
available to the Agent at the aforesaid time on any Settlement
Date the amount of the Settlement Amount representing Revolving
Credit Loans to be made by such Bank on such date shall not
relieve any other Bank from its obligations hereunder to make
Settlements and Revolving Credit Loans on such Settlement Date or
on any subsequent Settlement Date but in no event shall any Bank
or the Agent be responsible or liable for the failure of any
other Bank to make the Revolving Credit Loans to be made by such
other Bank.
(d) Each payment by the Borrower of Revolving Credit Loans
hereunder shall be allocated among the Banks on the first
Settlement Date after such payment, in amounts determined to
provide that after such application the outstanding amount of
Revolving Credit Loans of each Bank equals, as nearly as
practicable, such Bank's Commitment Percentage of all outstanding
Revolving Credit Loans."
SECTION 2.2. AMENDMENT TO SCHEDULE 2 The following new
definitions are hereby added to Schedule 2 of the Credit Agreement:
"Settlement. The making of, or receiving of, payments in
immediately available funds, by the Banks to or from the Agent in
accordance with ss.2.9(b) hereof to the extent necessary to cause
each Bank's actual share of the outstanding amount of the
Revolving Credit Loans to be equal to each Bank's Commitment
Percentage of the outstanding amount of such Revolving Credit
Loans, in any case when, prior to such event or action, the
actual share is not so equal."
"Settlement Amount. See ss.2.9(b) hereof."
"Settling Bank. See ss.2.9(b) hereof."
"Settlement Date. See ss.2.9."
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby repeats
on and as of the date hereof the representations and warranties made by it in
the Credit Agreement,
<PAGE> 4
-4-
provided that all references therein to the Credit Agreement shall refer to the
Credit Agreement as amended hereby.
SECTION 4. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements related thereto
are hereby ratified and confirmed in all respects and shall continue in full
force and effect. This Amendment and the Credit Agreement shall hereafter be
read and construed together as a single document, and all references in the
Credit Agreement or any related agreement or instrument to the Credit Agreement
shall hereafter refer to the Credit Agreement as amended by this Amendment.
SECTION 5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument.
<PAGE> 5
-5-
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first above
written.
RAYTEL MEDICAL CORPORATION
By: /s/ E. Payson Smith, Jr.
--------------------------------
Its: Chief Financial Officer
--------------------------------
BANQUE PARIBAS
By: /s/ Sean T. Conlon
--------------------------------
Its: Vice President
--------------------------------
By: /s/ Harry Collyns
--------------------------------
Its: Vice President
--------------------------------
BANK OF BOSTON CONNECTICUT,
individually and as Agent
By: /s/ Chris Phelan
--------------------------------
Its: Vice President
--------------------------------
Each of the undersigned Guarantors acknowledges and accepts the foregoing and
ratifies and confirms in all respects such Guarantor's obligations under the
Guarantees:
RAYTEL CARDIAC SERVICES, INC.
By: /s/ E. PAYSON SMITH, JR.
---------------------------------
E. Payson Smith
Its: Chief Financial Officer
<PAGE> 6
-6-
RAYTEL MEDICAL IMAGING, INC.
By: /s/ E. Payson Smith, Jr.
----------------------------------
E. Payson Smith
Its Chief Financial Officer
MEDICAL IMAGING PARTNERS L.P.
By: RAYTEL MEDICAL IMAGING, INC.,
Its General Partner
By: /s/ E. Payson Smith, Jr.
----------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL IMAGING HOLDINGS, INC.
By: /s/ E. Payson Smith, Jr.
----------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL CARDIOVASCULAR LABS, INC.
By: /s/ E. Payson Smith, Jr.
----------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL IMAGING NETWORK, INC.
By: /s/ E. Payson Smith, Jr.
----------------------------------
E. Payson Smith
Its Chief Financial Officer
<PAGE> 7
-7-
RAYTEL IMAGING WEST, INC.
By: /s/ E. PAYSON SMITH, JR.
-----------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL IMAGING EAST INC.
By: /s/ E. PAYSON SMITH, JR.
-----------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL IMAGING MID-ATLANTIC INC.
By: /s/ E. PAYSON SMITH, JR.
-----------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL GRANADA HILLS INC.
By: /s/ E. PAYSON SMITH, JR.
-----------------------------------
E. Payson Smith
Its Chief Financial Officer
<PAGE> 1
EXHIBIT 10.46
SECOND AMENDMENT TO AMENDED
AND RESTATED CREDIT AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"AMENDMENT") dated as of September 26, 1997, is by and among Raytel Medical
Corporation (the "BORROWER"), Bank of Boston Connecticut and Banque Paribas
(collectively, the "BANKS") and Bank of Boston Connecticut, as agent for the
Banks (in such capacity, the "AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks and the Agent entered into a certain
Amended and Restated Credit Agreement dated as of August 14, 1996, as amended by
the First Amendment to Amended and Restated Credit Agreement dated as of June 4,
1997 (as amended from time to time, the "CREDIT AGREEMENT"); and
WHEREAS, the Borrower has requested that the Credit Agreement be amended
in certain respects; and
WHEREAS, the Agent and the Banks have agreed to amend the Credit
Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein without definition
that are defined in the Credit Agreement shall have the same meanings herein as
therein.
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower hereby repeats
on and as of the date hereof the representations and warranties made by it in
the Credit Agreement, provided that all references therein to the Credit
Agreement shall refer to the Credit Agreement as amended hereby.
SECTION 3. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements related thereto
are hereby ratified and confirmed in all respects and shall continue in full
force and effect. This Amendment and the Credit Agreement shall hereafter be
read and construed together as a single document, and all references in the
Credit Agreement or any related agreement or instrument to the Credit Agreement
shall hereafter refer to the Credit Agreement as amended by this Amendment.
<PAGE> 2
-2-
SECTION 4.1. AMENDMENT TO CREDIT AGREEMENT.
SECTION 4.1. AMENDMENT TO SECTION 8.3. Section 8.13 of the
Credit Agreement is hereby amended by deleting it in its entirety and
substituting therefor the following:
"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, (iii) to refinance
certain indebtedness incurred in connection with the Borrower's
acquisition of Cardiovascular Ventures, Inc. that has been previously
disclosed to the Banks in writing and (iv) 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 ss.8.13 shall be deemed to restrict the ability of the
Borrower and its Subsidiaries to pay Indebtedness permitted by the terms
of ss.9. 1(h) hereof."
SECTION 4.2. AMENDMENT TO SCHEDULE 1. Schedule 1 of the
Credit Agreement is hereby amended by deleting it in its entirety and
substituting therefor a copy of Schedule 1 attached hereto.
SECTION 4.3. AMENDMENT TO SCHEDULE 2. The definitions of
"Revolving Credit Termination Date" and "Maturity Date" appearing in
Schedule 2 of the Credit Agreement are hereby amended by deleting each
of them in their entirety and substituting therefor, respectively, the
following:
"Revolving Credit Termination Date. August 1, 1999."
"Maturity Date. August 1, 2004."
SECTION 4.4. AMENDMENT TO SCHEDULE 7.2. Schedule 7.2 of the
Credit Agreement is hereby amended by deleting items 1, 5, 6 and 7
appearing therein.
SECTION 4.5. AMENDMENT TO SCHEDULE 9.1. Schedule 9.1 of the
Credit Agreement is hereby amended by adding thereto the information
contained on Schedule 9.1 hereto.
<PAGE> 3
-3-
SECTION 4.6. AMENDMENT TO EXHIBIT A. Exhibit A to the
Credit Agreement is hereby deleted in its entirety and Exhibit A
attached hereto is substituted therefor.
SECTION 4.7. AMENDMENT TO EXHIBIT F. Exhibit F of the
Credit Agreement is hereby amended by deleting it in its entirety and
substituting therefor a copy of Exhibit F attached hereto.
SECTION 4.8. AMENDMENT TO EXHIBIT G. Exhibit G of the
Credit Agreement is hereby amended by deleting it in its entirety and
substituting therefor a copy of Exhibit G attached hereto.
SECTION 5. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment is subject to the prior satisfaction, on or before October 15, 1997,
of the following conditions precedent (the date of such satisfaction herein
referred to as the "AMENDMENT EFFECTIVE Date"):
(a) Execution and Delivery of New Notes. The Borrower shall have
duly executed and delivered to each of the Banks amended and restated
Notes in the aggregate principal amount of each such Bank's respective
Commitment, which Notes shall be in form and substance satisfactory to
the Banks.
(b) Payment of Amendment Fee. The Borrower shall have paid to the
Agent for the account of the Banks a non-refundable amendment fee of
$100,000.
(c) Compliance with Post-Funding Letter. The Borrower shall have
satisfied all of the conditions of that certain post-funding letter
agreement dated August 15, 1997 among the Borrower and the Agent, the
form of which is attached hereto as Exhibit 5(c).
(d) Representations and Warranties. The representations and
warranties contained in paragraph 7 of the Credit Agreement shall have
been correct at and as of the date made. Such representations and
warranties shall also be correct at and as of the date thereof, except
to the extent that such representations and warranties expressly related
to a specific date or were based on facts which have changes in the
ordinary course of business, which changes, either singly or in the
aggregate, are not materially adverse.
(e) No Event of Default. There shall exist no Event of Default or
condition which, with either or both the giving of notice of the lapse
of time, would result in an Event of Default upon the execution and
delivery of this Amendment.
(f) Corporate Action. The Banks and the Agent shall have received
evidence reasonably satisfactory to the Bank and the Agent that all
requisite corporate action necessary for the valid execution, delivery
and performance by the Borrower and Guarantors of this Amendment and all
other instruments and documents delivered by the Borrower and Guarantors
in connection herewith.
<PAGE> 4
-4-
(g) Delivery of Amendment; Opinions. The parties hereto shall
have executed and delivered this Amendment and Borrower shall have
delivered to the Banks and the Agent such opinions of counsel as the
Banks or the Agent may request, such opinions to be in form and
substance satisfactory to the Banks and the Agent.
(h) UCC Search Results. The Borrower shall have delivered to the
Agent and the Banks 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 Agent and
the Banks.
(i) No Liens. The Borrower shall have delivered to the Agent and
the Banks evidence reasonably satisfactory to the Agent and the Banks
that all liens and encumbrances with respect to the property of the
Borrower and its Subsidiaries, other than Permitted Liens, shall have
been discharged in full.
(j) Charter Documents, etc. The Borrower and each Subsidiary
shall have delivered to the Agent and the Banks a certificate of a duly
authorized officer of such Person attesting that its charter or other
incorporation or partnership documents and/or bylaws have not been
amended, modified or supplemented since the Effective Date.
(k) Reaffirmation of Security Documents. Each Guarantor shall
have executed and delivered to the Agent and the Banks a reaffirmation
letter reaffirming their respective obligations under their Security
Documents.
SECTION 6. EFFECTIVE DATE This Amendment shall become effective among
the parties hereto as of the Amendment Effective Date. Until the Amendment
Effective Date, the terms of the Credit Agreement prior to its amendment hereby
shall remain in full force and effect.
SECTION 7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first above
written.
RAYTEL MEDICAL CORPORATION
By: /s/ E. PAYSON SMITH, JR.
---------------------------------
E. Payson Smith, Jr.
Its: Chief Financial Officer
---------------------------------
BANQUE PARIBAS
<PAGE> 5
-5-
By: /s/ RAYMOND T. BAXTER By: /s/ SEAN T. CONLON
------------------------------- ---------------------------------
Its: Group Vice President Its: Director
------------------------------ --------------------------------
BANK OF BOSTON CONNECTICUT,
individually and as Agent
By: /s/ CHRIS PHELAN
---------------------------------
Its: Vice President
--------------------------------
Each of the undersigned Guarantors acknowledges and accepts the foregoing and
ratifies and confirms in all respects such Guarantor's obligations under the
Guarantees:
RAYTEL CARDIAC SERVICES, INC.
By: /s/ E. PAYSON SMITH, JR.
----------------------------------
E. Payson Smith
Its Chief Financial Officer
<PAGE> 6
-6-
RAYTEL MEDICAL IMAGING, INC.
By: /s/ E. PAYSON SMITH, JR.
-----------------------------------
E. Payson Smith
Its Chief Financial Officer
MEDICAL IMAGING PARTNERS L.P.
By: RAYTEL MEDICAL IMAGING, INC.,
Its General Partner
By: /s/ E. PAYSON SMITH, JR.
-----------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL IMAGING HOLDINGS, INC.
By: /s/ E. PAYSON SMITH, JR.
-----------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL CARDIOVASCULAR LABS, INC.
By: /s/ E. PAYSON SMITH, JR.
-----------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL IMAGING NETWORK, INC.
By: /s/ E. PAYSON SMITH, JR.
-----------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL IMAGING WEST INC.
By: /s/ E. PAYSON SMITH, JR.
-----------------------------------
E. Payson Smith
Its Chief Financial Officer
<PAGE> 7
-7-
RAYTEL IMAGING EAST INC.
By: /s/ E. Payson Smith, Jr.
-------------------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL IMAGING MID-ATLANTIC INC.
By: /s/ E. Payson Smith, Jr.
-------------------------------------------
E. Payson Smith
Its Chief Financial Officer
RAYTEL GRANADA HILLS INC.
By: /s/ E. Payson Smith, Jr.
-------------------------------------------
E. Payson Smith
Its Chief Financial Officer
<PAGE> 8
SCHEDULE 1
<TABLE>
<CAPTION>
COMMITMENT COMMITMENT
BANK AMOUNT PERCENTAGES
- ---- ---------- -----------
<S> <C> <C>
Bank of Boston Connecticut $27,000,000 60%
Banque Paribas $18,000,000 40%
</TABLE>
<PAGE> 9
EXHIBIT A
[Form of Note]
<PAGE> 10
EXHIBIT F
RII JOINT VENTURES
None.
<PAGE> 11
EXHIBIT G
RMI JOINT VENTURES
None.
<PAGE> 1
EXHIBIT 10.47
RAYTEL MEDICAL CORPORATION
AMENDED AND RESTATED PROMISSORY NOTE
$27,000,000
Dated as of September 26, 1997
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 TWENTY-SEVEN MILLION DOLLARS ($27,000,000) 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 ss.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 amends and restates, and is not in satisfaction of,
a certain Promissory Note dated as of September 2, 1996, in the original
principal amount of $15,000,000, previously executed and delivered by the
Borrower to Bank of Boston Connecticut.
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: Chief Financial Officer
<PAGE> 1
EHXIBIT 10.48
RAYTEL MEDICAL CORPORATION
AMENDED AND RESTATED PROMISSORY NOTE
$18,000,000
Dated as of September 26, 1997
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 EIGHTEEN MILLION DOLLARS ($18,000,000) 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 ss.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 amends and restates, and is not in satisfaction of,
a certain Promissory Note dated as of September 2, 1996, in the original
principal amount of $10,000,000, 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.
--------------------------------------
Name E. Payson Smith, Jr.
Title: Chief Financial Officer
<PAGE> 1
EXHIBIT 10.50
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT is made and entered into this 15th day of
August 1997, by and between David E. Wertheimer, an individual ("Stockholder"),
and Raytel Medical Corporation, a Delaware corporation ("Raytel"). For the
purposes of this Agreement, "Raytel" shall be deemed to include Raytel and its
majority owned direct and indirect subsidiaries during the term of this
Agreement.
Recitals
A. Cardiovascular Ventures, Inc., a Delaware corporation ("CVI"),
directly and through its subsidiaries, is engaged in the business of developing
and managing cardiac catheterization facilities and the management of a
professional physician association that operates a multi-speciality clinic (the
"Business of CVI");
B. Pursuant to that certain Stock Purchase Agreement (the "Stock
Purchase Agreement") as of dated August 11, 1997 by and among Raytel, CVI and
the Stockholders of CVI, Raytel is acquiring CVI through the purchase of all
outstanding shares of the capital stock of CVI (the "Acquisition") pursuant to
which CVI will continue to operate the Business of CVI as a wholly-owned
subsidiary of Raytel;
C. Stockholder is the beneficial owner of shares of capital stock of CVI
and is an officer or a key employee of CVI;
D. Stockholder has been actively involved in the management of CVI; and
E. In consideration of and as an inducement to Raytel to consummate the
Acquisition, Stockholder, intending to be bound hereby, has agreed to execute
this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Covenant Not to Compete.
(a) Stockholder agrees that, except as otherwise set forth in
paragraph (b) below, for so long as he is employed by or serves as a consultant
to Raytel and for a period of two (2) years thereafter (the "Noncompetition
Period"), he will not, directly or indirectly, individually or as an owner,
partner, stockholder, joint venturer, corporate officer, director, employee,
consultant, principal, agent, trustee or licensor, or in any other similar
capacity whatsoever of or for any person, firm, partnership, company or
corporation (other than Raytel), solicit, request or advise any of the
customers, prospective customers, suppliers or other business contacts of CVI or
Raytel, or any subsidiary or joint venture of CVI or Raytel, with which
Stockholder had contact or of which he had knowledge while employed by CVI or
Raytel to withdraw, curtail, cancel or not increase their business with CVI or
Raytel. Stockholder agrees to notify Raytel of each employment or consulting
position he accepts during the Noncompetition Period (including
1
<PAGE> 2
the name and address of the hiring party) and will, upon request by Raytel,
describe in reasonable detail the nature of his duties in each such position.
(b) Notwithstanding the provisions of paragraph (a) above, the
Noncompetition Period will terminate upon the date one (1) year after any
transaction or series of transactions pursuant to which any person (or group of
persons) other than the current affiliates of Raytel acquires more than fifty
percent (50%) of the outstanding shares of Raytel's voting securities, whether
pursuant to a tender offer, exchange offer, merger or otherwise.
2. Nonsolicitation of Employees and Consultants. During the
Noncompetition Period, Stockholder agrees that he will not directly or
indirectly solicit, influence, entice or encourage any person who at such time
is, or who at any time in the three (3) month period prior to such time had
been, an employee of or consultant to Raytel or CVI, or any subsidiary of CVI,
to cease or curtail his or her relationship therewith.
3. Nondisruption; Other Matters. During the Noncompetition Period,
Stockholder agrees that he will not directly or indirectly interfere with,
disrupt or attempt to disrupt any past, present or prospective relationship,
contractual or otherwise, between Raytel or CVI, on the one hand, and any of
their respective customers, suppliers or employees, on the other hand.
4. Equitable Relief. Stockholder acknowledges and agrees that Raytel's
remedies at law for breach of any of the provisions of this Agreement would be
inadequate and, in recognition of this fact, Stockholder agrees that, in the
event of such breach, in addition to any remedies at law it may have, Raytel,
without posting any bond, shall be entitled to obtain equitable relief in the
form of specific performance, a temporary restraining order, a temporary or
permanent injunction or any other equitable remedy that may be available.
Stockholder further acknowledges that should Stockholder violate any of the
provisions of this Agreement, it will be difficult to determine the amount of
damages resulting to Raytel and that in addition to any other remedies it may
have, Raytel shall be entitled to temporary and permanent injunctive relief
without the necessity of proving damages.
5. Acknowledgment. Each of Stockholder and Raytel acknowledges and
agrees that the covenants and agreements contained in this Agreement have been
negotiated in good faith by the parties, are reasonable and are not more
restrictive or broader than necessary to protect the interests of the parties
thereto, and would not achieve their intended purpose if they were on different
terms or for periods of time shorter than the periods of time provided herein or
applied in more restrictive geographical areas than are provided herein. Each
party further acknowledges that Raytel would not enter into the Stock Purchase
Agreement and the transactions contemplated thereby in the absence of the
covenants and agreements contained in this Agreement and that such covenants and
agreements are essential to protect the value of CVI to Raytel.
6. Separate Covenants. The covenants contained in this Agreement shall
be construed as a series of separate covenants, one for each of the counties in
each of the states of the United States of America.
2
<PAGE> 3
7. Severability. The parties agree that construction of this Agreement
shall be in favor of its reasonable nature, legality and enforceability, and
that any construction causing unenforceability shall yield to a construction
permitting enforceability. It is agreed that the noncompetition and
nonsolicitation covenants and provisions of this Agreement are severable, and
that if any single covenant or provision or multiple covenants or provisions
should be found unenforceable, the entire Agreement and remaining covenants and
provisions shall not fail but shall be construed as enforceable without any
severed covenant or provision in accordance with the tenor of this Agreement.
The parties specifically agree that no covenant or provision of this Agreement
shall be invalidated because of overbreadth insofar as the parties acknowledge
the scope of the covenants and provisions contained herein to be reasonable and
necessary for the protection of Raytel and CVI and not unduly restrictive upon
Stockholder. However, should a court or any other trier of fact or law determine
not to enforce any covenant or provision of this Agreement as written due to
overbreadth, then the parties agree that said covenant or provision shall be
enforced to the extent reasonable, with the court or such trier to make any
necessary revisions to said covenant or provision to permit its enforceability.
8. Not an Employment Agreement. This Agreement is not, and nothing in
this Agreement shall be construed as, an agreement to provide employment to
Stockholder. The provisions of Paragraphs 1, 2, and 3 of this Agreement shall be
operative regardless of the reasons for any termination of Stockholder's
employment and regardless of the performance or nonperformance by any party
under any other section of this Agreement.
9. Governing Law. This Agreement is made under and shall be governed by,
construed in accordance with and enforced under the internal laws of the State
of Delaware. All disputes arising under this Agreement shall be brought in the
federal and state courts located in Santa Clara County, California, as permitted
by law, and each of the parties hereby consents to the personal jurisdiction,
service of process and venue of such courts.
10. Entire Agreement. This Agreement, together with the Stock Purchase
Agreement, constitutes and contains the entire agreement and understanding
concerning the subject matter addressed herein between the parties, and
supersedes and replaces all prior negotiations and all agreements proposed or
otherwise, whether written or oral, concerning the subject matter hereof, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement that are not set forth herein
or in the Stock Purchase Agreement.
11. Notices. Any notice or other communication under this Agreement
shall be in writing, signed by the party making the same, and shall be delivered
personally or sent by certified or registered mail, postage prepaid, addressed
as follows:
If to Stockholder: David E. Wertheimer
2443 S.W. Brookwood Lane
Palm City, FL 34990
Facsimile:_______________
3
<PAGE> 4
If to Raytel: Raytel Medical Corporation
2755 Campus Drive, Suite 200
San Mateo, CA 94403-2515
Facsimile: (650) 349-8850
Attn: President
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Facsimile: (650) 327-3699
Attn: Dennis C. Sullivan
or to such other address as may hereafter be designated by either party hereto.
All such notices shall be deemed given on the date personally delivered or
mailed.
12. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THIS AGREEMENT.
13. Amendments; No Waiver.
(a) No amendment or modification of this Agreement shall be deemed
effective unless made in writing and signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel to enforce any provision of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
14. Assignment. This Agreement may be assigned by Raytel to any
affiliate of Raytel or to any nonaffiliate of Raytel that shall succeed to the
business and assets of Raytel, CVI or the Business of CVI. In the event of any
such assignment, Raytel shall cause such affiliate or nonaffiliate, as the case
may be, to assume the obligations of Raytel hereunder, by a written agreement
addressed to Stockholder, concurrently with any assignment with the same effect
as if such assignee were "Raytel" hereunder. This Agreement is personal to
Stockholder, and Stockholder may not assign any rights or delegate any
responsibilities hereunder.
15. Headings. The headings of paragraphs in this Agreement are solely
for convenience of reference and shall not control the meaning or interpretation
of any provision of this Agreement.
4
<PAGE> 5
16. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
By: /s/ DAVID WERTHEIMER
------------------------------------
Print Name: David E. Wertheimer
----------------------------
RAYTEL MEDICAL CORPORATION
By: /s/ RICHARD F. BADER
------------------------------------
Title: CHAIRMAN AND CEO
---------------------------------
5
<PAGE> 1
EXHIBIT 10.51
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
January 1, 1996, by and between THE HEART INSTITUTE OF PORT ST. LUCIE - D.
WERTHEIMER, M.D., P.A. (hereinafter referred to as "the Employer") and DAVID E.
WERTHEIMER, M.D. (hereafter referred to as the "Employee").
WITNESSETH:
WHEREAS, the Employer is engaged in the practice of internal medicine,
cardiology, family practice, gastroenterology, rheumatology, endocrinology,
pulmonology, neurology, podiatry and pediatric surgery in the State of Florida,
with offices located in Port St.
Lucie, Florida;
WHEREAS, the Employee is an individual authorized to engage in the
practice of medicine in the State of Florida;
WHEREAS, this Agreement will include a covenant not to compete because
there are legitimate business interests of the Employer to be protected;
WHEREAS, the Employer and Employee acknowledge that the Employee will have
significant contacts with the Employer's patients, and will develop significant
relationships with those patients;
WHEREAS, the Employer and Employee acknowledge the Employee will acquire
confidential information in the nature of patient lists, their particular
medical histories and conditions, and courses of treatment;
WHEREAS, the Employer wishes to offer the Employee employment subject to
the terms and conditions hereinafter set forth:
WHEREAS, the Employee is willing to accept such employment, subject to the
terms and conditions hereinafter set forth; and
WHEREAS, the Employer and the Employee have previously entered into an
Employment Agreement dated January 3, 1994 (the "Old Agreement"), which Old
Agreement shall be terminated and replaced by this Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants, promises and
undertakings hereinafter set forth and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties covenant and agree as follows:
I. CANCELLATION OF OLD AGREEMENT
The Employer and the Employee agree that the Old Agreement is
terminated and of no further force and effect as of the date of this Agreement.
The Employee waives any and all claims or rights he may have against the
Employer in connection with the Old Agreement and releases the Employer from any
liabilities or claims the Employee may have against the Employer under the Old
Agreement.
II. TERM
The Employer agrees to employ the Employee, and the Employee
agrees to be so employed, for an initial term of ten (10) years commencing as of
January 1, 1996, and for an additional term of ten (10) years unless either
party notifies the other at least thirty (30) days prior to the end of the
initial term that this Agreement shall terminate at the end of the initial term.
The purpose of such employment shall be to render, on behalf of the Employer,
professional medical services to such persons as are accepted as patients by the
Employer.
III. COMPENSATION
(a) The Employer agrees to pay the Employee, as compensation for
services rendered by the Employee under this Agreement, as follows:
<TABLE>
<CAPTION>
ANNUALIZED
BEGINNING ENDING AMOUNT PER MONTH
--------- ------ ---------- ---------
<S> <C> <C> <C>
January 1, 1996 December 31, 1996 $300,000 $25,000
</TABLE>
The foregoing amounts shall be paid in monthly installments based on the annual
salary then in effect. Each monthly payment shall be paid to the Employee by the
Employer on the first business day of the month following the month during which
the services are rendered for which such payment is due. Payments to Employee
shall be less applicable social security and withholding taxes and other
applicable payroll deductions. In the event Employee breaches any of the
provisions of this Agreement or is in any manner obligated to Employer, Employee
hereby authorizes Employer to apply any salary and any and all other
compensation that may
2
<PAGE> 3
be due to Employee against the amount of the damages caused by such breach or
breaches of said obligations.
(b) Compensation for later years shall be agreed to by the
Employer and the Employee.
(c) If in the judgment of the Employer's Board of Directors,
Employee shall become mentally or physically disabled so as to be unable to
perform substantially all of the duties required of him in connection with the
professional practice of Employer, he shall, nevertheless, continue to receive
his full compensation for the first three (3) months or any part thereof of any
continuous disability. If, upon the expiration of the three (3) month period
during which he is entitled to receive disability compensation, Employee
continues to be incapacitated, he shall be deemed to be an incapacitated
employee and shall no longer receive any disability compensation hereunder,
except as set forth in any disability insurance policy owned by Employer for
Employee (and the time elapsing while being an incapacitated employee shall not
be credited as employment time for any purposes under the terms of this
Agreement), unless and until Employee shall return to work.
(d) In the event of Employee's death during the term of this
Agreement, this Agreement shall terminate immediately and the representative of
Employee's estate shall be entitled to receive a sum equal to Employee's
compensation accrued to the end of the month of Employee's death.
IV. EMPLOYEE EXPENSES
During the term in which the Employee is employed hereunder, and
up to the date of termination as defined herein, the Employer shall pay the
following expenses on behalf of the Employee, provided that such expenses are
submitted to the Employer in writing, with appropriate documentation, and
approved for payment in writing in advance:
(a) AR professional association dues and licenses reasonably
required or necessary for the practice of medicine pursuant to this Agreement;
(b) All reasonable premiums for health insurance for a non-rated
policy specifically excluding dental care for the Employee, his or her spouse,
and minor dependents on commercially reasonable terms, under such policy, and
subject to such exclusions, deductibles and co-payments, as may be maintained by
Employer from time to time. The
3
<PAGE> 4
Employer agrees to provide reasonable efforts in securing such a policy and the
Employee will cooperate to the extent necessary.
(c) All reasonable and necessary expenses incurred by the Employee
inattending such conventions and seminars as are reasonably necessary for the
Employee to be informed as to new developments in the Employee's profession as
practiced on behalf of the Employer, so long as such attendance does not
interfere with the Employee's obligations hereunder.
(d) All reasonable premiums and expenses incurred for professional
malpractice liability insurance under such policy, and subject to such
exclusions, deductibles, co-payments and policy and coverage limits as may be
maintained by the Employer from time to time. Employee and Employer specifically
acknowledge and agree that the Employer shall not have any obligation or
responsibility whatsoever to procure or pay for any type or form of "tail" or
similar insurance for Employee.
V. VACATION TIME
The Employee shall be entitled to six (6) weeks of vacation time
per year during the term of this Agreement. Such vacation time may be used in
any manner that the Employee desires, including, but not limited to, attendance
at professional seminars.
VI. ACCEPTANCE BY EMPLOYEE
The Employee accepts employment with the Employer on the terms
and conditions set forth herein, and agrees that, during the term of this
Agreement, he will devote his fun and exclusive business time and attention in
performing the duties and responsibilities assigned to him by Employer in a
manner consistent with the highest community standards and in furtherance of the
Employer's best interest. The Employee further agrees that, in rendering such
professional services, and in all aspects of his employment he will comply with
the policies, standards and regulations established by the Employer, from time
to time, and with all applicable statutes, regulations, rules, orders and
directives of any and all government and regulatory bodies having competent
jurisdiction.
VII. RIGHT TO DETERMINE WHO SHALL PERFORM AND RENDER SERVICES
Only the Employer shall have the right to determine and to
designate which employee will render services to a patient of the Employer. This
right may not, and shall not
4
<PAGE> 5
be assigned to any party outside of the Employer. Once a patient is accepted by
the Employer and assigned to the Employee for medical care, the Employee may not
refuse to render services to such patient. However, the Employee may, with the
written consent of the President or other authorized officer of the Employer,
delegate functions to, or seek the services or advice of, any qualified person
in connection with services rendered, or to be rendered to patients of the
Employer, even though said other qualified person may be an independent
contractor who is not employed by or associated with the Employer. Employer
shall be responsible for establishing fees for the services rendered by
Employee, and the Employee may not alter such fees without the prior written
approval of the President or other authorized officer of Employer.
Employee shall participate in Medicare, Medicaid, Workers'
Compensation, other Federal and State reimbursement programs, and the payment
plan of any commercial insurer, health maintenance organization, preferred
provider organization, accountable health plan, or other health benefit program
with which the Employer may contract or affiliate. Employee shall at all times
comply in all material respects with all reasonable requirements of such plans
or programs.
Employee shall submit to Employer such time records as Employer
may reasonably require from time to time showing the nature of the services
performed by Employee and the time the Employee actually spent performing those
services.
VIII. MEDICAL RECORDS
Employee shall prepare and maintain such medical records incident
to the services he performs hereunder in accordance with any reasonable policies
established by Employer. Such records shall be the Employer's property and shall
in all respects be subject to review by Employer at all times. All records,
manuals, notations and financial data created, used or received during the
course of Employee's employment are and shall remain the property of Employer,
shall not be removed from Employer's premises, and, as to any in the possession
of Employee at the time of termination hereof, shall be forthwith returned to
and retained by Employer. Employer shall afford Employee reasonable access to
patients records in its possession in connection with Employee's defense of any
claim regarding medical services provided by Employee to the extent permitted by
applicable law.
5
<PAGE> 6
IX. DUTY TO ACCOUNT
Employee shall account for and pay to Employer all compensation
and remuneration and other sums received from patients or third parties
attributable to services he has rendered on behalf of Employer pursuant to this
Agreement. All monies received and accounts receivable created as a result of
the services rendered by Employee hereunder shall belong exclusively to
Employer. Accordingly, Employee acknowledges that Employee's employment does not
confer upon Employee any ownership interest in or personal claim upon any fees
charged by Employer for Employee's services, whether said fees are collected
during his employment or after the termination thereof Employee expressly agrees
that the payment of all compensation and benefits due to Employee under this
Agreement shall satisfy and discharge in full all Employee's claims upon
Employer for compensation in respect of Employee's professional services. Income
from speeches, articles or books, utilization and peer reviews, serving as a
witness or medical consultant, and similar activities outside the scope of this
Agreement, to the extent such activities are disclosed to and approved by
Employer, which approval shall not be unreasonably withheld, shall be income of
Employee and not Employer.
Employee appoints Employer as his attorney-in-fact to execute,
deliver, and/or endorse checks, application for payments, insurance claim forms
or other instruments, required or convenient in the exclusive discretion and
opinion of Employer, to fully correct, secure and realize all sums due in
respect to the services rendered by Employee hereunder. The power of attorney
set forth herein is coupled with an interest, is irrevocable and shall survive
the expiration or termination of the Agreement.
Employee shall complete in a timely manner and provide to
Employer all other applications, forms or records and provide any other
documentation to permit Employer to bill for and receive reimbursement from
third party payors for such services. Employer shall have the right to deduct
from any sums due, or becoming due, and owing to Employee from Employer any
amounts which are uncollectible solely because of Employee's failure to comply
with these requirements after reasonable notice of and opportunity to cure any
such failure. Such withheld funds shall be promptly paid to Employee upon
compliance.
6
<PAGE> 7
X. INVOLUNTARY TERMINATION
This Agreement shall be deemed to be terminated by the Employee,
and the relationship of Employer and Employee existing between the parties shall
be deemed severed upon the occurrence of any of the following:
(a) Suspension, revocation, cancellation or expiration of the
Employee's license to practice medicine in the State of Florida;
(b) Whenever the Employee shall become a "disqualified"
individual as defined in Section 621.10 of the Florida Professional Service
Corporation Act, or whenever any restriction or limitation is placed upon the
Employee by any governmental or other authority having jurisdiction over the
Employee, so that the Employee is unable to engage, in the sole discretion of
Employer, in the practice of medicine as contemplated hereby;
(c) Failure or refusal by the Employee to comply with the
policies, standards and regulations established by the Employer from time to
time;
(d) Failure or refusal by the Employee to faithfully or
diligently perform the provisions of this Agreement or the usual customary
duties of his employment;
(e) (1) Conduct by the Employee which is unprofessional,
unethical, immoral, criminal or fraudulent as determined by the Employer
in its sole and absolute discretion; or
(2) A finding by any board, institution, organization, group
or professional society, having any privilege or right to pass upon the conduct
of the Employee, that the Employee is guilty of conducting himself in an
unprofessional or unethical manner; or
(3) Conduct by the Employee which discredits the Employer or
is detrimental to the business, interests, reputation, goodwill, character and
standing of the Employer; and
(f) A material misrepresentation or misstatement in, or omission
from, any document submitted to Employer by Employee during the term of this
Agreement.
In the event of termination for any of the reasons enumerated in this
section Y, the Employer shall be under no further obligation to Employee, except
for the payment of any
7
<PAGE> 8
salary and bonus that has been earned by the Employee
through the effective date of termination based upon the days actually worked by
Employee.
XI. VOLUNTARY TERMINATION
Either party to this Agreement shall have the right to terminate
this Agreement at will, with or without cause, upon ninety (90) days prior
written notice to the other party.
XII. COVENANT NOT TO COMPETE
Employee expressly covenants with the Employer as follows:
During the employment period, if the Employee shall, for any
reason other than permanent retirement from the practice of medicine,
permanently or temporarily leave the employ of the Employer, Employee hereby
agrees, unconditionally, that he shall not in any manner whatsoever, directly or
indirectly, as partner, employee, agent, principal, independent contractor,
consultant, owner, or in any other capacity whatsoever establish, maintain,
manage or occupy any office or premises for, and/or engage in the practice of
the medical specialties of cardiology, internal medicine or any other type of
medical specialty or medical practice engaged in by the Employer, for a period
of not less than five (5) years after termination of employment, within an area
of a radius of fifty (50) miles from any office or offices of the Employer
presently existing or existing at the time of the termination of Employee's
employment. The Employer and the Employee agree that it is impossible to
determine with any reasonable accuracy the amount of damages Employer would
incur upon breach of this provision. Accordingly, in the event Employee breaches
this provision, the Employee does hereby unconditionally covenant and agree with
the Employer that the Employee shall pay, forthwith, the sum of Three Hundred
Thousand Dollars ($300,000) as liquidated damages (the "Liquidated Damages") to
the Employer upon written notice and demand, and in any event within three (3)
days of the receipt of said notice by the Employee.
In the event Employee refuses to pay said sum or unreasonably delays the
payment of same, the Employer shall have the unqualified option to sue and
recover from Employee the aforesaid sum together with its reasonable attorney's
fees and/or obtain an injunction against the Employee to enforce the medical
practice prohibitions of this covenant, together with Employer's reasonable
attorney's fees. It is the express intent and purpose of this provision that the
Employee shall in no way compete with the Employer in every particular as set
forth
8
<PAGE> 9
herein. Notwithstanding the above, the Employer, in lieu of accepting the
Liquidated Damages, shall have the right of injunctive relief Such injunction
may, in the discretion of the court, be granted without bond being required. If
injunctive relief for any reason whatsoever is not available, then the
Liquidated Damages, shall be paid as set forth above.
The Employee further acknowledges that the use of specific patient lists
or direct solicitation of existing patients shall be presumed to be an
irreparable injury to the Employer and may be specifically enjoined.
In the event Employer brings a legal action or other proceedings against
Employee for enforcement of any provision of this Agreement, the calculation of
the non-compete period shall not include the period of time commencing with the
filing of legal action or other proceeding to enforce the provision or
provisions of this Agreement through the date of final judgment or final
resolution, including all appeals, if any, of such legal action. The existence
of any claim or cause of action by Employee against the Employer predicated on
this Employment Agreement shall not constitute a defense to the enforcement by
the Employer of this covenant not to compete.
Employee hereby acknowledges that this covenant not to compete is
legally authorized under Section 542.33 of the Florida Professional Service
Corporation Act, a copy of which is attached to this Employment Contract and
made a part hereof as Exhibit Number 1. The Employee hereby acknowledges that he
has read Section 542.33, understands its meaning, and has had the legal
significance of it explained to him by an independent attorney of Employee's
choosing. Employee further acknowledges that the restrictions on his activity as
contained in this agreement are legitimate and reasonable, as to distance and
monetary amount, are required for the Employer's reasonable protection, and are
a material inducement to the Employer to enter into this Employment Contract.
Notwithstanding anything contained herein to the contrary, this provisions
contained in this Section XII shall survive the expiration and term of this
Agreement.
Employee further acknowledges that if enjoined from practicing medicine
during a reasonably limited time or within a reasonably limited area, such
restriction will not in any way jeopardize the health and welfare of the
Employee's patients because the patients will be able to continue to receive
proper medical care and treatment from the Employer after the
9
<PAGE> 10
Employee leaves, or from other physicians in the area practicing the same type
of medical specialty.
XIII. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
Employee acknowledges that Employer would be irreparably damaged
if confidential knowledge and information concerning Employer's business and
operations were disclosed to or utilized on behalf of others. Accordingly,
Employee agrees that he shall not disclose to any person, firm, hospital,
corporation, association or other entity, any confidential or proprietary
information relating to Employer's methods of doing business, including, but not
limited to, confidential or proprietary operational methods, business
relationships, scheduling, financial data, amounts charged and the manner of
determining and or billing charges. Further, Employee shall not make use of any
confidential or proprietary information for his own purpose or for the benefit
of any person, firm or entity.
XIV. AUTHORITY TO CONTRACT
The Employee shall have no authority to enter into any contracts
binding upon the Employer, or to create any obligations on the part of the
Employer.
XV. EMPLOYEE'S PROMISES IN EVENT OF TERMINATION
The Employee acknowledges that the Employer has spent
considerable time and money to train its employees, both professional and
non-professional, and that the Employer would suffer damages, if any, of its
employees were to leave its employ. Accordingly, the Employee agrees to refrain
from inducing any employees of Employer or its affiliates to terminate their
employment with Employer or from hiring any of the employees of the Employer who
are so employed at the time when the Employee terminates its employment
relationship with the Employer, whether said event should occur during the term
of this Agreement or subsequent thereto, for a period of one (1) year beginning
on the date on which the Employee shall terminate its employment relationship
with the Employer. For purposes of this Agreement, an employee of the Employee
will be considered to have been hired by the Employee if hired by the Employee
as a sole proprietor, or by an entity in which the Employee is a principal,
partner or shareholder. In addition, Employee shall not induce any health
maintenance organization, or other entity with which Employer does business to
terminate or restrict their relationship with Employer, or otherwise take any
action with respect to entities with which Employer does business that would
10
<PAGE> 11
adversely affect such relationships. If the Employee should violate this
covenant, the Employee shall be liable, and shall pay to the Employer for
damages an amount equal to Twenty-Five Thousand Dollars ($25,000) for each such
violation. Said amount is not intended as a penalty, but as liquidated damages
for the harm which would be suffered by the Employer in the event of a violation
of this covenant by the Employee.
XVI. MISCELLANEOUS
(a) Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing, and if hand delivered or sent
by Registered Mail to either party's last known residence or business address,
as applicable.
(b) Construction. This Agreement shall be governed and construed
in accordance with the laws of the State of Florida.
(c) Entire Agreement. This Agreement shall represent the full and
complete agreement of the parties regarding employment.
(d) Binding Effect. This Agreement shall be binding upon the
parties, their heirs, legal representatives, successors and assigns, as
applicable.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which, when executed, shall be considered an original.
(f) Modification, Waiver. No modification, or waiver, of the
terms of this Agreement shall be effective unless in writing, executed by the
party against whom enforcement of the provision is sought. The conduct of the
parties without such written amendment shall in no event be utilized to construe
that any such amendment has been made. Further, the waiver by any party hereto
of any breach of any provision of this Agreement shall not operate or be
construed to be a waiver of any similar or subsequent breach by any party.
(g) Attorney's Fees. If legal action is required to enforce any
provision of this Agreement, then the prevailing party shall be entitled to be
reimbursed for reasonable attorney's fees incurred by such party in connection
with the enforcement of any such provision.
(h) Enforcement. To the extent that a restriction contained in
this Agreement is more restrictive than permitted by the laws of any
jurisdiction where this Agreement may be subject to review and interpretation,
the terms of such restriction, for the
11
<PAGE> 12
purpose only of the operation of such restriction in such jurisdiction, shall be
the maximum restriction allowed by the laws of such jurisdiction, and such
restriction shall be deemed to have been revised accordingly herein. If any
particular provision of this Agreement shall nonetheless be adjudicated to be
invalid or unenforceable after application of the foregoing intent of the
parties, the remaining provisions shall be severable and enforceable in
accordance with their terms.
(viii) Assignment. Because this is a personal service contract it
is agreed that neither the Employee nor his beneficiaries shall have the right
to assign, transfer or otherwise convey either the duties of the Employee to
perform services hereunder or the right to receive payments therefore. Employer
may assign this Agreement to any successor, affiliate or related entity.
(j) Headings, captions. 'Me heading and captions used in this
Agreement are intended solely for convenience of reference and shall be given no
effect in the construction or interpretation of this Agreement.
(k) Legal Representation. The Employee acknowledges that he has
been advised to retain independent counsel on his behalf to represent the
Employee in connection with the Employee's rights, duties and obligations under
this Agreement.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above-written.
Signed, sealed and delivered
in the presence of: THE HEART INSTITUTE OF PORT ST.
LUCIE- D. WERTHEIMER, M.D., P.A.
("The Employer")
/s/ Faye Thomas By: /s/ D. Wertheimer
- -------------------------------- -------------------------------
President
(The "Employee")
/s/ Lynn Ritter /s/ David Wertheimer
- -------------------------------- -----------------------------------
DAVID E. WERTHEIMER, M.D.
12
<PAGE> 1
EXHIBIT 10.52
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made and
entered into as of March 17, 1997, by and between The Heart Institute of Port
St. Lucie, Inc. (hereinafter referred to as "Employer"), and DAVID E.
WERTHEIMER, M.D. (hereinafter referred to as the "Employee").
WITNESSETH:
WHEREAS, Employer and Employee have entered into an Employment Agreement
(the "Agreement") dated January 1, 1996; and
WHEREAS, Employer and Employee desire to amend the Agreement by changing
the covenant not to compete to comply with revisions in the law of the State of
Florida pertaining to such covenants;
NOW THEREFORE, in consideration of the mutual benefits accruing to the
parties, Employer and Employee agree that Article XII of the Agreement is hereby
amended to read in its entirety as set forth below:
XII. COVENANT NOT TO COMPETE
Employee expressly covenants with the Employer as
follows:
During the employment period, if the Employee shall, for
any reason other than permanent retirement from the practice of
medicine, permanently or temporarily leave the employ of the
Employer, Employee hereby agrees, unconditionally, that he shall
not in any manner whatsoever, directly or indirectly, as partner,
employee, agent, principal, independent contractor, consultant,
owner, or in any other capacity whatsoever establish, maintain,
manage or occupy any office or premises for, and/or engage in the
practice of the medical specialties of cardiology, internal
medicine or any other type of medical specialty or medical
practice engaged in by the Employer, for a period of not less
than two (2) years the "Restricted Period") after termination of
employment, within an area of a radius of fifty (50) miles from
any office or offices of the Employer presently existing or
existing at the time of the termination of Employee's employment
(the "Restricted Area").
The Employer and the Employee agree that it is impossible
to determine with any reasonable accuracy the amount of damages
Employer would incur upon breach of this provision. Accordingly,
in the event Employee breaches this provision, the Employee does
hereby unconditionally covenant and agree with the Employer that
the Employee shall pay, forthwith, the sum of Three Hundred
Thousand Dollars ($300,000) as liquidated damages (the
"Liquidated Damages") to the Employer upon written notice and
demand, and in any event within three (3) days of the receipt of
said notice by the Employee.
<PAGE> 2
In the event Employee refuses to pay said sum or
unreasonably delays the payment of same, the Employer shall have
the unqualified option to sue and recover from Employee the
aforesaid sum together with its reasonable attorney's fees and/or
obtain an injunction against the Employee to enforce the medical
practice prohibitions of this covenant, together with Employer's
reasonable attorney's fees. It is the express intent and purpose
of this provision that the Employee shall in no way compete with
the Employer in every particular as set forth herein.
Notwithstanding the above, the Employer, in lieu of accepting he
Liquidated Damages, shall have the right of injunctive relief.
Such injunction may, in the discretion of the court, be granted
without bond being required. If injunctive relief for any reason
whatsoever is not available, then the Liquidated Damages, shall
be paid as set forth above.
The Employee further acknowledges that the use of specific
patient lists or direct solicitation of existing patients shall
be presumed to be an irreparable injury to the Employer and may
be specifically enjoined.
In the event Employer brings a legal action or other
proceedings against Employee for enforcement of any provision of
this Agreement, the calculation of the non-compete period shall
not include the period of time commencing with the filing of
legal action or other proceeding to enforce the provisions or
provisions of this Agreement through the date of final judgment
or final resolution, including all appeals, if any, of such legal
action. The existence of any claim or cause of action by Employee
against the Employer predicated on this Employment Agreement
shall not constitute a defense to the enforcement by the Employer
of this covenant not to compete.
Employee hereby acknowledges that this covenant not to
compete is legally authorized under Section 542.335, Florida
Statutes, a copy of which is attached to this Amendment and made
a part hereof as Exhibit Number 1. The Employee hereby
acknowledges that he has read Section 542.335, understands its
meaning, and has had the legal significance of it explained to
him by an independent attorney of Employee's choosing. Employee
acknowledges that Employer has legitimate business interests to
justify the restrictions placed on him under this Agreement,
including without limitation:
(a) Employee possesses or will possess confidential business or
professional information pertaining to Employer and its
business, the use of which by Employee outside of his
employment relationship with Employer could cause
substantial harm to Employer and its business;
(b) Employer has or will have substantial relationships with
existing or prospective patients who utilize the services
of Employer and the physicians and staff employed by
Employer, which relationships could be
2
<PAGE> 3
substantially disrupted if Employee were to compete with
Employer in the Restricted Area during the Restricted
Period; and
(c) Employer has created patient goodwill in connection with
the conduct of its professional practice under its trade
name within the Restricted Area, which goodwill could be
substantially diluted if Employee were to compete with
Employer in the Restricted Area during the Restricted
Period.
Employee further acknowledges that the restrictions on his
activity as contained in this Agreement are legitimate and
reasonable, as to distance and monetary amount, are required for
the Employer's reasonable protection, and are a material
inducement to the Employer to enter into this Employment
Contract. Notwithstanding anything contained herein to the
contrary, the provisions contained in this Section XII shall
survive the expiration and term of this Agreement.
Employee further acknowledges that if enjoined from
practicing medicine during a reasonably limited time or within a
reasonably limited area, such restriction will not in any way
jeopardize the health and welfare of the Employee's patients
because the patients will be able to continue to receive proper
medical care and treatment from the Employer after the Employee
leaves, or from other physicians in the area practicing the same
type of medical specialty.
Employee agrees that Employer may assign this Agreement to
an entity that acquires or succeeds to the interests of Employer,
and in such event, the Employer's assignee or successor is
expressly authorized to enforce the provisions of this Section
XII.
IN WITNESS WHEREOF, the parties have executed this Amendment on the day
and year first above written.
EMPLOYER:
THE HEART INSTITUTE OF PORT ST. LUCIE, INC.
By: /s/ David E. Wertheimer
----------------------------------------
EMPLOYEE:
/s/ David E. Wertheimer
--------------------------------------------
DAVID E. WERTHEIMER, M.D.
3
<PAGE> 1
EXHIBIT 13.1
F I V E Y E A R F I N A N C I A L S U M M A R Y
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
- ---------------------------------------------------------------------------------------------------------
(000's omitted, except per share amounts) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S D A T A:
Pacing, CEDS and Holter $ 47,227 $ 43,649 $ 41,384 $ 38,661 $ 25,888
Diagnostic imaging service 17,610 19,970 20,516 19,150 19,069
Heart Center, practice management and other 18,578 8,896 1,562 964 1,737
--------------------------------------------------------
Total revenues 83,415 72,515 63,462 58,775 46,694
Operating costs and selling, general and
administrative expenses 63,273 56,412 47,353 44,821 34,653
Depreciation and amortization 6,306 5,590 5,806 5,880 6,215
Non-recurring tender offer expense -- -- 1,050 -- --
--------------------------------------------------------
Operating income 13,836 10,513 9,253 8,074 5,826
Interest expense 785 514 2,118 2,463 2,361
Other (income) (3,076) (591) (347) (305) (106)
Minority interest 485 762 1,161 1,099 1,359
--------------------------------------------------------
Income before income taxes 15,642 9,828 6,321 4,817 2,212
Provision for income taxes 6,257 3,248 1,960 1,004 311
--------------------------------------------------------
Income before extraordinary item 9,385 6,580 4,361 3,813 1,901
Extraordinary item, net of related tax benefit 721 449 -- -- --
--------------------------------------------------------
Net income $ 8,664 $ 6,131 $ 4,361 $ 3,813 $ 1,901
========================================================
Net income per share before extraordinary item $ 1.04 $ .80 $ .78 $ .69 $ .35
========================================================
Net income per share $ .96 $ .75 $ .78 $ .69 $ .35
========================================================
Weighted average common shares and dilutive
equivalents outstanding 9,039 8,194 5,617 5,548 5,458
========================================================
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
- ------------------------------------------------------------------------------------------------------
(000's omitted) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
C O N S O L I D A T E D B A L A N C E S H E E T D A T A:
Total assets $119,421 $ 68,030 $ 46,768 $ 50,245 $ 51,171
Long-term debt and capital lease obligations(1) 36,354 7,576 14,550 20,518 27,577
Total stockholders' equity 61,899 48,878 21,499 17,160 13,378
</TABLE>
(1) Includes current portion of long-term debt and capital lease obligations
plus unamortized debt discount.
RAYTEL 9
<PAGE> 2
M A N A G E M E N T 'S D I S C U S S I O N A N D A N A L Y S I S
- --------------------------------------------------------------------------------
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F
O P E R A T I O N S
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.
O V E R V I E W
The Company generates the majority of its revenues from the provision
of transtelephonic monitoring services for cardiac pacemaker patients
("Pacing"), cardiac event detection services ("CEDS") and Holter, diagnostic
imaging services and cardiac catheterization procedures. Following the Company's
initial public offering in December 1995, the Company has entered into a series
of transactions which have expanded its heart center and physician practice
management businesses. As a result, revenue is also being provided from: Raytel
Heart Center at Granada Hills ("RHCGH") beginning on February 1, 1996; the
management of Southeast Texas Cardiology Associates II P.A. ("SETCA") beginning
on September 18, 1996; the management of Comprehensive Cardiology Consultants, a
Medical Group, Inc. ("CCMG") beginning on November 1, 1996; and Cardiovascular
Ventures, Inc. ("CVI") beginning on August 15, 1997.
The Company's investment in two ventures ("Ventures") that operated
four of the consolidated diagnostic imaging centers terminated during fiscal
1997. Revenues contributed by these ventures were $1,318,000, $3,924,000 and
$4,903,000 for the years ended September 30, 1997, 1996 and 1995, respectively.
On November 18, 1996, the Company, through a subsidiary, entered into
a long-term management service agreement whereby the Company will manage the
non-medical aspects of the CCMG practice. Total consideration for the
transaction was cash of $427,000, promissory notes of $620,000 and 14,376 shares
of the Company's Common Stock to be delivered at future dates, valued at $91,000
(which represents a discount from the trading price of the stock at the time of
the transaction due primarily to the delay in the delivery of the shares).
In September 1996, the Company received a favorable administrative
decision related to a billing dispute with a New York Medicare carrier whereby
it was entitled to receive approximately $4.0 million. The time period for the
Healthcare Finance Administration ("HCFA") and the Social Security
Administration to file an appeal expired on February 10, 1997. After accounting
for administrative costs and reimbursements due to Medtronic under the terms of
the acquisition of CardioCare and a separate provision against the value of a
non-operating asset, the Company recognized other income of $2,510,000 pretax in
its second fiscal quarter ending March 31, 1997, with a positive tax effect of
$1,506,000 or $.17 per share (the "Decision").
Under certain practice management contracts, revenues are recognized
pursuant to long-term arrangements with physician groups under which the Company
provides the physician group with a full range of services, including, but not
limited to, office space, specialized clinical and procedural facilities,
medical equipment, data processing and medical record keeping, billing and
collection procedures and services, non-physician licensed personnel, such as
nurses and technicians, as well as office staff and administrative personnel. In
the case of SETCA and CCMG, the Company's practice management revenues are
derived from the physician groups' revenues, generally as a purchased service,
except for certain physician compensation and employment benefits, which are
paid by the physician group on a priority basis. Under the above management
services arrangements, the Company's practice management revenues represent
approximately 56% of the revenues of the physician groups for the year ended
September 30, 1997. For the physician practice acquired as part of the CVI
acquisition, the Company recognizes 100% of all medical revenue as the
physicians are employees of the Company.
On August 15, 1997, the Company acquired CVI, of New Orleans,
Louisiana. CVI manages, owns and operates cardiovascular diagnostic facilities
in Texas, Louisiana, Maryland and Florida and owns and manages a physician
clinic in
RAYTEL 10
<PAGE> 3
- --------------------------------------------------------------------------------
Florida. Total consideration for the transaction consisted of cash and
transaction costs of approximately $16,980,000, contingent promissory notes in
the aggregate principal amount of $820,000 and 500,000 shares of Raytel Common
Stock.
On October 9, 1997, the Company announced it had entered into an
agreement with The Baptist Hospital of Southeast Texas to develop a Raytel Heart
Center at the hospital. Under the Agreement, Raytel will manage the heart
center, which will provide the entire continuum of cardiovascular services,
including diagnostic, therapeutic and patient wellness programs. Among other
duties, Raytel will be responsible for the day-to-day operations of the heart
center, including administrative support, information systems management,
marketing and public relations activities. The Company expects it will begin
operations at Baptist Hospital during its second quarter of fiscal 1998.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share, ("SFAS
128"). SFAS 128 establishes new standards for computing and presenting earnings
per share. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997 and earlier adoption is not permitted. The
Company believes the adoption of SFAS 128 will not have a material impact on the
financial statements.
R E S U L T S O F O P E R A T I O N S
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,
- -------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0%
Operating costs and selling, general and administrative expenses 75.9 77.8 74.6
Depreciation and amortization 7.6 7.7 9.1
Non-recurring tender offer expense -- -- 1.7
-------------------------
Operating income 16.5 14.5 14.6
Interest expense and other (income) expense (2.8) (.1) 2.8
Minority interest .5 1.1 1.8
-------------------------
Income before income taxes 18.8 13.5 10.0
Provision for income taxes 7.5 4.5 3.1
-------------------------
Income before extraordinary item 11.3 9.0 6.9
Extraordinary item .9 .6 --
-------------------------
Net income 10.4% 8.4% 6.9%
=========================
</TABLE>
Fiscal Year Ended September 30, 1997 Compared to Fiscal Year Ended September 30,
1996
The operations of RHCGH are included in the Company's Consolidated Statements of
Operations since February 1, 1996, the effective date of the agreement.
Accordingly, RHCGH's operations are included for all twelve months in fiscal
1997, but are only included for eight months in fiscal 1996. 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 all twelve months in fiscal
1997, but are only included for approximately four months of fiscal 1996. The
results of operations from the management service agreement with SETCA are
included in the Company's Consolidated Statements of Operations since September
18, 1996, the effective date of the agreement. Accordingly, such results are
included for all twelve months in fiscal 1997, but are only included for twelve
days of fiscal 1996. The results of operations from the management service
agreement with CCMG are included in the Company's Consolidated Statements of
Operations since November 1, 1996, the effective date of its agreement.
Accordingly, such results are included for eleven months in fiscal 1997, but are
not included in fiscal 1996. The operations of CVI are included in the Company's
Consolidated Statements of Operations since August 15, 1997, the effective date
of the Company's acquisition of CVI.
RAYTEL 11
<PAGE> 4
M A N A G E M E N T 'S D I S C U S S I O N A N D A N A L Y S I S
- --------------------------------------------------------------------------------
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F
O P E R A T I O N S
Revenues. Pacing, CEDS and Holter revenues increased by $3,578,000, or 8.2%,
from $43,649,000 in fiscal 1996 to $47,227,000 in fiscal 1997, due primarily to
the inclusion of revenues from CDS. Diagnostic imaging service revenues
decreased by $2,360,000, or 11.8%, from $19,970,000 in fiscal 1996 to
$17,610,000 in fiscal 1997, due primarily to the termination of one diagnostic
imaging joint venture on December 31, 1996 and another on June 30, 1997. Heart
Center, practice management and other revenues increased by $9,682,000, or
108.8%, from $8,896,000 in fiscal 1996 to $18,578,000 in fiscal 1997, due
primarily to the inclusion of revenues from the physician practice management
agreements and from CVI and RHCGH.
As a result of the foregoing factors, total revenues increased by
$10,900,000, or 15.0%, from $72,515,000, in fiscal 1996 to $83,415,000 in fiscal
1997.
Operating Expenses. Operating costs and selling, general and administrative
expenses increased by $6,861,000, or 12.2%, from $56,412,000 in fiscal 1996 to
$63,273,000 in fiscal 1997, due primarily to the inclusion of costs and expenses
from CVI, RHCGH, CDS and the management of the physician practices. These
increases were partially offset by decreases in costs and expenses at operating
facilities, other than CDS, which provide Pacing, CEDS and Holter services, due
to cost containment measures. Operating costs and selling, general and
administrative expenses as a percentage of total revenues declined slightly at
RHCGH, where operating expenses were slightly in excess of revenues for the
years ended September 30, 1997 and 1996.
Depreciation and Amortization. Depreciation and amortization expense increased
by $716,000, or 12.8%, from $5,590,000 in fiscal 1996 to $6,306,000 in fiscal
1997 but declined as a percentage of revenues from 7.7% in fiscal 1996 to 7.6%
in fiscal 1997.
Operating Income. As a result of the foregoing factors, operating income
increased by $3,323,000, or 31.6%, from $10,513,000 in fiscal 1996 to
$13,836,000 in fiscal 1997.
Interest Expense. Interest expense increased by $271,000, or 52.7%, from
$514,000 in fiscal 1996 to $785,000 in fiscal 1997, due primarily to an increase
in debt due to the CVI acquisition and an increase in the principal amount
outstanding under equipment loans and capital leases due to the CVI acquisition.
Other Expense (Income). Other income increased by $2,485,000 from $591,000 for
fiscal 1996 to $3,076,000 for fiscal 1997 due primarily to the Decision.
Income Taxes. The provision for income taxes increased by $3,009,000, or 92.6%,
from $3,248,000 in fiscal 1996 to $6,257,000 in fiscal 1997 as a result of
increased taxable income and a higher effective tax rate in the current period.
Extraordinary Item. An extraordinary charge of $721,000, net of the related tax
benefit, for the cost of restructuring certain indebtedness acquired with the
CVI purchase was recorded during the year ended September 30, 1997.
Net Income. As a result of the foregoing factors, net income increased by
$2,533,000, or 41.3%, from $6,131,000 in fiscal 1996 to $8,664,000 in fiscal
1997.
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 in fiscal 1995.
Revenues. Pacing, CDS and Holter revenues increased by $2,265,000, or 5.5%, from
$41,384,000 in fiscal 1995 to $43,649,000 in fiscal 1996, due primarily to the
inclusion of revenues from CDS partially offset by a decrease in Pacing
revenues.
RAYTEL 12
<PAGE> 5
- --------------------------------------------------------------------------------
Diagnostic imaging service revenues decreased by $546,000, or 2.7%, from
$20,516,000 in fiscal 1995 to $19,970,000 in fiscal 1996. Heart Center, practice
management and other revenues increased by $7,334,000, or 469.5%, from
$1,562,000 in fiscal 1995 to $8,896,000 in fiscal 1996, due primarily to the
inclusion of revenues from RHCGH.
As a result of the foregoing factors, total revenues increased by $9,053,000, or
14.3%, from $63,462,000 in fiscal 1995 to $72,515,000 in fiscal 1996.
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.
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.
B U S I N E S S E N V I R O N M E N T A N D F U T U R E R E S U L T S
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.
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 fiscal 1997. Further minor
reductions became effective on January 1, 1997. Unless these reductions are
modified, they will continue to have a negative effect on the
RAYTEL 13
<PAGE> 6
M A N A G E M E N T 'S D I S C U S S I O N A N D A N A L Y S I S
- --------------------------------------------------------------------------------
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F
O P E R A T I O N S
Company's ongoing 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.
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 healthcare
providers specializing in cardiology related services and the assets of
physician practices and other businesses related to its current operations. The
success of the Company's existing and future heart centers and physician
practices 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.
An element of the Company's strategy is to expand, in part, through
acquisitions and investments in complementary healthcare businesses. The
implementation of this strategy may place significant strain on the Company's
administrative, operational and financial resources and increase demands on its
systems and controls. There can be no assurances that businesses acquired by the
Company, either recently or in the future, will be integrated successfully and
profitably into the Company's operations, that suitable acquisitions or
investment opportunities will be identified, or that any such transactions can
be consummated.
Providers of healthcare services are subject to numerous federal,
state and local laws and regulations that govern various aspects of their
business. There can be no assurance that the Company will be able to obtain
regulatory approvals that may be required to expand its services or that new
laws or regulations will not be enacted or adopted that will have a material
adverse effect on the Company's business, financial condition or operating
results.
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.
L I Q U I D I T Y A N D C A P I T A L R E S O U R C E S
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, SETCA in September 1996 for cash in the
amount of $4,010,000, CCMG in November 1996 for cash in the amount of $427,000
and CVI in August 1997 for cash in the amount of $16,980,000. At September 30,
1997, the Company had working capital of $24,391,000, compared to $16,204,000 at
September 30, 1996. At September 30, 1997, the Company had cash and temporary
cash investments of $7,873,000. At September 30, 1997, $25,975,000 was
outstanding under the Company's line of credit.
RAYTEL 14
<PAGE> 7
The Company batch-bills Medicare insurance carriers for most cardiac
testing services performed during the first few months of each calendar year.
This practice results in a temporary build-up of accounts receivable during the
Company's second and third fiscal quarters and the collection of these
receivables primarily during the subsequent fourth fiscal quarter.
The Company has a revolving line of credit with two banks in the
amount of $45,000,000 to fund working capital needs, future acquisitions,
equipment purchases and other business needs. Amounts outstanding under the line
of credit bear interest based on a defined formula and are subject to certain
covenants. The line of credit expires in August 1999 at which time any
outstanding balance will be converted 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, physician practices 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 1998.
P E R C E N T A G E O F C O N S O L I D A T E D R E V E N U E S
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
- -------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacing, CEDS and Holter 57% 60% 65%
Diagnostic imaging service 21% 28% 32%
Heart Center, practice management and other 22% 12% 3%
--------------------------
Total 100% 100% 100%
==========================
</TABLE>
S E L E C T E D C O N S O L I D A T E D Q U A R T E R L Y
F I N A N C I A L D A T A
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 1997
- ----------------------------------------------------------------------------------------------------
(000's omitted, except per share amounts) December 31, March 31, June 30, September 30,
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $20,652 $20,436 $19,758 $22,569
------------------------------------------------
Income before income taxes and extraordinary item $ 3,101 $ 5,817 $3,276 $ 3,448
Provision for income taxes 1,240 2,327 1,311 1,379
------------------------------------------------
Income before extraordinary item 1,861 3,490 1,965 2,069
------------------------------------------------
Extraordinary item, net of related tax benefit -- -- -- 721
------------------------------------------------
Net income $ 1,861 $ 3,490 $1,965 $ 1,348
================================================
Net income per share before extraordinary item(1) $ .21 $ .39 $ .22 $ .22
================================================
Net income per share(1) $ .21 $ .39 $ .22 $ .14
================================================
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 1996
- -----------------------------------------------------------------------------------------------------------------
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
====================================================
</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.
RAYTEL 15
<PAGE> 8
C O N S O L I D A T E D B A L A N C E S H E E T S
- --------------------------------------------------------------------------------
S E P T E M B E R 3 0, 1 9 9 7 A N D 1 9 9 6
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------------------------------------
(000's omitted) 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,873 $ 5,737
Receivables, net 30,345 21,753
Prepaid expenses and other 3,970 1,472
---------------------------
Total current assets 42,188 28,962
Investment in and advances to unconsolidated entities and partnerships 35 74
Property and equipment, less accumulated depreciation and amortization 19,712 9,156
Intangible assets, less accumulated amortization 57,486 29,838
---------------------------
Total assets $ 119,421 $ 68,030
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 1,893 $ 3,265
Accounts payable 5,110 2,861
Accrued liabilities 10,794 6,632
---------------------------
Total current liabilities 17,797 12,758
Long-term debt and capital lease obligations, net of current portion 34,461 4,311
Deferred liabilities 1,163 983
Minority interest in consolidated entities 4,101 1,100
---------------------------
Total liabilities 57,522 19,152
---------------------------
Commitments and contingencies (Note 13)
STOCKHOLDERS' EQUITY
Common stock 9 8
Additional paid-in capital 61,261 55,585
Common stock to be issued 943 852
Retained earnings (deficit) 1,097 (7,567)
---------------------------
63,310 48,878
Less treasury stock, at cost (1,411) --
---------------------------
Total stockholders' equity 61,899 48,878
---------------------------
Total liabilities and stockholders' equity $ 119,421 $ 68,030
===========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
RAYTEL 16
<PAGE> 9
C O N S O L I D A T E D S T A T E M E N T O F O P E R A T I O N S
- --------------------------------------------------------------------------------
F O R T H E Y E A R S E N D E D S E P T E M B E R 30, 1997, 1996
A N D 1995
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------------------------------------------------
(000's omitted, except per share amounts) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Pacing, CEDS and Holter $ 47,227 $ 43,649 $ 41,384
Diagnostic imaging service 17,610 19,970 20,516
Heart Center, practice management and other 18,578 8,896 1,562
------------------------------------------
Total revenues 83,415 72,515 63,462
------------------------------------------
Costs and expenses:
Operating costs 33,536 27,582 20,687
Selling, general and administrative 29,737 28,830 26,666
Depreciation and amortization 6,306 5,590 5,806
Non-recurring tender offer expense -- -- 1,050
------------------------------------------
Total costs and expenses 69,579 62,002 54,209
------------------------------------------
Operating income 13,836 10,513 9,253
Interest expense 785 514 2,118
Other expense (income) (3,076) (591) (347)
Minority interest 485 762 1,161
------------------------------------------
Income before income taxes and extraordinary item 15,642 9,828 6,321
Provision for income taxes 6,257 3,248 1,960
------------------------------------------
Income before extraordinary item 9,385 6,580 4,361
Extraordinary item, net of related tax benefit 721 449 --
------------------------------------------
Net income $ 8,664 $ 6,131 $ 4,361
==========================================
Net income per share before extraordinary item $ 1.04 $ .80 $ .78
==========================================
Net income per share $ .96 $ .75 $ .78
==========================================
Weighted average common shares and dilutive equivalents outstanding 9,039 8,194 5,617
==========================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
RAYTEL 17
<PAGE> 10
C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S I N
S T O C K H O L D E R S' E Q U I T Y
- --------------------------------------------------------------------------------
F O R T H E Y E A R S E N D E D S E P T E M B E R 30, 1997, 1996 A N D
1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------------- ---------------------- Paid-in
(000's omitted, except shares) Shares Amount Shares Amount Capital
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 3,739,791 $ 7 1,043,804 $ 2 $ 31,432
Net income -- -- -- -- --
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 -- -- -- -- --
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 -- -- -- -- --
Warrants exercised -- -- 15,760 -- 63
Options exercised -- -- 189,309 -- 434
----------------------------------------------------------------
Balance at September 30, 1996 -- -- 8,332,924 8 55,585
Net income -- -- -- -- --
Warrants exercised -- -- 10,505 -- 42
Options exercised -- -- 191,494 -- 369
Repurchase of shares -- -- (134,434) -- --
Employee stock purchase -- -- 5,908 -- 63
Value of 14,376 shares to be issued -- -- -- -- --
Issuance of common stock
for purchase of a company -- -- 500,000 1 5,202
----------------------------------------------------------------
Balance at September 30, 1997 -- $ -- 8,906,397 $ 9 $ 61,261
================================================================
Common
Stock Retained Total
to be Earnings Treasury Stockholders'
issued (Deficit) Equity Equity
--------------------------------------------------
(000's omitted, except shares) <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Balance at September 30, 1994 $-- $ (14,281) $-- $ 17,160
Net income -- 4,361 -- 4,361
Options exercised -- -- -- 3
Repurchase of shares -- -- -- (25)
--------------------------------------------------
Balance at September 30, 1995 -- (9,920) -- 21,499
Net income -- 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 -- -- 852
Warrants exercised -- -- -- 63
Options exercised -- -- -- 434
--------------------------------------------------
Balance at September 30, 1996 852 (7,567) -- 48,878
Net income -- 8,664 -- 8,664
Warrants exercised -- -- -- 42
Options exercised -- -- -- 369
Repurchase of shares -- -- (1,411) (1,411)
Employee stock purchase -- -- -- 63
Value of 14,376 shares to be issued 91 -- -- 91
Issuance of common stock
for purchase of a company -- -- -- 5,203
--------------------------------------------------
Balance at September 30, 1997 $ 943 $ 1,097 $ (1,411) $ 61,899
==================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
RAYTEL 18
<PAGE> 11
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
- --------------------------------------------------------------------------------
F O R T H E Y E A R S E N D E D S E P T E M B E R 30, 1997, 1996 A N D
1995
<TABLE>
<CAPTION>
September 30,
- -----------------------------------------------------------------------------------------------------------------------
(000's omitted) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,664 $ 6,131 $ 4,361
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,306 5,590 5,806
Minority interest 485 762 1,161
Other, net (735) 245 1,390
Changes in operating accounts:
Receivables, net (3,137) 850 (1,090)
Prepaid expenses and other (987) (105) (107)
Accounts payable 1,494 651 (228)
Accrued liabilities and other 435 574 (2,638)
--------------------------------
Net cash provided by operating activities 12,525 14,698 8,655
--------------------------------
Cash flows from investing activities:
Capital expenditures (3,828) (3,022) (2,244)
Purchases of net assets and physician practice (427) (18,264) --
Purchase of a company (16,980) -- --
Cash acquired in purchase of a company 1,384 -- --
Other, net 487 350 104
--------------------------------
Net cash used in investing activities (19,364) (20,936) (2,140)
--------------------------------
Cash flows from financing activities:
Net proceeds from borrowings 23,599 2,376 --
Net proceeds from initial public offering -- 20,400 --
Repurchase of warrants -- (2,101) --
Income distributions to noncontrolling investors (862) (738) (1,446)
Repurchase of company stock (1,411) -- --
Principal repayments of debt (12,822) (13,442) (5,911)
Other, net 471 497 (22)
--------------------------------
Net cash provided by (used in) financing activities 8,975 6,992 (7,379)
Net increase (decrease) in cash and cash equivalents 2,136 754 (864)
Cash and cash equivalents at beginning of period 5,737 4,983 5,847
--------------------------------
Cash and cash equivalents at end of period $ 7,873 $ 5,737 $ 4,983
================================
Supplemental disclosure of cash flow information:
Interest paid $ 822 $ 454 $ 1,605
================================
Income taxes paid $ 6,687 $ 3,309 $ 1,774
================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
RAYTEL 19
<PAGE> 12
N O T E S
- --------------------------------------------------------------------------------
T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
N O T E 1. O R G A N I Z A T I O N A N D D E S C R I P T I O N O F
T H E C O M P A N Y
Since 1990, Raytel Medical Corporation ("Raytel" or the "Company") or its
predecessor companies, have been in the medical service business. The Company
provides a range of 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, assets and facilities. Since 1990, the Company has acquired and/or
entered into agreements with various medical service providers. The significant
transactions occurring during the past three fiscal years are described below:
(a) An 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. ("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 is being amortized over 25
years.
(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 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 the
Company's Common Stock to be delivered at future dates, valued at $852,000.
The shares of Common Stock were valued at a discount from the then current
trading price of a 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 48,828 in 1999, 36,620 in
2000 and 36,620 in 2001.
(d) On October 18, 1996, the Company entered into a long-term management
service agreement whereby the Company will manage the non-medical aspects of
Comprehensive Cardiology Consultants, a Medical Group, Inc. ("CCMG"), a
physician practice.
Total consideration for the transaction was cash of $427,000, promissory
notes of $620,000 and 14,376 shares of the Company's Common Stock to be
delivered at future dates, valued, as described above, at $91,000.
(e) On August 15, 1997, the Company acquired all of the outstanding capital
stock of Cardiovascular Ventures Inc. ("CVI"). CVI manages, owns and
operates several cardiovascular diagnostic facilities in Texas, Louisiana
and Maryland, and owns and manages a physician clinic in Florida.
Total consideration for the transaction was cash and transaction costs
of approximately $16,980,000, 500,000 shares of the Company's Common Stock
and contingent promissory notes in the aggregate principal amount of
$820,000.
Unaudited pro forma consolidated financial information for the years ended
September 30, 1997 and 1996, as though the acquisitions of CVI and CDS had
occurred at the beginning of fiscal 1996, is as shown in the table below:
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------------------------
(000's omitted, except per share amounts) 1997 1996
------------------------------------------------------------------------
<S> <C> <C>
Revenues $104,345 $ 94,720
Net income $ 9,446 $ 4,940
Net income per share $ .99 $ .57
Weighted average shares outstanding 9,539 8,694
</TABLE>
RAYTEL 20
<PAGE> 13
- --------------------------------------------------------------------------------
The Company's acquisitions have been accounted for as purchases in accordance
with generally accepted accounting principles. 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 fair value of 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.
N O T E 2 . S U M M A R Y O F S I G N I F I C A N T
A C C O U N T I N G P O L I C I E S
(a) Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries.
At September 30, 1997, the Company owned four imaging centers and held
interests in three others through investments in various joint ventures and
limited partnerships (the "Ventures"). All Ventures are consolidated for
financial reporting purposes, as the Company owns more than 50% of those
Ventures and/or controls their assets and operations.
Two Ventures that operated four consolidated imaging centers terminated
during fiscal 1997. Revenues contributed by these Ventures were $1,318,000,
$3,924,000 and $4,903,000 for the years ended September 30, 1997, 1996 and 1995,
respectively.
At September 30, 1997, the Company held interests in eight cardiovascular
diagnostic facilities, through investments in various limited partnerships (the
"Partnerships") and wholly-owned two others. All Partnerships are consolidated
for financial reporting purposes, as the Company owns more than 50% of those
Partnerships and/or controls their assets and operations.
Minority interests in consolidated entities represent the investment of
third-parties in certain consolidated Ventures and Partnerships.
All significant intercompany accounts and transactions are eliminated in
consolidation.
(b) 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.
In certain practice management contracts, revenues are recognized pursuant
to long-term arrangements with physician groups pursuant to which the Company
provides the physician group with a full range of services, including, but not
limited to, office space, specialized clinical and procedural facilities,
medical equipment, data processing and medical record keeping, billing and
collection procedures and services, non-physician licensed personnel, such as
nurses and technicians, as well as office staff and administrative personnel. In
the case of SETCA and CCMG, the Company's practice management revenues are
derived from the physician groups' revenues, generally as a purchased service,
except for physician compensation and employment benefits, which are paid by the
physician group on a priority basis.
Under the above management services arrangements, the Company's practice
management revenues represent approximately 56% of the revenues of the physician
groups for the year ended September 30, 1997. For the physician practice
acquired with the CVI acquisition, the Company recognizes 100% of all medical
revenue as the physicians are employees of the Company.
Other revenues include other revenue and equity earnings of unconsolidated
entities.
RAYTEL 21
<PAGE> 14
N O T E S
- --------------------------------------------------------------------------------
T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
(c) 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.
(d) 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.
(e) Management Service Agreements. Management service agreements are each
recorded as an intangible asset consisting of the costs of purchasing the rights
to manage the medical group. 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.
(f) 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 a 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.
(g) Income Taxes. The Company and its subsidiaries file consolidated federal and
state income tax returns. The Company accounts for income taxes in accordance
with the Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes.
(h) Extraordinary Item. An extraordinary noncash charge of $449,000 ($670,000
less $221,000 of 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.
An extraordinary charge of $721,000, ($1,202,000 less $481,000 of related
tax benefit) for the cost of restructuring certain indebtedness acquired with
the CVI purchase was recorded during the year ended September 30, 1997.
(i) Tender Offer Expense. Represents the costs incurred in an unsuccessful
tender offer for the stock of a public company.
(j) 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.
(k) New Accounting Standards. In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 128, Earnings Per Share. SFAS 128
establishes new standards for computing and presenting earnings per share. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997 and earlier adoption is not permitted. The Company believes
the adoption of this accounting standard will not have a material impact on its
results of operations.
RAYTEL 22
<PAGE> 15
- --------------------------------------------------------------------------------
Also the FASB recently issued SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information. Both statements are effective for fiscal 1999 and relate only to
additional disclosures. Therefore, the adoption of these accounting standards
will have no effect on the Company's results of operations or financial
position.
(l) Fair Value of Financial Instruments. The carrying amounts of all financial
instruments approximate fair value.
(m) Long-Lived Assets. In March 1995, SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, was
issued. This statement requires the Company to review long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of this
standard did not have a material impact on the Company's results of operations
or financial position.
N O T E 3 . R E C E I V A B L E S
Receivables consist of the following:
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------
(000's omitted) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Patient and service receivables $ 34,114 $ 26,671
Less allowance for doubtful accounts (6,189) (5,855)
----------------------
27,925 20,816
Other receivables 2,420 937
----------------------
Total $ 30,345 $ 21,753
======================
</TABLE>
N O T E 4. P R O P E R T Y A N D E Q U I P M E N T
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------
(000's omitted) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Equipment, furniture and fixtures $ 28,495 $ 20,242
Leasehold improvements 7,768 3,642
--------------------
36,263 23,884
Less accumulated depreciation and amortization (16,551) (14,728)
--------------------
$ 19,712 $ 9,156
====================
</TABLE>
Depreciation expense was $3,712,000, $3,667,000 and $3,825,000 for the years
ended September 30, 1997, 1996 and 1995, respectively.
N O T E 5. I N T A N G I B L E A S S E T S
Intangible assets consist of the following:
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------
(000's omitted) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 47,986 $ 19,800
Physician referrals and patient lists 10,715 10,658
Management service agreements 7,984 7,144
Other 5,803 5,529
---------------------
72,488 43,131
Less accumulated amortization (15,002) (13,293)
---------------------
$ 57,486 $ 29,838
=====================
</TABLE>
RAYTEL 23
<PAGE> 16
N O T E S
- --------------------------------------------------------------------------------
T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Amortization expense related to intangible assets totaled $2,594,000, $1,923,000
and $1,981,000 for the years ended September 30, 1997, 1996 and 1995,
respectively.
N O T E 6. N O T E S P A Y A B L E, L O N G-T E R M D E B T A N D
C A P I T A L L E A S E S:
Notes payable, long-term debt and capital leases consist of the following:
<TABLE>
<CAPTION>
September 30,
- ---------------------------------------------------------------------------
(000's omitted) 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Promissory notes (a) $ 2,609 $ 2,846
Line of credit (b) 25,975 2,376
Other (c) 7,770 2,354
-------------------------
36,354 7,576
Less current maturities (1,893) (3,265)
-------------------------
$ 34,461 $ 4,311
=========================
</TABLE>
(a) In connection with the SETCA transaction, the Company assumed two promissory
notes with variable interest rates. Both notes were paid off in fiscal 1997.
In connection with the SETCA and CCMG transactions, the Company issued
promissory notes bearing interest at rates ranging from 10% to 12% per
annum. Interest is payable quarterly beginning December 15, 1996.
(b) In August 1996, the Company entered into a line of credit for $25,000,000.
This agreement was amended in September 1997 to expand the line of credit to
$45,000,000. Under terms of the agreement with two banks, this credit
facility can be used to fund acquisitions and for working capital purposes.
The Company can draw amounts under the line of credit until August 1, 1999,
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 LIBOR plus 150 basis points or the
bank's prime rate at the option of the Company. At September 30, 1997, the
approximate interest rate was 7.14%. The line is collateralized by
substantially all of the assets of the Company and its subsidiaries.
(c) Other debt includes a balance due in connection with the RHCGH transaction
and nonrecourse notes and capital lease obligations with varying maturities
at interest rates ranging from 8.29% to 12.75% per annum. The majority of
these notes and leases are collateralized by the equipment purchased.
Notes payable, long-term debt and capital lease obligations maturing within each
of the five years subsequent to September 30, 1997 is as follows: 1998 -
$1,893,000; 1999 - $1,605,000; 2000 - $6,546,000; 2001 - $7,352,000; and 2002 -
$7,332,000.
N O T E 7. P R E F E R R E D S T O C K A N D C O M M O N S T O C K
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, 1997, no such
shares had been issued.
The previously outstanding shares of Preferred Stock were entitled to
receive dividends. Upon the completion of the 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.
N O T E 8. S T O C K O P T I O N S A N D W A R R A N T S
Warrants. Certain warrants to purchase 62,870 shares of Common Stock at an
exercise price of $4.00 per share are outstanding. The warrants expire on
November 26, 1997.
In connection with previous 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 $0, $60,000 and $363,000 for the years ended September 30, 1997, 1996
and 1995, respectively.
RAYTEL 24
<PAGE> 17
- --------------------------------------------------------------------------------
Upon completion of the Offering, in accordance with the terms of a 1993
acquisition, 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, 1997,
all such warrants are outstanding. The warrants will expire five years from the
effective date of the Offering.
Stock Option Plans. The Company has options outstanding under two separate
plans, the 1983 Incentive Stock Option Plan as Amended (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 option grants under the Plans, including exercise price, are set
by the Board of Directors. The exercise price for incentive stock options must
be at not less than the fair market value of the underlying stock at the date of
grant. The exercise price for nonqualified options must be at not less than 85%
of fair market value. Options granted under the Plans 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.
The Company's Outside Directors Stock Option Plan (the "Directors Plan") was
approved by the stockholders in fiscal 1995. 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 director of the
Company. Thereafter, upon reelection, additional grants could 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.
In October 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was
issued. SFAS 123 requires the measurement of the fair value of stock options or
warrants to be included in the statements of operations or disclosed in the
notes to financial statements. The Company has determined that it will retain
its existing method of accounting for stock options and has elected the pro
forma footnote disclosure included in the tables below. Accordingly, SFAS No.
123 will have no effect on the Company's consolidated financial position or
results of operations.
The Company has computed the pro forma disclosures required under SFAS 123
for options granted in 1997 and 1996 using the Black-Scholes option pricing
model prescribed by SFAS 123. The weighted average assumptions used are as
follows:
<TABLE>
<CAPTION>
September 30,
- -------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Risk free interest rate 5.74% - 6.68% 5.6% - 6.6%
Expected dividend yield None None
Expected lives 3 years 3 years
Expected volatility 61.6% 61.6%
</TABLE>
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates of awards under these plans
consistent with the method of SFAS 123, the Company's net income and pro forma
net income per common share would have decreased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------
(000's omitted, except per share amounts) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income:
As reported $ 8,664 $ 6,131
Pro forma $ 8,338 $ 5,532
Net income per common share:
As reported $ .96 $ .75
Pro forma $ .92 $ .68
</TABLE>
RAYTEL 25
<PAGE> 18
N O T E S
- --------------------------------------------------------------------------------
T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Because SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
A summary of the status of the Company's three stock option plans at
September 30, 1997, 1996 and 1995 and changes during the years then ended is
presented in the tables below:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- ------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 1,122,050 $ 7.34 705,183 $ 2.48 719,928 $2.48
Granted 653,150 9.17 626,275 10.91 -- --
Exercised (191,494) 1.93 (189,309) 2.30 (1,361) 1.62
Expired (556,994) 11.38 (20,099) 5.76 (13,384) 2.97
--------- --------- -------
Outstanding, end of year 1,026,712 7.24 1,122,050 7.34 705,183 2.48
========= ========= =======
Exercisable, end of year 435,813 4.61 538,713 3.33 638,699 2.17
--------- --------- -------
Weighted average fair value
of options granted 5.26 6.52
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------- ---------------------
Weighted Weighted Number Weighted
Average Average Exercisable Average
Options Outstanding Summary Outstanding Remaining Exercise As of Exercise
Range of Exercise Prices @ 9/30/97 Life (in years) Price 9/30/97 Price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.42 - $ 5.40 309,850 5.63 $ 2.84 306,674 $ 2.81
8.00 - 8.50 536,275 9.58 8.50 92,983 8.47
9.00 - 13.88 180,587 9.26 11.08 36,156 9.90
--------- -------
1.42 - 13.88 1,026,712 8.33 7.24 435,813 4.61
========= =======
</TABLE>
At September 30, 1997, there were 540,082 shares available for future option
grants.
N O T E 9. L E A S E C O M M I T M E N T S
The Company leases its facilities and office space under various noncancelable
agreements which expire at various dates through 2008. The Company also leases
various equipment under noncancelable leases. All of the above are treated as
operating leases.
At September 30, 1997, the future minimum rental payments for each fiscal
year thereafter under all noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(000's omitted) Operating Leases
- ---------------------------------------------------------------------
<S> <C>
Fiscal Year Ending:
1998 $3,869
1999 3,137
2000 2,474
2001 2,351
2002 1,061
Thereafter 3,889
</TABLE>
RAYTEL 26
<PAGE> 19
- --------------------------------------------------------------------------------
N O T E 1 0. I N C O M E T A X E S
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
September 30,
- --------------------------------------------------------------------------------
(000's omitted) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $4,233 $1,751 $ 364
State 2,024 1,497 1,245
----------------------------------------
6,257 3,248 1,609
Deferred:
Federal -- -- 351
----------------------------------------
Total $6,257 $3,248 $1,960
========================================
</TABLE>
At September 30, 1997 and 1996, the Company had $2,019,000 and $2,324,000,
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, 1997 and 1996,
are as follows:
<TABLE>
<CAPTION>
Current Asset Long-Term Asset
(Liability) (Liability)
- ---------------------------------------------------------------------------------------------------------------
(000's omitted) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation and amortization $ 63 $ 424 $ 3,203 $ 803
Reserves for accounts receivable and unbilled costs and fees 44 544 -- --
Other, net -- 235 (1,291) 318
----------------------------------------------
107 1,203 1,912 1,121
Valuation allowance (107) (1,203) (1,912) (1,121)
----------------------------------------------
Total deferred income taxes $ -- $ -- $ -- $ --
==============================================
</TABLE>
Reconciliation of the federal statutory rate to the Company's effective tax rate
is as follows:
<TABLE>
<CAPTION>
September 30,
- ------------------------------------------------------------------------------------------------------------------
(000's omitted, except percentages) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at the statutory rate $ 5,318 34.0% $ 3,342 34.0% $ 2,149 34.0%
State income taxes, net of federal benefit 1,336 8.5 988 10.0 822 13.0
Other (397) (2.5) -- -- -- --
Federal tax benefit of the utilization
of net operating loss and credit
carryforwards -- -- (1,082) (11.0) (1,011) (16.0)
-------------------------------------------------------------------
Total $ 6,257 40.0% $ 3,248 33.0% $ 1,960 31.0%
===================================================================
</TABLE>
At September 30, 1997, the Company had $4,800,000 of federal net operating
loss carryforwards acquired in the CVI transaction. Such carryforwards have
certain limitations on use.
RAYTEL 27
<PAGE> 20
N O T E S
- --------------------------------------------------------------------------------
T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
N O T E 1 1. E M P L O Y E E B E N E F I T P L A N S
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 $547,000, $503,000 and $466,000 for the years ended September 30, 1997, 1996
and 1995, 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 $178,000, $133,000 and $124,000 for
the years ended September 30, 1997, 1996 and 1995, respectively.
Executive officers and key employees of the Company are eligible to
participate in an executive deferred compensation plan at the discretion of the
Board of Directors. Participants may defer a portion of their compensation, as
defined.
N O T E 1 2. P R I N C I P A L C U S T O M E R S
All services performed by the Company are performed in the United States. No one
customer accounted for more than 10% of the Company's total 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.
N O T E 1 3. C O N T I N G E N C I E S
On September 12, 1997, the Company and a partner in a Venture agreed to settle
all claims asserted in actions initiated in 1992. Pursuant to the settlement
agreement entered into between the parties, the actions were dismissed with
prejudice on September 16, 1997.
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.
RAYTEL 28
<PAGE> 21
- --------------------------------------------------------------------------------
N O T E 1 4. N E T I N C O M E P E R S H A R E
Net income per share is based on the weighted average number of common shares
and common equivalent shares outstanding. 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.
N O T E 1 5. D E F E R R E D L I T I G A T I O N A W A R D
In September 1996, the Company received a favorable administrative decision
related to a billing dispute with a New York Medicare carrier whereby it was
entitled to approximately $4.0 million. The time period for the Healthcare
Finance Administration ("HCFA") and the Social Security Administration to file
an appeal expired on February 10, 1997. After accounting for administrative
costs and reimbursements due to Medtronic as a result of the terms of the
acquisition of CardioCare and a separate provision against the value of a
non-operating asset, the Company recognized other income of $2,510,000 pretax in
its second fiscal quarter ending March 31, 1997, with a positive after tax
effect of $1,506,000, or $.17 per share (the "Decision").
N O T E 1 6. O T H E R
In January 1996, the Company signed an agreement with Stanford Health Services
whereby the Company was to provide diagnostic cardiac services at a cardiac
catheterization center to be developed and managed by the Company. This facility
was ready to commence operations when the Company was notified in a letter from
the California Department of Health Services that its application to operate an
outpatient cardiovascular diagnostic facility in Fremont, California had been
denied. The Company has undertaken an administrative appeal of the denial of its
application.
RAYTEL 29
<PAGE> 22
R E P O R T O F I N D E P E N D E N T P U B L I C A C C O U N T A N T S
- --------------------------------------------------------------------------------
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, 1997 and 1996 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, 1997.
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, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the years in the three year period ended September 30, 1997 in conformity
with generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
November 13, 1997
RAYTEL 30
<PAGE> 23
C O R P O R A T E I N F O R M A T I O N
- --------------------------------------------------------------------------------
B O A R D O F D I R E C T O R S A N D O F F I C E R S
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., Ph.D.
Senior Vice President,
Executive Medical Director and Director
David E. Wertheimer, M.D.
Senior Vice President,
Heart Center Development and Director
E. Payson Smith, Jr.
Senior Vice President and Chief Financial Officer
Swapan Sen
Senior 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, Henry & Co.
Gene I. Miller
General Partner, Peregrine Venture Funds
C O R P O R A T E O F F I C E S
Raytel Medical Corporation
2755 Campus Drive, Suite 200
San Mateo, California 94403
Tel: (650) 349-0800
Fax: (650) 349-8850
http://www.raytel.com
A N N U A L M E E T I N G O F S T O C K H O L D E R S
Raytel Medical Corporation's Annual Meeting of Stockholders will be held on
Thursday, March 5, 1998 beginning at 11 a.m. PST at the Hotel Sofitel, located
at 223 Twin Dolphin Drive, Redwood City, California. All stockholders are
invited to attend.
I N V E S T O R R E L A T I O N S
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.
S T O C K L I S T I N G
The Common Stock of Raytel Medical Corporation trades on the Nasdaq National
Market under the symbol RTEL.
T R A N S F E R A G E N T
Boston Equiserve, L.P.
150 Royall Street
Boston, Massachusetts 02021
L E G A L C O U N S E L
Gray Cary Ware & Freidenrich, Professional Corporation
Palo Alto, California
I N D E P E N D E N T A U D I T O R S
Arthur Andersen, L.L.P.
Hartford, Connecticut
S T O C K D A T A N A S D A Q S Y M B O L: R T E L
The number of stockholders of record at September 30, 1997, was 477. The Company
estimates that the number of beneficial stockholders is approximately 1800.
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 years ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $14 3/4 $ 9 $9 1/4 $8 1/2
Second quarter $12 5/8 $ 9 $11 3/4 $8 5/8
Third quarter $12 $7 3/4 $15 1/2 $9 3/4
Fourth quarter $15 $10 $13 3/4 $9 7/8
</TABLE>
The Company has not paid cash dividends during the fiscal years ended September
30, 1997 and September 30, 1996.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The following entities are corporations in which Raytel Medical Corporation
("RMC") has an ownership interest:
<TABLE>
<CAPTION>
Name of Corporation State of Incorporation
- ------------------- ----------------------
<S> <C>
Raytel Cardiac Services, Inc. Delaware
Raytel Cardiovascular Labs, Inc. Delaware
Raytel Imaging Holdings, Inc. ("Imaging Holdings") Delaware
Raytel Management Holdings, Inc. ("Management Holdings") Delaware
Raytel Granada Hills, Inc. Delaware
Cardiovascular Ventures, Inc. ("CVI") Delaware
</TABLE>
The following entities are corporations in which Imaging Holdings has an
ownership interest:
<TABLE>
<CAPTION>
Name of Corporation State of Incorporation
- ------------------- ----------------------
<S> <C>
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
</TABLE>
The following entities are corporations in which Management Holdings has an
ownership interest:
<TABLE>
<CAPTION>
Name of Corporation State of Incorporation
- ------------------- ----------------------
<S> <C>
Raytel California Physician Services, Inc. Delaware
Raytel Texas Physician Services, Inc. Delaware
Raytel Texas Heart Center Management Company, Inc. Delaware
</TABLE>
The following entities are corporations in which CVI has an ownership interest:
<TABLE>
<CAPTION>
Name of Corporation State of Incorporation
- ------------------- ----------------------
<S> <C>
Cardiovascular Ventures of Texas, Inc. Texas
Cardiovascular Ventures of Central San Antonio, Inc. Texas
Cardiovascular Ventures of West Houston, Inc. Texas
Fort Worth Cardiac Laboratory, Inc. Texas
Cardiovascular Ventures of Texas II, Inc. Texas
Cardiovascular Ventures of Alexandria, Inc. Louisiana
Cardiovascular Ventures of East New Orleans, Inc. Louisiana
Cardiovascular Ventures of Towson, Inc. Maryland
Cardiovascular Centers of Port St. Lucie, Inc. Florida
Heart Institute of Port St. Lucie Florida
Physician Partners of Port St. Lucie Florida
</TABLE>
<PAGE> 2
The following entities are partnerships in which RIE, RIMA, or RIW has an
ownership interest, all of which own and manage a Diagnostic Imaging Center:
<TABLE>
<CAPTION>
Name of Corporation Owner State of Incorporation
- ------------------- ----- ----------------------
<S> <C>
Forest Hills Imaging Ventures RIE New York
CIFMI Joint Venture RIW California
San Luis Obispo Medical Imaging Center RIW California
MRI Diagnostic Partners I, L.P.-1986 RIMA Pennsylvania
MRI Building Partners I, L.P.-1986 RIMA Pennsylvania
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K into Raytel Medical Corporation's previously
filed Form S-8, dated September 10, 1996, File No. 333-11697.
/s/ Arthur Andersen LLP
-------------------------------------
ARTHUR ANDERSEN, LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SUMMARY CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RAYTEL
MEDICAL CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 7,873
<SECURITIES> 0
<RECEIVABLES> 30,345<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,188
<PP&E> 36,263
<DEPRECIATION> (16,551)
<TOTAL-ASSETS> 119,421
<CURRENT-LIABILITIES> 17,797
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 61,890
<TOTAL-LIABILITY-AND-EQUITY> 119,421
<SALES> 0
<TOTAL-REVENUES> 83,415
<CGS> 0
<TOTAL-COSTS> 69,579
<OTHER-EXPENSES> (2,591)
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 785
<INCOME-PRETAX> 15,642
<INCOME-TAX> 6,257
<INCOME-CONTINUING> 9,385
<DISCONTINUED> 0
<EXTRAORDINARY> 721
<CHANGES> 0
<NET-INCOME> 8,664
<EPS-PRIMARY> .96
<EPS-DILUTED> .96
<FN>
<F1>(Receivables) Represents net receivables
<F2>(Loss Provision) Included in (Total Costs)
</FN>
</TABLE>
