<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________TO_____________________
COMMISSION FILE NO. 1-10677
DRCA MEDICAL CORPORATION
------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0203483
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Riverway, Suite 1430, Houston, Texas 77056
-------------------------------------------------
(Address of principal executive offices)
(713) 439-7511
----------------------------------------------
(Registrant's telephone number, including area code)
None
----------------------------------
(Former Name, Address and fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the 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 [_]
As of March 31, 1996, 5,285,975 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format (Check One) YES [_] NO [X]
<PAGE>
DRCA MEDICAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets (March 31, 1996
and December 31, 1995) 1
Consolidated Statements of Operations for the
quarter ended March 31, 1996 and March 31, 1995 2
Consolidated Statements of Changes in
Stockholders' Equity for the three months
ended March 31, 1996 and March 31, 1995 3
Consolidated Statements of Cash Flows for
the three months ended March 31, 1996 and
March 31, 1995 4
Notes to Consolidated Financial Statements 5 - 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 9
PART II OTHER INFORMATION
Item 1 - 6 10
SIGNATURES 11
</TABLE>
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
------ ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 88,725 $ 109,231
Accounts receivable, net 5,798,748 5,552,158
Income taxes receivable 424,513 404,717
Notes receivable, net 231,594 235,801
Other current assets 235,759 147,855
----------- ------------
TOTAL CURRENT ASSETS 6,779,339 6,449,762
----------- ------------
PROPERTY AND EQUIPMENT
Equipment (including equipment under capital
leases) 4,161,603 5,531,709
Leasehold improvements 437,676 437,676
Furniture and fixtures 399,696 368,962
Vehicles 113,509 108,301
----------- ------------
5,112,484 6,446,648
Less - accumulated depreciation and amortization (3,464,696) (3,999,252)
----------- ------------
1,647,788 2,447,396
----------- ------------
INTANGIBLES ASSETS, NET 873,762 904,161
----------- ------------
OTHER ASSETS 52,837 49,620
----------- ------------
TOTAL ASSETS $ 9,353,726 $ 9,850,939
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
CURRENT LIABILITIES
Accounts payable 1,027,136 $ 1,166,557
Accrued expenses 892,254 683,868
Deferred income taxes 267,237 208,168
Current obligations under capital leases 55,808 139,103
Current portion of notes payable 1,520,388 1,597,224
----------- ------------
TOTAL CURRENT LIABILITIES 3,762,823 3,794,920
----------- ------------
NOTES PAYABLE 378,489 905,890
OBLIGATIONS UNDER CAPITAL LEASES 95,317 117,504
DEFERRED INCOME TAXES 156,586 156,586
----------- ------------
4,393,215 4,974,900
----------- ------------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 50,000,000
shares authorized, 5,301,808 issued 5,302 5,302
Additional paid-in capital 2,470,570 2,470,570
Retained earnings 2,484,655 2,400,183
Treasury shares, 15,833 shares (16) (16)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 4,960,511 4,876,039
----------- ------------
COMMITMENTS AND CONTINGENCIES
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,353,726 $ 9,850,939
=========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
1
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
------------------------
March 31 March 31
1996 1995
---------- ----------
<S> <C> <C>
REVENUES $4,061,697 $3,589,408
---------- ----------
Costs and expenses:
Compensation costs and medical services 1,785,844 1,402,083
Other direct costs 895,040 807,822
Selling, general and administrative 554,483 540,178
Depreciation and amortization 189,979 301,755
Provision for doubtful accounts 347,311 96,769
---------- ----------
INCOME FROM OPERATIONS 289,040 440,801
Loss on sale of subsidiary (90,460)
Minority interest 33,654
Interest expense (66,012) (75,931)
---------- ----------
INCOME BEFORE INCOME TAXES 132,568 398,524
Provision for income taxes (48,096) (152,464)
---------- ----------
NET INCOME $ 84,472 $ 246,060
========== ==========
Earnings per common and equivalent share:
Primary $ .02 $ .05
========== ==========
Fully Diluted $ .02 $ .05
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
------ ------ ---------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 5,301,808 $ 5,302 $2,470,570 $2,400,183 $(16) $4,876,039
Net income 84,472 84,472
--------- -------- ---------- ---------- ---- ----------
Balance - March 31, 1996 5,301,808 $ 5,302 $2,470,570 $2,484,655 $(16) $4,960,511
========= ======== ========== ========== ==== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
March 31 March 31
1996 1995
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 84,472 $ 246,060
Noncash adjustments:
Depreciation and amortization 189,979 275,596
Minority interest (33,654)
Loss on sale of assets 90,460
Change in assets and liabilities, excluding acquisitions:
Accounts receivable, net (246,590) (236,753)
Other current assets (110,917) (130,252)
Accounts payable (139,421) (471,172)
Accrued expenses 208,386 44,806
Income taxes receivable/payable 59,069 137,464
--------- -----------
Net cash provided (used) by operating activities 135,438 (167,905)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (150,432) (6,884)
Proceeds from insurance reimbursements 33,570
Net proceeds from sale of subsidiary 700,000
Collections on notes receivable 4,207 11,497
--------- -----------
Net cash provided by investing activities 553,775 38,183
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings 486,784 750,000
Payments on bank borrowings (220,045) (1,127,824)
Payments on other notes, net (870,976) (86,720)
Payments on capital lease obligations (105,482) (104,534)
--------- -----------
Net cash used by financing activities (709,719) (569,078)
--------- -----------
NET CHANGE IN CASH AND EQUIVALENTS (20,506) (698,800)
CASH AND EQUIVALENTS:
BEGINNING OF YEAR 109,231 813,942
--------- -----------
END OF QUARTER $ 88,725 $ 115,142
--------- -----------
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 60,498 $ 60,553
Income taxes paid $ 9,000
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
DRCA MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
NOTE 1 BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of those of a normal
recurring nature) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1995.
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, as well as the disclosures of contingent assets and
liabilities. Because of the inherent uncertainties in this process, actual
future results could differ from those expected at the reporting date.
Certain amounts in the March 31, 1995 consolidated statements of operations have
been reclassified to conform to the March 31, 1996 presentation, the most
significant of which is an allocation of a portion of the provision for doubtful
accounts to contractual allowances to more properly reflect revenue from
services rendered to personal injury claimants at the net amounts expected to be
collected upon claim adjudication. The reclassification was based on improved
historical information and currently expected recovery rates. In addition,
selected natural expense classifications have been presented to enhance industry
comparability. None of these changes affected net income or loss.
NOTE 2 EARNINGS PER COMMON SHARE:
Primary and fully diluted earnings per common share is based upon the weighted
average number of shares of common stock outstanding and common stock
equivalents of dilutive stock options and warrants during the three month
periods, as follows:
5
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
March 31, March 31,
1996 1995
---------- ----------
<S> <C> <C>
Primary
Weighted average shares outstanding 5,285,975 5,285,975
Net effect of dilutive stock options and
warrants, based on the treasury stock
method using average market price 172,319 85,766
---------- ----------
5,458,294 5,371,741
========== ==========
Net Income $ 81,472 $ 246,060
========== ==========
Earnings Per Share $ .02 $ .05
========== ==========
Fully diluted
Weighted average shares outstanding 5,285,975 5,285,975
Net effect of dilutive stock options and
warrants, based on the treasury stock
method using the quarter end market
price, if higher than average market price 233,785 143,861
---------- ----------
5,519,760 5,429,836
========== ==========
Net Income $ 84,472 $ 246,060
========== ==========
Earnings Per Share $ .02 $ .05
========== ==========
</TABLE>
Note 3 Subsequent Events:
In April, 1996, the Company issued a $2.5 million convertible subordinated note
to provide acquisition and working capital in support of the Company's planned
expansion. At the Company's annual shareholders' meeting on May 9, 1996, over
two-thirds of the Company's shareholders approved the creation of 10,000,000
shares of preferred stock. Immediately thereafter, the Company's board of
directors approved the issuance of 25,191 shares of the Company's Series A
Cumulative Convertible Preferred Stock in exchange for the $2.5 million
convertible subordinated note plus $19,178 in accrued interest thereon. (The
Series A Cumulative Convertible Preferred Stock is described in the Company's
definitive proxy statement dated April 12, 1996.)
6
<PAGE>
PART I
FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS:
Three months ended March 31, 1996 compared with three months ended March 31,
1995.
Revenues.
Revenues for the first quarter of 1996 increased by $472,289 or about 13%. The
increase is mainly due to orthopedic practices added to an affiliated medical
group in 1995. Revenues were also higher at the other Houston medical clinics,
the work hardening facilities, and mobile testing. Revenues from the other
business units were flat or lower. Changes in these revenues are generally due
to changes in the number of patient visits.
Compensation Costs and Medical Services.
Compensation costs and medical services increased $383,761 or 27.4%. This
increase is due mainly to the addition of the orthopedic practices to an
affiliated medical group in 1995.
Other Direct Costs
Other direct costs in 1996 increased $87,218 or 10.8% over 1995, due primarily
to the addition of the orthopedic practices to an affiliated medical group in
1995.
Selling, General and Administrative Expenses.
Costs increased by $14,305 or less than 3%. The difference is within the normal
range of cost fluctuations. No single type of expense increased or decreased by
more than 4%.
Depreciation and Amortization.
The decrease in 1996 of $111,776 is due to the full depreciation and
amortization of certain assets in 1995.
Provision for Doubtful Accounts.
Expenses increased by $250,542, mainly because the allowance percentage for
orthopedic surgery cases billed to third-party payors is higher than the Company
has experienced in the past for third-party claims. Generally, mandated
orthopedic reimbursement rates decline per individual patient as more surgical
procedures are performed.
7
<PAGE>
Loss on Sale of Subsidiary.
The Company recorded a loss on the sale of a wholly-owned subsidiary in March,
1996. Proceeds from the sale were sufficient to retire the Company's
liabilities related to the subsidiary (see Liquidity and Capital Resources).
Minority Interest.
Minority interest in income decreased by $33,654, due to the Company's winding
down of all partnership interests.
Interest Expense.
Interest expense decreased by $9,919 or about 13%, due to the reduction of the
principal balances on various notes and capital lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at March 31, 1996 was $3,016,516 as compared to
$2,654,842 at December 31, 1995, an improvement of $361,674. This is mainly due
to (1) an increase in net accounts receivable of $246,590 due principally to
increased revenues from the orthopedic practices added to an affiliated medical
group in 1995, and (2) the paying down of the current portion of notes and
capital leases payable in the amount of $160,131.
Personal injury accounts receivable have decreased in 1996, decreasing their
percentage of net accounts receivable from 42% at December 31, 1995 to 40% at
March 31, 1996. Although currently due, personal injury claims usually take
significantly longer to collect than claims billed to insurance carriers and
employers. Net reimbursement for personal injury claims is generally equal to
or greater than the net reimbursement on other claims.
In March, 1996, the Company made the final scheduled payment on the Houston MRI.
Monthly obligations relating to the purchase of this MRI are expected to fall
from approximately $36,000 per month to less than $9,000 per month. The Company
also disposed of a subsidiary in March, 1996. In conjunction with this
disposition, the Company retired approximately $692,000 in notes payable, of
which, $243,586 was classified as a current liability at December 31, 1995.
On January 30, 1996, the Company amended its loan agreement and increased its
revolving line of credit from $1,000,000 to $2,000,000 with its primary
commercial bank. The line of credit is secured by substantially all the assets
of the Company and its affiliated medical groups. The revolving line of credit
requires the payment of a 1% annual fee. Borrowings under the line bear
interest at prime + 1.25% and the line expires January 30, 1997. Advances under
the line of credit are subject to a borrowing base formula under which the
Company presently has sufficient collateral to support the entire line
availability. The Company also received a commitment to fund up to $500,000 in
equipment purchases through January 30, 1997, at
8
<PAGE>
which time all amounts outstanding under the commitment will convert to either
3- or 4- year term notes. The line of credit as well as other borrowings from
the Company's major lender are subject to the terms of a loan agreement which
include typical financial ratio covenants and various other provisions.
In April, 1996, the Company issued a $2.5 million convertible subordinated note
to provide acquisition and working capital in support of the Company's planned
expansion. At the Company's annual shareholders' meeting on May 9, 1996, over
two-thirds of the Company's shareholders approved the creation of 10,000,000
shares of preferred stock. Immediately thereafter, the Company's board of
directors approved the issuance of 25,191 shares of the Company's Series A
Cumulative Convertible Preferred Stock in exchange for the $2.5 million
convertible subordinated note plus $19,178 in accrued interest thereon. (The
Series A Cumulative Convertible Preferred Stock is described in the Company's
definitive proxy statement dated April 12, 1996.) The Company believes its
existing credit facilities and cash provided by operations will be sufficient to
provide for the Company's existing operations for at least the next twelve
months. The Company has plans to expand its physician practice management
services through the acquisition of orthopedic and orthopedics-related medical
practice assets and through the acquisition or development of musculoskeletal
injury- and illness-related ancillary services required by these medical
practices. Depending upon the Company's experience in this expansion program,
additional sources of acquisition capital may be required.
9
<PAGE>
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not a party to any pending litigation other than routine
litigation incidental to the business or that which is immaterial in
amount of damages sought.
Item 2 Changes in Securities
This item is not applicable.
Item 3 Defaults upon Senior Securities
This item is not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
This item is not applicable.
Item 5 Other Information
This item is not applicable.
Item 6 (a) Exhibits and Exhibit Index
Exhibit No. Exhibit Title Filed As
10.47 Amendment to the Loan Agreement dated
January 30, 1995 between the Company, its
Subsidiaries, affiliates and First Interstate Bank
of Texas, N.A., effective January 30, 1996 /1/Same
10.48 Promissory Note for $2,000,000 dated January
30, 1996 between the Company and First
Interstate Bank of Texas, N.A. /1/Same
10.49 Promissory Note for $500,000 dated January
30, 1996 between the Company and First
Interstate Bank of Texas, N.A. /1/Same
Item 6 (b) Reports on Form 8-K
This item is not applicable.
- ----------------
/1/Filed herewith
10
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DRCA MEDICAL CORPORATION
By: /s/ JOSE E. KAUACHI
________________________________________
JOSE E. KAUACHI
Chairman of the Board, President
& Chief Executive Officer
Dated: May 14, 1996
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
Signature Title Date
- --------- ----- ----
By: /s/ JOSE E. KAUACHI Chairman of the Board, May 14, 1996
-------------------- President Chief Executive
JOSE E. KAUACHI Officer
By: /s/ JEFFERSON R. CASEY Senior Vice President, May 14, 1996
----------------------- Treasurer (Principal
JEFFERSON R. CASEY Financial & Accounting
Officer), and Secretary
11
<PAGE>
EXHIBIT 10.47
[LOGO OF FIRST INTERSTATE BANK APPEARS HERE]
AMENDMENT TO LOAN AGREEMENT
DATED JANUARY 30, 1995 AND AMENDED MAY 15, 1995
Borrower: DRCA Medical Corporation
Three Riverway, Suite 1430
Houston, Texas 77056
Lender: First Interstate Bank of Texas, N.A.
1000 Louisiana, 2nd Floor
Houston, Texas 77002
This amendment will modify and change certain terms and conditions of a loan
agreement dated January 30, 1995 and amended May 15, 1995 by and between DRCA
Medical Corporation and First Interstate Bank of Texas, N.A. This amendment will
also extend the loan agreement for an additional one year, maturing January 30,
1997. The outstanding terms and conditions of the January 30, 1995 along with
the May 15, 1995 amendments will remain in place except for the following
changes:
1. With the release of the personal guarantees of Jose Kauachi and William F.
Donovan, M.D., the reporting requirements on these guarantors will be
eliminated.
2. First Interstate Bank of Texas, N.A. will be providing a $750,000.00 term
note for the purchase of a building located at 6200 Gulf Freeway. It is noted
that aside from normal documentation and legal requirements, a Bank approved
appraisal that values the building at greater than or equal to $1,000,000.00
will be required along with the building meeting standards for conformity to
Americans with Disability Act and must meet environmental guidelines, based
on an ASTM environmental screen.
3. The financial ratio of Tangible Net Worth will increase from $2,800,000.00 to
a minimum of $3,060,000 for the term of January 30, 1996 to January 30, 1997
and will increase annually by a ratio of 50% of net income.
4. First Interstate Bank of Texas, N.A. is providing an equipment commitment
line in the amount of $500,000.00 which will be funded at a rate 90% of
purchase price of the equipment.
5. In the event of default as defined throughout the promissory notes and other
loan documents, Borrower, DRCA Medical Corporation, grants, pledges and
assigns, Bank a security interest in any and all lockbox or collection
accounts at the Bank with regular offset provisions on all other accounts and
any and all accounts owned by DRCA Medical Corporation or any of its
subsidiaries or any of Partnerships, it's related Partnerships including
Physicare LLP in which DRCA Medical Corporation is the managing partner.
<PAGE>
Any disputes or disagreements arising herein or any note, security agreement,
guaranty or other agreement in connection herein or contemplated hereby shall be
subject to arbitration in accordance with the terms and conditions of the
arbitration addendum attached hereto as Exhibit "A".
The credit documents and all other documents relating thereto constitute a
written loan agreement which will represent the final agreement by and between
parties and may not be contradicted by evidence of prior contemporaneous or
subsequent oral agreements between the parties.
DRCA Medical Corporation
/s/ JOSE KAUACHI
- -------------------------
Jose Kauachi, President and Chairman of the Board
First Interstate Bank of Texas, N.A.
/s/ LOWELL LITTLE, authorized officer, for Freddy Hurst
- ------------------
Freddy Hurst
Vice President
GUARANTORS/GRANTORS:
DRCA Houston Clinics, Inc.
/s/ JOSE E. KAUACHI
- --------------------------
Jose E. Kauachi, President and Chairman of the Board
DRCA Little Rock Clinics, Inc.
/s/ JOSE KAUACHI
- ---------------------------
Jose Kauachi, President and Chairman of the Board
Occupational Medicine Associates of Houston, P.A.
/s/ WILLIAM F. DONOVAN
- ------------------------------
William F. Donovan, M.D., President
<PAGE>
Occupational Medicine Associates of Little Rock, P.A.
/s/ WILLIAM F. DONOVAN
- -------------------------------
William F.Donovan, M.D., President
PhysiCare, LLP
Occupational Medicine Associates of Houston, P.A.,
an Authorized Partner
/s/ WILLIAM F. DONOVAN
- -------------------------------
William F. Donovan, M.D., President
<PAGE>
EXHIBIT 10.48
[LOGO OF FIRST INTERSTATE BANK APPEARS HERE]
PROMISSORY NOTE
Principal Loan Date Maturity Loan No. Call
$2,000,000.00 01-03-1996 01-30-1997 42
Collateral Account Officer Initials
2504194603 3047
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: DRCA MEDICAL CORPORATION (TIN: 76-0203483)
Three Riverway, Suite 1430
Houston, TX 77056
Lender: First Interstate Bank of Texas, N.A.
Houston Central Private Client Services
1000 Louisiana
Houston, TX 77002
===============================================================================
Principal Amount: $2,000,000.00 Initial Rate: 9.750%
Date of Note: January 30, 1996
PROMISE TO PAY. DRCA MEDICAL CORPORATION ("Borrower") promises to pay to First
Interstate Bank of Texas, N.A. ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Two Million & 00/100 Dollars
($2,000,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance or
maturity, whichever occurs first.
CHOICE OF USURY CEILING AND INTEREST RATE. The interest rate on this Note has
been implemented under the "Indicated Rate Ceiling" as referred to in Article
5069-1.04(a)(1) V.T.C.S. The terms, including the rate, or index, formula, or
provision of law used to compute the rate on the Note, will be subject to
revision as to current and future balances, from time to time by notice from
Lender in compliance with Article 5069-1.04(i) V.T.C.S.
PAYMENT: Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on January 30, 1997. In addition,
Borrower will pay regular quarterly payments of accrued unpaid interest
beginning April 30, 1996, and all subsequent interest payments are due on the
same day of each quarter after that. Interest on this Note is computed on a
365/360 simple interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding, unless such calculation would result in a usurious rate, in which
case interest shall be calculated on a per diem basis of a year of 365 or 366
days, as the case may be. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied in any
order at Lender's sole discretion. Notwithstanding any other provision of this
Note, Lender will not charge interest on any undisbursed loan proceeds. No
scheduled installment, whether of principal or interest or both, will be due
unless sufficient loan funds have been disbursed by the scheduled installment
date to justify the payment.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the First Interstate Bank of
Texas, N.A. Prime Rate, which is an index rate announced by Lender from time to
time for pricing certain loans (the "Index"). The Index is not necessarily the
lowest rate charged by Lender on its loans and is set by Lender in its sole
discretion. If the Index becomes unavailable during the term of this loan,
Lender may designate a substitute index after notifying Borrower. Lender will
tell Borrower the current index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day. The Index
currently is 8.500% per annum. The interest rate to be applied prior to maturity
to the unpaid principal balance of this Note will be at a rate of 1.250
percentage points over the Index, resulting in an initial rate of 9.750% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law. For purposes of this Note,
the "maximum rate allowed by applicable law" means the greater of (a) the
maximum rate of interest permitted under federal or other law applicable to the
indebtedness evidenced by this Note, or (b) the "Indicated Rate Calling" as
referred to in Article 5069-1.04(a)(1) V.T.C.S.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
POST MATURITY RATE. the Post Maturity Rate on this Note is the lesser of the
maximum rate allowed by applicable law or 9.250 percentage points over the
Index. Borrower will pay interest on all sums due after final maturity, whether
by acceleration or otherwise, at that rate, with the exception of any amounts
added to the principal balance of this Note based on Lender's payment of
insurance premiums, which will continue to accrue interest at the pre-maturity
rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due, (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender, (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished, (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws,
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any of the events described in this default
section occurs with respect to any guarantor of this Note, (g) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all accrued unpaid
interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Note or any other agreement with Lender pertaining to
this loan, immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Note if Borrower does
not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower
also will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public office any
instrument securing this loan; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate of title to any motor vehicle
offered as security for this loan, or premiums or identifiable charges
received in connection with the sale of authorized insurance. This Note has been
delivered to Lender and accepted by Lender in the State of Texas. If there is a
lawsuit, and if the transaction evidenced by this Note occurred in Harris
County, Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of Harris County, the State of Texas. Subject to the provisions on
arbitration, this Note shall be governed by and construed in accordance with the
laws of the State of Texas and applicable Federal laws.
DISHONORED CHECK CHARGE. Borrower will pay a processing fee of $25.00 if any
check given by Borrower to Lender as a payment on this loan is dishonored.
<PAGE>
01-30-1996 PROMISSORY NOTE Page 2
Loan No 42 (Continued)
===============================================================================
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all sums owing on this Note against any and all such
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender. This revolving line of credit
shall not be subject to Chapter 15, Article 5069 V.T.C.S. (the Texas Credit
Code).
ARBITRATION.
Binding Arbitration. Upon the demand of any party, whether made before or
after the institution of any judicial proceeding, any Dispute (as defined
below) shall be resolved by binding arbitration in accordance with the
terms of this Arbitration Program. A "Dispute" shall include any action,
dispute, claim, or controversy of any kind, whether in contract or in tort,
statutory or common law, legal or equitable, or otherwise, now existing or
hereafter arising between the parties in any way arising out of, pertaining
to or in connection with (a) any agreement, document or instrument to which
this Arbitration Program is attached or in which it is referred to or any
related agreements, documents, or instruments (the "Documents"), (b) all
past, present, or future loans, notes, instruments, drafts, credits,
accounts, deposit accounts, safe deposit boxes, safekeeping agreements,
guarantees, letters of credit, goods or services, or other transactions,
contracts or agreements of any kind whatsoever, (c) any past, present or
future incidents, omissions, acts, errors, practices, or occurrences
causing injury to either party whereby the other party or its agents,
employees or representatives may be liable, in whole or in part, or (d) any
other aspect of the past, present, or future relationships of the parties
including any agency, independent contractor or employment relationship but
excluding claims for workers' compensation and unemployment benefits
("Relationship"). Any party to this Arbitration Program may by summary
proceedings bring any action in court to compel arbitration of any Dispute.
Any party who fails or refuses to submit to binding arbitration following a
lawful demand by the opposing party shall bear all costs and expenses
incurred by the opposing party in compelling arbitration of any Dispute.
The parties agree that by the engaging in activities with or involving each
other as described above, they are participating in transactions involving
interstate commerce. THE PARTIES UNDERSTAND THAT PURSUANT TO THIS
ARBITRATION PROGRAM, DISPUTES SUBMITTED TO ARBITRATION WILL NOT BE DECIDED
THROUGH LITIGATION IN FEDERAL OR STATE COURTS BEFORE A JUDGE OR JURY.
Governing Rules. All Disputes between the parties submitted to arbitration
shall be resolved by binding arbitration administered by the American
Arbitration Association (the "AAA") in accordance with the Commercial
Arbitration Rules of the AAA, the Federal Arbitration Act (Title 9 of the
United States Code) and to the extent the foregoing are inapplicable,
unenforceable or invalid, the laws of the State of Texas. In the event of
any inconsistency between this Arbitration Program and such rules and
statutes, this Arbitration Program shall control. Judgment upon any award
rendered hereunder may be entered in any court having jurisdiction;
provided, however, that nothing contained herein shall be deemed to be a
waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. Section 91 or Texas Banking Code art. 342-609.
No Waiver; Preservation of Remedies; Multiple Parties. No provision of, nor
the exercise of any rights under, this Arbitration Program shall limit the
right of any party, during any Dispute, to seek, use, and employ ancillary
or preliminary remedies, judicial or otherwise, for the purposes of
realizing upon, preserving, protecting, foreclosing or proceeding under
forcible entry and detainer for possession of any real or personal
property, and any such action shall not be deemed an election of remedies.
Such rights shall include, without limitation, rights and remedies relating
to (a) foreclosing against any real or personal property collateral or
other security, (b) exercising self-help remedies including setoff rights
or (c) obtaining provisional or ancillary remedies such as injunctive
relief, sequestration, attachment, garnishment, or the appointment of a
receiver from a court having jurisdiction. Such rights can be exercised at
any time except to the extent such action is contrary to a final award or
decision in any arbitration proceeding. The institution and maintenance of
an action for judicial relief or pursuit of provisional or ancillary
remedies or exercise of self-help remedies shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the Dispute to
arbitration, nor render inapplicable the compulsory arbitration provisions
hereof. In Disputes involving indebtedness or other monetary obligations,
each party agrees that the other party may proceed against all liable
persons, jointly or severally, or against one or more of them, less than
all, without impairing rights against other liable persons. Nor shall a
party be required to join the principal obligator or any other liable
persons, such as sureties or guarantors, in any proceeding against a
particular person. A party may release or settle with one or more liable
persons without releasing or impairing rights to proceed against any
persons not so released.
Arbitrator Powers and Qualifications; Awards. Arbitrators are empowered to
resolve Disputes by summary rulings. Arbitrators shall resolve all Disputes
in accordance with the applicable substantive law. Any arbitrator selected
shall be required to be a practicing attorney licensed to practice law in
the State of Texas and shall be required to be experienced and
knowledgeable in the substantive laws applicable to the subject matter of
the Dispute. All statutes of limitation applicable to any Dispute shall
apply to any proceeding in accordance with this Arbitration Program. With
respect to a Dispute in which the claims or amounts in controversy do not
exceed $1,000,000, a single arbitrator shall be chosen and shall resolve
the Dispute by rendering an award not to exceed $1,000,000, including all
damages of any kind whatsoever, including costs, fees and expenses. A
Dispute involving claims or amounts in controversy exceeding $1,000,000,
shall be decided by a majority vote of a panel of three arbitrators (an
"Arbitration Panel"), the determination of any two of the three arbitrators
constituting the determination of the Arbitration Panel, provided, however,
that all three Arbitrators on the Arbitration Panel must actively
participate in all hearings and deliberations. Arbitrators, including any
Arbitration Panel, may grant any remedy or relief deemed just and equitable
and within the scope of this Arbitration Program and may also grant such
ancillary relief as is necessary to make effective any award. Arbitrators
shall be empowered to impose sanctions and to take such other actions as
they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the Texas Rules of Civil Procedure and
applicable law. Arbitrators and Arbitration Panels shall be required to
make specific, written findings of fact and conclusions of law. The
determination of an Arbitrator or Arbitration Panel shall be binding on all
parties and shall not be subject to further review or appeal except as
otherwise allowed by applicable law.
Miscellaneous. To the maximum extent practicable, the AAA, the Arbitrator
(or the Arbitration Panel, as appropriate) and the parties shall take any
action necessary to require that an arbitration proceeding hereunder shall
be concluded within 180 days of the filing of the Dispute with the AAA.
Arbitration proceedings hereunder shall be conducted in the State of Texas
at a location selected by the Administrator. With respect to any Dispute,
each party agrees that all discovery activities shall be expressly limited
to matters directly relevant to the Dispute and any Arbitrator, Arbitration
Panel and the AAA shall be required to fully enforce this requirement. This
Arbitration Program constitutes the entire agreement of the parties with
respect to its subject matter and supersedes all prior discussions,
arrangements, negotiations, and other communications on dispute resolution.
The provisions of this Arbitration Program shall survive any termination,
amendment, or expiration of the Documents or the Relationship, unless the
parties otherwise expressly agree in writing. To the extent permitted by
applicable law, Arbitrators, including any
<PAGE>
01-30-1996 PROMISSORY NOTE Page 3
Loan No 42 (Continued)
===============================================================================
Arbitration Panel, shall have the power to award recovery of all costs and
fees (including attorneys' fees, administrative fees, and arbitrators'
fees) to the prevailing party. This Arbitration Program may be amended,
changed, or modified only by the express provisions of a writing which
specifically refers to this Arbitration Program and which is signed by all
the parties hereto. If any term, covenant, condition or provision of this
Arbitration Program is found to be unlawful, invalid or unenforceable, such
defect shall not affect the legality, validity or enforceability of the
remaining parts of this Arbitration Program, and all such remaining parts
hereof shall be valid and enforceable and have full force and effect as if
the illegal, invalid or unenforceable part had not been included. Each
party agrees to keep all Disputes subject to arbitration proceedings
strictly confidential, except for disclosures of information required in
the ordinary course of business of the parties or by applicable law or
regulation.
ADVANCES. This Note evidences a line of credit and all advances made hereunder.
Lender is not obligated to advance funds requested under this line of credit if
the resulting principal balance of the indebtedness would exceed the above
stated "Principal Amount" of this Note. However, in the event Lender advances
funds in excess of such amount, such sums shall be deemed validly advanced under
the terms of this Note as if the principal amount of this Note had been amended
and increased to accommodate such advances, and such sums shall be considered to
be a part of the indebtedness evidenced by this Note for all purposes and shall
be secured by all applicable security instruments and guaranties as if such
instruments had been amended to accommodate and include such advances. Lender
reserves the right to require immediate repayment of amounts advanced in excess
of the above stated "Principal Amount" of this Note plus unpaid accrued interest
on such amounts, and such actions shall not constitute a waiver of any rights of
Lender under this Note or any related loan documents or security agreements.
DEFAULT RATE OF INTEREST. Lender may, at its option and without notice, charge
interest at a rate (the "Default Rate") equivalent to the Post Maturity Rate
(not to exceed the maximum lawful rate) on any past due amounts of the
Indebtedness for the number of days said amounts are past due. Amounts shall be
considered past due when not paid on the date due, whether said amounts become
due pursuant to the payment schedule or as a result of acceleration, or
otherwise. Further, if Lender gives written notice to Borrower of any one or
more defaults under the Note or any related Loan Documents and such defaults are
not cured completely and strictly in accordance with the terms of the notice of
default within the period of time allowed by Lender for cure of same, Lender may
charge interest at the Default Rate on the entire amount of the Indebtedness
until two business days after such defaults are cured and that fact is
communicated to and confirmed by Lender. Lender's use of the remedies available
to Lender upon the occurrence of an event of default shall not constitute an
election of remedies or otherwise limit Lender's rights concerning other
remedies available to Lender upon the occurrence of an event of default.
RENEWAL AND EXTENSION. This Note is given in renewal and extension and not in
novation of the following described indebtedness. That certain Promissory Note
dated January 30, 1995 in the amount of $1,000,000.00 executed by Borrower
payable to Lender. It is further agreed that all liens and security interests
securing said indebtedness are hereby renewed and extended to secure the Note
and all renewals, extensions and modifications thereof. This note is also given
in evidence of additional advances which may be made hereunder.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. In particular, this section means (among other
things) that Borrower does not agree or intend to pay, and Lender does not agree
or intend to contract for, charge, collect, take, reserve or receive
(collectively referred to herein as "charge or collect"), any amount in the
nature of interest or in the nature of a fee for this loan, which would in any
way or event (including demand, prepayment, or acceleration) cause Lender to
charge or collect more for this loan than the maximum Lender would be permitted
to charge or collect by federal law or the law of the State of Texas (as
applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forgo enforcing any of its rights or remedies under
this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate the maturity of this Note, and notice of acceleration of the
maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
DRCA MEDICAL CORPORATION
By: /s/ JOSE E. KAUACHI
-------------------------
Jose E. Kauachi, President and Chairman of the Board
===============================================================================
<PAGE>
EXHIBIT 10.49
[LOGO OF FIRST INTERSTATE BANK APPEARS HERE]
PROMISSORY NOTE
Principal Loan Date Maturity Loan No. Call
$500,000.00 02-15-1996 02-15-1997
Collateral Account Officer Initials
002 2504194603 3047
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: DRCA MEDICAL CORPORATION (TIN: 76-0203483)
Three Riverway, Suite 1430
Houston, TX 77056
Lender: First Interstate Bank of Texas, N.A.
Houston Central Private Client Services
1000 Louisiana
Houston, TX 77002
===============================================================================
Principal Amount: $500,000.00 Initial Rate: 9.250%
Date of Note: February 15, 1996
PROMISE TO PAY. DRCA MEDICAL CORPORATION ("Borrower") promises to pay to First
Interstate Bank of Texas, N.A. ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Five Hundred Thousand & 00/100
Dollars ($500,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance or
maturity, whichever occurs first.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on February 15, 1997. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning March 15, 1996, and all subsequent interest payments are due on the
same day of each month after that. Interest on this Note is computed on a
365/360 simple interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding, unless such calculation would result in a usurious rate, in which
case interest shall be calculated on a per diem basis of a year of 365 or 366
days, as the case may be. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied in any
order at Lender's sole discretion. Notwithstanding any other provision of this
Note, Lender will not charge interest on any undisbursed loan proceeds. No
scheduled installment, whether of principal or interest or both, will be due
unless sufficient loan funds have been disbursed by the scheduled installment
date to justify the payment.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the First Interstate Bank of
Texas, N.A. Prime Rate, which is an index rate Lender announces from time to
time for pricing certain loans (the "Index"). The Index is not necessarily the
lowest rate charged by Lender on its loans and is set by Lender in its sole
discretion. If the Index becomes unavailable during the term of this loan,
Lender may designate a substitute index after notifying Borrower. Lender will
tell Borrower the current index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each day. The Index
currently is 8.250% per annum. The interest rate to be applied prior to maturity
to the unpaid principal balance of this Note will be at a rate of 1.000
percentage points over the Index, resulting in an initial rate of 9.250% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law. For purposes of this Note,
the "maximum rate allowed by applicable law" means the greater of (a) the
maximum rate of interest permitted under federal or other law applicable to the
indebtedness evidenced by this Note, or (b) the "Indicated Rate Calling" as
referred to in Article 5069-1.04(a)(1) V.T.C.S.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest.
POST MATURITY RATE. The Post Maturity Rate on this Note is the lesser of the
maximum rate allowed by applicable law or 9.000 percentage points over the
index. Borrower will pay interest on all sums due after final maturity, whether
by acceleration or otherwise, at that rate, with the exception of any amounts
added to the principal balance of this Note based on Lender's payment of
insurance premiums, which will continue to accrue interest at the pre-maturity
rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due; (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender; (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished; (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any of the events described in this default
section occurs with respect to any guarantor of this Note. (g) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all accrued unpaid
interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Note or any other agreement with Lender pertaining to
this loan, immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Note if Borrower does
not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower
also will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public office any
instrument securing this loan; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate of title to any motor vehicle
offered as security for this loan, or premiums or identifiable charges
received in connection with the sale of authorized insurance. This Note has been
delivered to Lender and accepted by Lender in the State of Texas. If there is a
lawsuit, and if the transaction evidenced by this Note occurred in Harris
County, Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of Harris County, the State of Texas. Subject to the provisions on
arbitration, this Note shall be governed by and construed in accordance with the
laws of the State of Texas and applicable Federal laws.
DISHONORED CHECK CHARGE. Borrower will pay a processing fee of $25.00 if any
check given by Borrower to Lender as a payment on this loan is dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's rights, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however, all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all sums owing on this Note against any and all such
accounts.
<PAGE>
02-15-1996 PROMISSORY NOTE Page 2
Loan No (Continued)
===============================================================================
LINE OF CREDIT. This Note evidences a straight line of credit. Once the total
amount of principal has been advanced, Borrower is not entitled to further loan
advances. Advances under this Note may be requested orally by Borrower or by an
authorized person. All oral requests shall be confirmed in writing on the day of
the request. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: Jose Kauachi and Jeff Casey.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (a) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
ARBITRATION.
Binding Arbitration. Upon the demand of any party, whether made before or
after the institution of any judicial proceeding, any Dispute (as defined
below) shall be resolved by binding arbitration in accordance with the
terms of this Arbitration Program. A "Dispute" shall include any action,
dispute, claim, or controversy of any kind, whether in contract or in tort,
statutory or common law, legal or equitable, or otherwise, now existing or
hereafter arising between the parties in any way arising out of, pertaining
to or in connection with (a) any agreement, document or instrument to which
this Arbitration Program is attached or in which it is referred to or any
related agreements, documents, or instruments (the "Documents"), (b) all
past, present, or future loans, notes, instruments, drafts, credits,
accounts, deposit accounts, safe deposit boxes, safekeeping agreements,
guarantees, letters of credit, goods or services, or other transactions,
contracts or agreements of any kind whatsoever, (c) any past, present or
future incidents, omissions, acts, errors, practices, or occurrences
causing injury to either party whereby the other party or its agents,
employees or representatives may be liable, in whole or in part, or (d) any
other aspect of the past, present, or future relationships of the parties
including any agency, independent contractor or employment relationship but
excluding claims for workers' compensation and unemployment benefits
("Relationship"). Any party to this Arbitration Program may by summary
proceedings bring any action in court to compel arbitration of any Dispute.
Any party who fails or refuses to submit to binding arbitration following a
lawful demand by the opposing party shall bear all costs and expenses
incurred by the opposing party in compelling arbitration of any Dispute.
The parties agree that by the engaging in activities with or involving each
other as described above, they are participating in transactions involving
interstate commerce. THE PARTIES UNDERSTAND THAT PURSUANT TO THIS
ARBITRATION PROGRAM, DISPUTES SUBMITTED TO ARBITRATION WILL NOT BE DECIDED
THROUGH LITIGATION IN FEDERAL OR STATE COURTS BEFORE A JUDGE OR JURY.
Governing Rules. All Disputes between the parties submitted to arbitration
shall be resolved by binding arbitration administered by the American
Arbitration Association (the "AAA") in accordance with the Commercial
Arbitration Rules of the AAA, the Federal Arbitration Act (Title 9 of the
United States Code) and to the extent the foregoing are inapplicable,
unenforceable or invalid, the laws of the State of Texas. In the event of
any inconsistency between this Arbitration Program and such rules and
statutes, this Arbitration Program shall control. Judgment upon any award
rendered hereunder may be entered in any court having jurisdiction;
provided, however, that nothing contained herein shall be deemed to be a
waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. Section 91 or Texas Banking Code art. 342-609.
No Waiver; Preservation of Remedies; Multiple Parties. No provision of, nor
the exercise of any rights under, this Arbitration Program shall limit the
right of any party, during any Dispute, to seek, use, and employ ancillary
or preliminary remedies, judicial or otherwise, for the purposes of
realizing upon, preserving, protecting, foreclosing or proceeding under
forcible entry and detainer for possession of any real or personal
property, and any such action shall not be deemed an election of remedies.
Such rights shall include, without limitation, rights and remedies relating
to (a) foreclosing against any real or personal property collateral or
other security, (b) exercising self-help remedies including setoff rights
or (c) obtaining provisional or ancillary remedies such as injunctive
relief, sequestration, attachment, garnishment, or the appointment of a
receiver from a court having jurisdiction. Such rights can be exercised at
any time except to the extent such action is contrary to a final award or
decision in any arbitration proceeding. The institution and maintenance of
an action for judicial relief or pursuit of provisional or ancillary
remedies or exercise of self-help remedies shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the Dispute to
arbitration, nor render inapplicable the compulsory arbitration provisions
hereof. In Disputes involving indebtedness or other monetary obligations,
each party agrees that the other party may proceed against all liable
persons, jointly or severally, or against one or more of them, less than
all, without impairing rights against other liable persons. Nor shall a
party be required to join the principal obligator or any other liable
persons, such as sureties or guarantors, in any proceeding against a
particular person. A party may release or settle with one or more liable
persons without releasing or impairing rights to proceed against any
persons not so released.
Arbitrator Powers and Qualifications; Awards. Arbitrators are empowered to
resolve Disputes by summary rulings. Arbitrators shall resolve all Disputes
in accordance with the applicable substantive law. Any arbitrator selected
shall be required to be a practicing attorney licensed to practice law in
the State of Texas and shall be required to be experienced and
knowledgeable in the substantive laws applicable to the subject matter of
the Dispute. All statutes of limitation applicable to any Dispute shall
apply to any proceeding in accordance with this Arbitration Program. With
respect to a Dispute in which the claims or amounts in controversy do not
exceed $1,000,000, a single arbitrator shall be chosen and shall resolve
the Dispute by rendering an award not to exceed $1,000,000, including all
damages of any kind whatsoever, including costs, fees and expenses. A
Dispute involving claims or amounts in controversy exceeding $1,000,000,
shall be decided by a majority vote of a panel of three arbitrators (an
"Arbitration Panel"), the determination of any two of the three arbitrators
constituting the determination of the Arbitration Panel, provided, however,
that all three Arbitrators on the Arbitration Panel must actively
participate in all hearings and deliberations. Arbitrators, including any
Arbitration Panel, may grant any remedy or relief deemed just and equitable
and within the scope of this Arbitration Program and may also grant such
ancillary relief as is necessary to make effective any award. Arbitrators
shall be empowered to impose sanctions and to take such other actions as
they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure. the Texas Rules of Civil Procedure and
applicable law. Arbitrators and Arbitration Panels shall be required to
make specific, written findings of fact and conclusions of law. The
determination of an Arbitrator or Arbitration Panel shall be binding on all
parties and shall not be subject to further review or appeal except as
otherwise allowed by applicable law.
Miscellaneous. To the maximum extent practicable, the AAA, the Arbitrator
(or the Arbitration Panel, as appropriate) and the parties shall take any
action necessary to require that an arbitration proceeding hereunder shall
be concluded within 180 days of the filing of the Dispute with the AAA.
Arbitration proceedings hereunder shall be conducted in the State of Texas
at a location selected by the Administrator. With respect to any Dispute,
each party agrees that all discovery activities shall be expressly limited
to matters directly relevant to the Dispute and any Arbitrator, Arbitration
Panel and the AAA shall be required to fully enforce this requirement. This
Arbitration Program constitutes the entire agreement of the parties with
respect to its subject matter and supersedes all prior discussions,
arrangements, negotiations, and other communications on dispute resolution.
The provisions of this Arbitration Program shall survive any termination,
amendment, or expiration of the Documents or the Relationship, unless the
parties otherwise expressly agree in writing. To the extent permitted by
applicable law, Arbitrators, including any Arbitration Panel, shall have
the power to award recovery of all costs and fees (including attorneys'
fees, administrative fees, and arbitrators' fees) to the prevailing party.
This Arbitration Program may be amended, changed, or modified only by the
express provisions of a writing which specifically refers to this
Arbitration Program and which is signed by all the parties hereto. If any
term, covenant, condition or provision of this Arbitration Program is found
to be unlawful, invalid or unenforceable, such defect shall not affect the
legality, validity or enforceability of the
<PAGE>
02-15-1996 PROMISSORY NOTE Page 3
Loan No (Continued)
===============================================================================
remaining parts of this Arbitration Program, and all such remaining parts
hereof shall be valid and enforceable and have full force and effect as if
the illegal, invalid or unenforceable part had not been included. Each
party agrees to keep all Disputes subject to arbitration proceedings
strictly confidential, except for disclosures of information required in
the ordinary course of business of the parties or by applicable law or
regulation.
ADVANCES. This Note evidences a line of credit and all advances made hereunder.
Lender is not obligated to advance funds requested under this line of credit if
the resulting principal balance of the indebtedness would exceed the above
stated "Principal Amount" of this Note. However, in the event Lender advances
funds in excess of such amount, such sums shall be deemed validly advanced under
the terms of this Note as if the principal amount of this Note had been amended
and increased to accommodate such advances, and such sums shall be considered to
be a part of the indebtedness evidenced by this Note for all purposes and shall
be secured by all applicable security instruments and guaranties as if such
instruments had been amended to accommodate and include such advances. Lender
reserves the right to require immediate repayment of amounts advanced in excess
of the above stated "Principal Amount" of this Note plus unpaid accrued interest
on such amounts, and such actions shall not constitute a waiver of any rights of
Lender under this Note or any related loan documents or security agreements.
DEFAULT RATE OF INTEREST. Lender may, at its option and without notice, charge
interest at a rate (the "Default Rate") equivalent to the Post Maturity Rate
(not to exceed the maximum lawful rate) on any past due amounts of the
Indebtedness for the number of days said amounts are past due. Amounts shall be
considered past due when not paid on the date due, whether said amounts become
due pursuant to the payment schedule or as a result of acceleration, or
otherwise. Further, if Lender gives written notice to Borrower of any one or
more defaults under the Note or any related Loan Documents and such defaults are
not cured completely and strictly in accordance with the terms of the notice of
default within the period of time allowed by Lender for cure of same, Lender may
charge interest at the Default Rate on the entire amount of the Indebtedness
until two business days after such defaults are cured and that fact is
communicated to and confirmed by Lender. Lender's use of the remedies available
to Lender upon the occurrence of an event of default shall not constitute an
election of remedies or otherwise limit Lender's rights concerning other
remedies available to Lender upon the occurrence of an event of default.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. In particular, this section means (among other
things) that Borrower does not agree or intend to pay, and Lender does not agree
or intend to contract for, charge, collect, take, reserve or receive
(collectively referred to herein as "charge or collect"), any amount in the
nature of interest or in the nature of a fee for this loan, which would in any
way or event (including demand, prepayment, or acceleration) cause Lender to
charge or collect more for this loan than the maximum Lender would be permitted
to charge or collect by federal law or the law of the State of Texas (as
applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forgo enforcing any of its rights or remedies under
this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate the maturity of this Note, and notice of acceleration of the
maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
DRCA MEDICAL CORPORATION
By: /s/ JOSE E. KAUACHI
-------------------------
Jose E. Kauachi, President and Chairman of the Board
===============================================================================
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 88,725
<SECURITIES> 0
<RECEIVABLES> 6,108,134
<ALLOWANCES> (309,386)
<INVENTORY> 0
<CURRENT-ASSETS> 6,779,339
<PP&E> 5,112,484
<DEPRECIATION> 3,464,696
<TOTAL-ASSETS> 9,350,509
<CURRENT-LIABILITIES> 3,762,823
<BONDS> 1,898,877
0
0
<COMMON> 5,302
<OTHER-SE> 4,951,992
<TOTAL-LIABILITY-AND-EQUITY> 9,350,509
<SALES> 4,061,697
<TOTAL-REVENUES> 4,061,697
<CGS> 3,772,657
<TOTAL-COSTS> 3,772,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 347,311
<INTEREST-EXPENSE> 66,012
<INCOME-PRETAX> 132,568
<INCOME-TAX> 48,096
<INCOME-CONTINUING> 84,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,472
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
