U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1996
OR
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the Transition Period From __________ to ________
Commission File Number 1-10185
DOCUCON, INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 74-2418590
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7461 Callaghan Road
San Antonio, Texas 78229
(Address of principal executive
offices)
(210) 525-9221
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of October 31, 1996. 12,030,727
<PAGE>
DOCUCON, INCORPORATED
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1: Balance Sheets - September 30, 1996, and December 31, 1995 3
Statements of Operations - For the Three and Nine Months
Ended
September 30, 1996 and 1995 5
Statements of Cash Flows - For the Nine
Months Ended September 30, 1996 and 1995 6
Notes to Financial Statements 7
Management's Discussion and Analysis of Financial
Item 2: Condition and Results of Operations 10
PART II. OTHER INFORMATION 13
SIGNATURES 14
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<PAGE>
DOCUCON, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 DECEMBER 31,
ASSETS (UNAUDITED) 1995
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments ............................. $ 8,112 $ 139,167
Accounts receivable-trade, net of allowance for doubtful accounts
of $4,444 and $7,683 in 1996 and 1995, respectively-
U.S. Government ............................................. 486,293 594,090
Commercial .................................................. 1,417,821 1,278,796
Unbilled revenues ............................................... 1,610,160 579,821
Other receivables ............................................... 4,044 1,648
Prepaid expenses and other ...................................... 170,490 69,634
---------- ----------
Total current assets .................. 3,696,920 2,663,156
---------- ----------
PROPERTY AND EQUIPMENT:
Conversion systems .............................................. 5,126,881 4,540,302
Building and improvements ....................................... 1,584,921 1,515,608
Land ............................................................ 230,000 230,000
Furniture and fixtures .......................................... 267,466 278,805
---------- ----------
Total property and equipment .......... 7,209,268 6,564,715
Less- Accumulated depreciation .................................. 4,642,977 4,182,671
---------- ----------
Net property and equipment ............ 2,566,291 2,382,044
---------- ----------
SOFTWARE DEVELOPMENT COSTS AND OTHER, net .......................... 462,281 358,879
---------- ----------
GOODWILL, net ...................................................... 324,867 338,824
---------- ----------
Total assets .......................... $7,050,359 $5,742,903
========== ==========
</TABLE>
See Notes to Financial Statements.
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<PAGE>
DOCUCON, INCORPORATED
BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ......................................................... $ 896,074 $ 697,980
Accrued liabilities ...................................................... 1,184,171 774,955
Line of credit ........................................................... 170,000 400,000
Note payable ............................................................. 7,269 --
Current maturities of capital lease obligations .......................... -- 3,107
Deferred revenues ........................................................ 496,873 339,558
Current maturities of long-term debt ..................................... 27,729 1,500,000
----------- -----------
Total current liabilities ...................... 2,782,116 3,715,600
----------- -----------
LONG-TERM DEBT .............................................................. 1,472,271 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 10,000,000 shares authorizedSeries A, 60
shares authorized, 19 and 21 shares outstanding as of
September 30, 1996, and December 31, 1995, respectively .............. 19 21
Common Stock, $.01 par value, 25,000,000 shares authorized; 12,030,511 and
11,771,228 shares outstanding as of September 30, 1996, and December 31,
1995, respectively ..................................................... 120,305 117,712
Additional paid-in capital ............................................... 9,547,753 9,506,553
Accumulated deficit ...................................................... (6,872,105) (7,596,983)
----------- -----------
Total stockholders' equity ..................... 2,795,972 2,027,303
----------- -----------
Total liabilities and stockholders' equity ..... $ 7,050,359 $ 5,742,903
=========== ===========
</TABLE>
See Notes to Financial Statements.
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<PAGE>
DOCUCON, INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES ........................................ $ 4,092,477 $ 2,304,773 $ 9,778,098 $ 8,191,280
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Production ............................................. 2,168,372 1,400,589 5,290,035 5,305,246
Research and development ............................... 258,768 41,809 579,650 384,918
General and administrative ............................. 364,857 290,986 922,674 757,606
Marketing .............................................. 586,008 474,613 1,593,074 1,764,015
Depreciation and amortization .......................... 194,084 240,728 568,594 773,680
------------ ------------ ------------ ------------
3,572,089 2,448,725 8,954,027 8,985,465
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) ................................... 520,388 (143,952) 824,071 (794,185)
OTHER INCOME (EXPENSE):
Interest expense, net .................................. (27,057) (40,728) (104,373) (110,562)
Other, net ............................................. 1,882 2,407 8,180 15,532
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ......................... 495,213 (182,273) 727,878 (889,215)
INCOME TAX EXPENSE ........................................ 3,000 -- 3,000 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) ......................................... 492,213 (182,273) 724,878 (889,215)
PREFERRED STOCK DIVIDEND REQUIREMENTS ..................... 13,597 14,675 42,473 45,896
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS ....... $ 478,616 $ (196,948) $ 682,405 $ (935,111)
============ ============ ============ ============
PRIMARY INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE
EQUIVALENTS ............................................ $ .04 $ (.02) $ .05 $ (.08)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE EQUIVALENTS 12,556,467 11,722,583 12,481,947 11,662,841
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
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<PAGE>
DOCUCON, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
------------------------
1996 1995
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ 724,878 $(889,215)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities-
Depreciation and amortization .......................................... 568,594 773,680
Other noncash expenses ................................................. 7,787 --
Changes in current assets and current liabilities-
Increase in receivables .............................................. (1,063,963) (758,350)
(Increase) decrease in prepaid expenses .............................. (100,856) 38,128
Increase in other assets ............................................. (27,801) --
Increase in accounts payable and accrued liabilities ................. 607,473 489,709
Increase in deferred revenues ........................................ 157,315 250,345
----------- ---------
Net cash provided by (used in) operating activities ........ 873,427 (95,703)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................................... (650,906) (462,567)
Capitalized software development costs ..................................... (163,741) (100,557)
----------- ---------
Net cash used in investing activities ........................ (814,647) (563,124)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (payments) under line of credit ................................... (230,000) 400,000
Principal payments under capital lease obligations ......................... (3,107) (16,237)
Net proceeds from exercise of stock options ................................ 36,003 20,099
Proceeds from issuing notes payable ........................................ 87,054 --
Principal payments on notes payable ........................................ (79,785) (10,560)
----------- ---------
Net cash provided by (used in) financing activities .......... (189,835) 393,302
----------- ---------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS ........................... (131,055) (265,525)
CASH AND TEMPORARY CASH INVESTMENTS, beginning of period ...................... 139,167 376,798
----------- ---------
CASH AND TEMPORARY CASH INVESTMENTS, end of period ............................ $ 8,112 $ 111,273
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest ................................................................. $ 74,389 $ 80,156
Income taxes ............................................................. -- --
----------- ---------
$ 74,389 $ 80,156
=========== =========
</TABLE>
DISCLOSURE OF ACCOUNTING POLICY:
The Company considers funds invested in highly liquid investments having a
maturity of 90 days or less to be temporary cash investments.
See Notes to Financial Statements.
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<PAGE>
DOCUCON, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1
The financial statements included herein have been prepared by Docucon,
Incorporated (the Company), without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. However, all adjustments have been
made which are, in the opinion of the Company, necessary for a fair presentation
of the results of operations for the periods covered. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is recommended that these financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995.
Since its inception, the Company has incurred losses of approximately $6.9
million which have been funded primarily through the Company's public offering,
issuances of preferred stock, the exercise of warrants and debt financing. The
Company has taken steps to improve its operating results. The steps taken
include exiting the litigation support services market and focusing on the
Company's core higher margined businesses. The Company has also refinanced its
$1,500,000 note payable. (See Note 5.) The Company's management believes that it
is likely that the Company's operating results for the remainder of 1996 will
continue to improve over 1995 and will generate sufficient working capital to
sustain its operations throughout the year. However, if operating results do not
improve, the Company will be unable to ensure its continuing operations
independent of additional capital infusions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
NOTE 2
Organization and description of the Company-
Docucon, Incorporated, was incorporated in June 1986 to engage in the business
of providing technical services to its customers for the conversion of paper and
microform documents to computer-accessible media. Paper or microform documents
are scanned by sophisticated computer equipment and stored and indexed on
optical disks or magnetic media. The Company also sells software products to the
legal market. Substantially all of the Company's customers are located in the
U.S.
NOTE 3
Summary of significant accounting policies-
Property and equipment-
Property and equipment are recorded at original cost. Maintenance and repairs
are charged to expense as incurred and betterments which increase the value or
extend the useful life of the property are capitalized. Gains or losses on sales
or other dispositions of property and equipment are credited or charged to
income.
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<PAGE>
DOCUCON, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets. The Company's fixed assets are currently
depreciated over periods ranging from two to five years beginning in the month
the property is placed in service. The Company's building is being depreciated
over 40 years.
Revenue recognition-
Revenues from conversion service contracts are recognized at the time services
are provided and are based upon the number of documents converted and the
conversion rates established in the contracts.
Revenues from software licensing fees are recognized upon delivery of the
software. Revenues from maintenance and telephone support contracts are
recognized ratably over the term of the contract, typically one year.
Software development costs and other-
Included in software development costs and other at September 30, 1996, is
approximately $123,000, net, related to the Company's advanced work group
product (Litigator's Notebook(TM)) which was acquired in 1994. Also included is
approximately $292,000, net, of costs which were incurred during 1995 and 1996
to develop software which will support and complement Litigator's Notebook.
These costs are being amortized over periods ranging from three to five years.
Goodwill-
In connection with an acquisition in 1994, the Company recognized goodwill of
approximately $372,000. This goodwill is being amortized on a straight-line
basis over 20 years.
Use of estimates-
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 4
Preferred stock-
Each share of the Company's Preferred Stock ($25,000 stated value) is
convertible into 33,333 shares of Common Stock and earns cash dividends of 11
percent per annum. As of September 30, 1996, cumulative undeclared dividends on
the Preferred Stock approximated $332,000. As these dividends are undeclared,
they have not been recorded as a reduction of the Company's equity.
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<PAGE>
NOTE 5
Long-term debt-
In December 1992, financing for the Company's office building was obtained from
a venture capital company. In connection with such financing, the Company issued
a four-year, 8 percent promissory note in the principal amount of $1,500,000 and
issued 900,000 warrants to purchase an equivalent number of shares of Common
Stock at an exercise price of $2.00 per share. As the exercise price exceeded
the current market price and the financing terms of the debt were at market, no
value was recorded for the warrants issued. The warrants expire in December
1999.
In October 1996, the Company refinanced the $1.5 million note with a commercial
bank. The new note is being amortized over a 20-year term with a five-year
maturity. The note bears interest at a fixed rate of 9.5 percent per annum.
Principal and interest are payable monthly. The note payable is secured by the
Company's building, other fixed assets, accounts receivable and inventory. This
note payable has been classified on the accompanying balance sheet at September
30, 1996, according to its maturity terms. Debt issuance costs incurred in
October 1996 related to this refinancing will be capitalized and amortized over
a five-year period. The note agreement contains various affirmative and negative
covenants and requires the Company to maintain (all as defined in the note
agreement); (i) a current ratio of not less than 1:1, (ii) a debt-to-net worth
ratio of not more than 2:1, (iii) a debt coverage ratio of not less than 1.25:1
and (iv) a minimum tangible net worth of $1,900,000.
Revolving term note-
In connection with the refinancing of the note payable, the Company also secured
a $750,000 revolving term note (the Revolver) maturing on October 31, 1997. The
Revolver bears interest at the bank's Base Rate (as defined) plus .75 percent.
Interest is payable monthly and the Revolver is secured with the same collateral
as the note payable.
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<PAGE>
DOCUCON, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's operations during the quarter and nine months ended September 30,
1996, resulted in net income applicable to common stockholders of $478,616 and
$682,405, respectively, compared to a net loss applicable to common stockholders
of $196,948 and $935,111 for the respective 1995 periods.
Revenues increased 78 percent and 19 percent, respectively, for the three- and
nine-month periods ended September 30, 1996, as compared to the respective 1995
periods. Conversion service revenues earned under the Department of Defense
(DOD) and commercial contracts increased by 69 percent and 42 percent for the
1996 threeand nine-month periods as compared to the respective 1995 periods
despite the absence of litigation support service revenues in 1996. Revenue
contributions from litigation support services totaled approximately $350,000
and $2,050,000 in the three- and nine-month 1995 periods. Revenues earned from
sales of the Company's software products, JFS Litigator's Notebook(TM) and the
related product lines increased eightfold and more than doubled during the
quarter and nine months ended September 30, 1996, respectively, as compared to
the comparable 1995 periods. The increase in the 1996 periods included revenues
realized from two large orders from third-party resellers.
Production costs increased 55 percent for the quarter ended September 30, 1996,
as compared to the comparable 1995 quarter and remained relatively constant in
the 1995 and 1996 nine-month periods. Costs related to production of conversion
services, generally labor and supplies, increased in accordance with the
increase in conversion service revenues. Costs related to software product
revenues are by nature a small percentage of revenues, thus, total production
costs as a percent of revenues did not increase in proportion to the increase in
revenues. Additionally, termination of the unprofitable litigation support
services in late 1995 has resulted in lower production costs as a percentage of
revenue.
Research and development costs increased 519 percent and 51 percent for the
quarter and nine months ended September 30, 1996, compared to the same periods
in 1995. The Company has devoted increased resources and additional personnel to
development of new conversion applications and capabilities and to the expansion
of the capabilities of its JFS Litigator's Notebook. The large increase for the
comparative quarters was due primarily to the capitalization of costs related to
software development projects recorded in the 1995 quarter. As software
development projects are completed and available for general release to the
public, the capitalization of associated research and development costs cease
and amounts previously capitalized are amortized over periods ranging from three
to five years.
During the 1996 third quarter, the Company established a corporate marketing
department to oversee and coordinate the total marketing strategy of the JFS
division. Marketing expenses increased 23 percent for the quarter ended
September 30, 1996, as compared to the same period in 1995 due to increased
marketing efforts for the JFS Litigator's Notebook product line and sales
commissions paid on the increased revenues. Marketing expenses decreased 10
percent during the first nine months of 1996 as compared to the same period in
1995. This decrease reflects the termination of marketing efforts directed at
litigation support services which were discontinued in the second quarter of
1995, leading to the decrease in expense.
Depreciation and amortization expenses decreased 19 percent and 27 percent in
the third quarter and first nine months of 1996 as compared to the 1995 periods.
The decrease in depreciation and amortization charges is due to previous large
additions of equipment that are now fully depreciated.
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<PAGE>
DOCUCON, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's operations have been supplemented through
bank borrowings, capital contributions, borrowings from affiliated and
unaffiliated lenders, capital lease agreements, an initial public offering of
the Company's Common Stock in 1989, the conversion of warrants into Common Stock
and preferred stock placements.
In 1991, the Company was awarded a contract from the Defense Printing Services
Office (DPS) to provide conversion services for the DOD totaling $12.3 million.
The award was increased in 1994 and 1995 by a total of $4.5 million and extended
in time until April 1996. Additionally, in 1995, DPS awarded contracts totaling
approximately $2.0 million to the Company. In February of 1996, DPS awarded a
new contract to the Company. This contract allows the Company to provide up to
$14.8 million of document services to DOD agencies through August 1997.
The Company has also been the recipient of various other smaller contract awards
from the DOD and both government and commercial entities. These contract awards
include a contract in excess of $600,000 for conversion services from Lucent
Technologies, formerly AT&T's systems and technology business. The Company has
entered into various reseller agreements for its JFS Litigator's Notebook
software products which resulted in two large contract awards in 1996. A
contract award from CACI, an international information technology and services
corporation, provided an advance order for 30 suites of the software for
installation at United States Fidelity & Guarantee Company and many of its
outside counsel. This contract was recently extended to allow CACI to provide
JFS Litigator's Notebook systems to the Federal Government. A strategic alliance
with Forensic Technologies International Corporation for the sale and marketing
of the product resulted in an advance order of 26 suites of the software
product. These alliances also provide the potential for additional future
orders.
With the addition of J. Feuerstein Systems (JFS) in 1994, the Company made
significant investments in the marketing and development areas of its litigation
support products and services. These investments resulted in substantially
increased revenues in both the services and product areas. However, lower than
expected margins in the litigation support service area resulted in the
Company's decision to substantially reduce the scope of those operations in June
of 1995 and ultimately to terminate those operations at year-end.
The Company refinanced its $1,500,000 building note payable, scheduled to mature
in December 1996, with a $1,550,000 mortgage note entered into with a commercial
bank on October 2, 1996. The newly issued mortgage note bears interest at a
fixed rate of 9.5 percent, is payable monthly on a 20-year amortization and
matures in October 2001. The bank also extended a $750,000 line of credit to the
Company on the same date, which replaces the Company's previous $400,000 line of
credit. The Company occupies most of the building and leases a small portion of
the building to third-party tenants. The Company believes that the building will
fulfill its needs for the foreseeable future.
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<PAGE>
DOCUCON, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company expects to fund its operations and marketing activities through
utilization of cash on hand and cash generated from operations. At September 30,
1996, $170,000 was outstanding under the Company's bank line of credit. The line
of credit issued by the bank has a current maturity date of October 31, 1997.
These funds are expected to be adequate for the Company's needs for at least the
next 12 months. While the Company may consider and evaluate, from time to time,
acquisitions and opportunities for future growth, the Company has not entered
into any agreements with respect to future acquisitions. Should the Company
enter into any such agreements, the Company would, in all likelihood, be
required to raise outside capital to consummate such transactions.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Matters - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 - Form of Promissory Note, Revolving, dated as of
September 30, 1996, between Docucon, Incorporated, and Bank One,
Texas, N.A.
Exhibit 10.2 - Form of Promissory Note, dated as of September 30,
1996, between Docucon, Incorporated, and Bank One, Texas, N.A.
Exhibit 10.3 - Deed of Trust, Security Agreement and Financing
Statement, dated as of September 30, 1996, executed in connection
with the issuance of Promissory Notes in Exhibits 10.1 and 10.2.
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOCUCON, INCORPORATED
(Registrant)
By /s/ EDWARD P. GISTARO
Edward P. Gistaro,
Chief Executive Officer and
Principal Financial Officer
By /s/ LORI TURNER
Lori Turner,
Vice President of Finance
and Treasurer
Dated: November 11, 1996
EXHIBIT 10.1
PROMISSORY NOTE
REVOLVING
$750,000.00 September 30, 1996
FOR VALUE RECEIVED, on or before October 31, 1997 ("MATURITY DATE"), the
undersigned and if more than one, each of them, jointly and severally
(hereinafter referred to as "BORROWER"), promises to pay to the order of BANK
ONE, TEXAS, NATIONAL ASSOCIATION ("BANK") at its offices in Bexar County, Texas,
at 105 S. St. Mary's, San Antonio, Texas 78205 the principal amount of SEVEN
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($750,000.00) ("TOTAL PRINCIPAL
AMOUNT"), or such amount less than the Total Principal Amount which is
outstanding from time to time if the total amount outstanding under this
Promissory Note ("NOTE") is less than the Total Principal Amount, together with
interest on such portion of the Total Principal Amount which has been advanced
to Borrower from the date advanced until paid at a fluctuating rate per annum
which shall from day to day be equal to the lesser of (a) the Maximum Rate (as
hereinafter defined), or (b) a rate ("CONTRACT RATE"), calculated on the basis
of the actual days elapsed but computed as if each year consisted of 365 days,
equal to the sum of (i) the Bank One, Texas N.A. Base Rate of interest ("BASE
RATE") as established from time to time by Bank (which may not be the lowest,
best or most favorable rate of interest which Bank may charge on loans to its
customers) plus (ii) 3/4 Percent (0.75%), each change in the rate to be charged
on this Note to become effective without notice to Borrower on the effective
date of each change in the Maximum Rate or the Base Rate, as the case may be;
provided, however, that if at any time the Contract Rate shall exceed the
Maximum Rate, thereby causing the interest on this Note to be limited to the
Maximum Rate, then any subsequent reduction in the Base Rate shall not reduce
the rate of interest on this Note below the Maximum Rate until the total amount
of interest accrued on this Note equals the amount of interest which would have
accrued on this Note if the Contract Rate had at all times been in effect.
The term "MAXIMUM RATE," as used herein, shall mean at the particular time in
question the maximum rate of interest which, under applicable law, may then be
charged on this Note. If such maximum rate of interest changes after the date
hereof and this Note provides for a fluctuating rate of interest, the Maximum
Rate shall be automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as of the effective date of each change in
such maximum rate. If applicable law ceases to provide for such a maximum rate
of interest, the Maximum Rate shall be equal to eighteen percent (18%) per
annum.
The principal of and all accrued but unpaid interest on this Note shall be
due and payable as follows:
(a) interest shall be due and payable monthly as it accrues, commencing on
the 1st day of November, 1996 and continuing on the 1st day of each successive
month thereafter during the term of this Note; and
<PAGE>
(b) the outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
To the extent that any interest is not paid on or before the fifth day
after it becomes due and payable, Bank may, at its option, add such accrued
interest to the principal of this Note. Notwithstanding anything herein to the
contrary, upon an Event of Default (as hereinafter defined) or at maturity,
whether by acceleration or otherwise, all principal of this Note shall, at the
option of Bank, bear interest at the Maximum Rate until paid.
This Note evidences obligations and indebtedness from time to time owing
by Borrower to Bank pursuant to that certain Loan Agreement dated of even date
herewith by and between Borrower and Bank ("LOAN AGREEMENT"), and is secured by,
INTER ALIA, the following:
(1) a Deed of Trust, Security Agreement and Assignment of Rents and
Leases dated of even date herewith from Borrower in favor of Christopher
T. Klimko, Trustee for the benefit of the Bank, covering certain real
property situated in Bexar County, Texas, as more particularly described
therein; and
(2) a Security Agreement dated of even date herewith, by and between
Borrower and Bank, covering certain collateral as more particularly
described therein.
(3) Assignment of Monies Due and to Become Due, dated of even date
herewith, from Borrower, covering a certain Federal Contract No.
N00600-96-D-0032.
This Note, the Loan Agreement and all other documents evidencing, securing,
governing, guaranteeing and/or pertaining to this Note or that certain
$1,550,000.00 Promissory Note dated of even date herewith from Borrower to Bank
("Term Note"), including but not limited to those documents described above, are
hereinafter collectively referred to as the "LOAN DOCUMENTS." The holder of this
Note is entitled to the benefits and security provided in the Loan Documents.
Under the Loan Agreement, Borrower may request advances and make payments
hereunder from time to time, provided that it is understood and agreed that the
aggregate principal amount outstanding from time to time hereunder shall not at
any time exceed the Total Principal Amount. The unpaid balance of this Note
shall increase and decrease with each new advance or payment hereunder, as the
case may be. This Note shall not be deemed terminated or canceled prior to the
Maturity Date, although the entire principal balance hereof may from time to
time be paid in full. Borrower may borrow, repay and reborrow hereunder. All
regularly scheduled payments of the indebtedness evidenced by this Note and by
any of the other Loan Documents shall be applied first to any accrued but unpaid
interest then due and payable hereunder or thereunder and then to the principal
amount then due and payable. All non-regularly scheduled payments shall be
applied to
2
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such indebtedness in such order and manner as the holder of this Note may from
time to time determine in its sole discretion. All payments and prepayments of
principal of or interest on this Note shall be made in lawful money of the
United States of America in immediately available funds, at the address of Bank
indicated above, or such other place as the holder of this Note shall designate
in writing to Borrower. If any payment of principal of or interest on this Note
shall become due on a day which is not a Business Day (as hereinafter defined),
such payment shall be made on the next succeeding Business Day and any such
extension of time shall be included in computing interest in connection with
such payment. As used herein, the term "BUSINESS DAY" shall mean any day other
than any day on which commercial banks in the State of Texas are authorized to
be closed. The books and records of Bank shall be PRIMA FACIE evidence of all
outstanding principal of and accrued and unpaid interest on this Note.
Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder shall be
used solely for business, commercial, investment or other similar purposes.
Borrower agrees that upon the occurrence of any one or more of the
following events of default ("EVENT OF DEFAULT"):
(a) failure of Borrower to pay any installment of principal of or
interest on this Note or on any other indebtedness of Borrower to Bank
when due, including, but not limited to the Term Note; or
(b) the occurrence of any event of default specified in any of the
Loan Documents; or
(c) the bankruptcy or insolvency of, the assignment for the benefit
of creditors by, or the appointment of a receiver for any of the property
of, or the liquidation, termination, dissolution or death or legal
incapacity of, any party liable for the payment of this Note, whether as
maker, endorser, guarantor, surety or otherwise;
the holder of this Note may, at its option, without further notice or demand,
(i) declare the outstanding principal balance of and accrued but unpaid interest
on this Note at once due and payable, (ii) refuse to advance any additional
amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv)
pursue any and all other rights, remedies and recourses available to the holder
hereof, including but not limited to any such rights, remedies or recourses
under the Loan Documents, at law or in equity, or (v) pursue any combination of
the foregoing.
The failure to exercise the option to accelerate the maturity of this Note
or any other right, remedy or recourse available to the holder hereof upon the
occurrence of an Event of Default hereunder shall not constitute a waiver of the
right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourses of the
3
<PAGE>
holder hereof, as provided in this Note and in any of the other Loan Documents,
shall be cumulative and concurrent and may be pursued separately, successively
or together as often as occasion therefore shall arise, at the sole discretion
of the holder hereof. The acceptance by the holder hereof of any payment under
this Note which is less than the payment in full of all amounts due and payable
at the time of such payment shall not (i) constitute a waiver of or impair,
reduce, release or extinguish any right, remedy or recourse of the holder
hereof, or nullify any prior exercise of any such right, remedy or recourse, or
(ii) impair, reduce, release or extinguish the obligations of any party liable
under any of the Loan Documents as originally provided herein or therein.
This Note and all of the other Loan Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable usury
laws. If any provision hereof or of any of the other Loan Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the application of such
provision to any other person or circumstance nor the remainder of the
instrument in which such provision is contained shall be affected thereby and
shall be enforced to the greatest extent permitted by law. It is expressly
stipulated and agreed to be the intent of the holder hereof to at all times
comply with the usury and other applicable laws now or hereafter governing the
interest payable on the indebtedness evidenced by this Note. If the applicable
law is ever revised, repealed or judicially interpreted so as to render usurious
any amount called for under this Note or under any of the other Loan Documents,
or contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note, or if Bank's exercise of the option to
accelerate the maturity of this Note, or if any prepayment by Borrower results
in Borrower having paid any interest in excess of that permitted by law, then it
is the express intent of Borrower and Bank that all excess amounts theretofore
collected by Bank be credited on the principal balance of this Note (or, if this
Note and all other indebtedness arising under or pursuant to the other Loan
Documents have been paid in full, refunded to Borrower), and the provisions of
this Note and the other Loan Documents immediately be deemed reformed and the
amounts thereafter collectable hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid, or agreed to be paid, by
Borrower for the use, forbearance, detention, taking, charging, receiving or
reserving of the indebtedness of Borrower to Bank under this Note or arising
under or pursuant to the other Loan Documents shall, to the maximum extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
rate or amount of interest on account of such indebtedness does not exceed the
usury ceiling from time to time in effect and applicable to such indebtedness
for so long as such indebtedness is outstanding. To the extent federal law
permits Bank to contract for, charge or receive a greater amount of interest,
Bank will rely on federal law instead of TEX. REV. CIV. STAT. ANN. art.
5069-1.04, as amended, for the purpose of determining the Maximum Rate.
Additionally, to the maximum extent permitted by applicable law now or hereafter
in effect, Bank may, at its option and from time to time, implement any other
method of computing the Maximum Rate under such Article 5069-1.04, as amended,
or under other applicable law
4
<PAGE>
by giving notice, if required, to Borrower as provided by applicable law now or
hereafter in effect. Notwithstanding anything to the contrary contained herein
or in any of the other Loan Documents, it is not the intention of Bank to
accelerate the maturity of any interest that has not accrued at the time of such
acceleration or to collect unearned interest at the time of such acceleration.
In no event shall TEX. REV. CIV. STAT. ANN. art. 5069 Ch. 15 (which
regulates certain revolving loan accounts and revolving tri-party accounts)
apply to this Note. To the extent that TEX. REV. CIV. STAT. ANN. art. 5069-1.04,
as amended, is applicable to this Note, the "indicated rate ceiling" specified
in such article is the applicable ceiling; provided that, if any applicable law
permits greater interest, the law permitting the greatest interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all other
sums payable hereunder, all costs and expenses of collection, including but not
limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and without further
notice hereby agree to renewals, extensions, exchanges or
releases of collateral, taking of additional collateral, indulgences or partial
payments, either before or after maturity.
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
DOCUCON, INCORPORATED
By:
Name:
Its:
5
EXHIBIT 10.2
PROMISSORY NOTE
$1,550,000.00 September 30, 1996
FOR VALUE RECEIVED, on or before October 2, 2001 ("MATURITY DATE"), the
undersigned and if more than one, each of them, jointly and severally
(hereinafter referred to as "BORROWER"), promises to pay to the order of BANK
ONE, TEXAS, NATIONAL ASSOCIATION ("BANK") at its offices in Bexar County, Texas
at 105 S. St. Mary's Street, San Antonio, Texas 78205, the principal amount of
ONE MILLION FIVE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($1,550,000.00)
("TOTAL PRINCIPAL AMOUNT"), or such amount less than the Total Principal Amount
which has been advanced to Borrower if the total amount advanced under this
Promissory Note ("NOTE") is less than the Total Principal Amount, together with
interest on such portion of the Total Principal Amount which has been advanced
to Borrower from the date advanced until paid at a fixed rate per annum equal to
the lesser of (a) the Maximum Rate (as hereinafter defined) or (b) Nine and
One-Half Percent (9.50%), calculated on the basis of actual days elapsed but
computed as if each year consisted of 365 days.
The term "MAXIMUM RATE," as used herein, shall mean at the particular time in
question the maximum rate of interest which, under applicable law, may then be
charged on this Note. If such maximum rate of interest changes after the date
hereof and this Note provides for a fluctuating rate of interest, the Maximum
Rate shall be automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as of the effective date of each change in
such maximum rate. If applicable law ceases to provide for such a maximum rate
of interest, the Maximum Rate shall be equal to eighteen percent (18%) per
annum.
The principal of and all accrued but unpaid interest on this Note shall be
due and payable as follows:
(a) the principal of and interest on this Note shall be due and payable in
fifty-nine (59) equal monthly installments in the amount of $14,448.01 each,
commencing on the 2nd day of November, 1996, and continuing on the 2nd day of
each successive month thereafter; and
(b) the outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
To the extent that any interest is not paid on or before the fifth day
after it becomes due and payable, Bank may, at its option, add such accrued
interest to the principal of this Note. Notwithstanding anything herein to the
contrary, upon an Event of Default (as hereinafter defined) or at maturity,
whether by acceleration or otherwise, all
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<PAGE>
principal of this Note shall, at the option of Bank, bear interest at the
Maximum Rate until paid.
Borrower may from time to time prepay all or any portion of the principal
of this Note without premium or penalty. All regularly scheduled payments of the
indebtedness evidenced by this Note and by any of the other Loan Documents shall
be applied first to any accrued but unpaid interest then due and payable
hereunder or thereunder and then to the principal amount then due and payable.
All non-regularly scheduled payments shall be applied to such indebtedness in
such order and manner as the holder of this Note may from time to time determine
in its sole discretion. All payments and prepayments of principal of or interest
on this Note shall be made in lawful money of the United States of America in
immediately available funds, at the address of Bank indicated above, or such
other place as the holder of this Note shall designate in writing to Borrower.
If any payment of principal of or interest on this Note shall become due on a
day which is not a Business Day (as hereinafter defined), such payment shall be
made on the next succeeding Business Day and any such extension of time shall be
included in computing interest in connection with such payment. As used herein,
the term "BUSINESS DAY" shall mean any day other than any day on which
commercial banks in the State of Texas are authorized to be closed. The books
and records of Bank shall be PRIMA FACIE evidence of all outstanding principal
of and accrued and unpaid interest on this Note.
This Note has been executed and delivered pursuant to that certain Loan
Agreement dated of even date herewith by and between Borrower and Bank ("LOAN
AGREEMENT"), and is secured by, INTER ALIA, the following:
(1) a Deed of Trust, Security Agreement and Assignment of Rents and
Leases dated of even date herewith from Borrower in favor of Christopher
T. Klimko, Trustee for the benefit of the Bank, covering certain real
property situated in Bexar County, Texas, as more particularly described
therein; and
(2) a Security Agreement dated of even date herewith, by and between
Borrower and Bank, covering certain collateral as more particularly
described therein.
This Note, the Loan Agreement and all other documents evidencing, securing,
governing, guaranteeing and/or pertaining to this Note or that certain
$750,000.00 Promissory NoteRevolving dated of even date herewith from Borrower
to Bank ("Revolving Note"), including but not limited to those documents
described above, are hereinafter collectively referred to as the "LOAN
DOCUMENTS." The holder of this Note is entitled to the benefits and security
provided in the Loan Documents.
Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder shall be
used solely for business, commercial, investment, or other similar purposes.
Borrower agrees that upon the occurrence of any one or more of the
following events of default ("EVENT OF DEFAULT"):
2
<PAGE>
(a) failure of Borrower to pay any installment of principal of or
interest on this Note or on any other indebtedness of Borrower to Bank
when due, including, but not limited to the Revolving Note; or
(b) the occurrence of any event of default specified in any of the
Loan Documents; or
(c) the bankruptcy or insolvency of, the assignment for the benefit
of creditors by, or the appointment of a receiver for any of the property
of, or the liquidation, termination, dissolution or death or legal
incapacity of, any party liable for the payment of this Note, whether as
maker, endorser, guarantor, surety or otherwise;
the holder of this Note may, at its option, without further notice or demand,
(i) declare the outstanding principal balance of and accrued but unpaid interest
on this Note at once due and payable, (ii) refuse to advance any additional
amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv)
pursue any and all other rights, remedies and recourses available to the holder
hereof, including but not limited to any such rights, remedies or recourses
under the Loan Documents, at law or in equity, or (v) pursue any combination of
the foregoing.
The failure to exercise the option to accelerate the maturity of this Note
or any other right, remedy or recourse available to the holder hereof upon the
occurrence of an Event of Default hereunder shall not constitute a waiver of the
right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourses of the holder hereof, as provided in
this Note and in any of the other Loan Documents, shall be cumulative and
concurrent and may be pursued separately, successively or together as often as
occasion therefore shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder hereof of any payment under this Note which is less
than the payment in full of all amounts due and payable at the time of such
payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy or recourse of the holder hereof, or nullify any
prior exercise of any such right, remedy or recourse, or (ii) impair, reduce,
release or extinguish the obligations of any party liable under any of the Loan
Documents as originally provided herein or therein.
This Note and all of the other Loan Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable usury
laws. If any provision hereof or of any of the other Loan Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the application of such
provision to any other person or circumstance nor the remainder of the
instrument in which such provision is contained shall be affected thereby and
shall be enforced to the greatest extent permitted by law. It is expressly
stipulated and agreed to be the intent of the holder hereof to at all times
comply with the usury and other applicable laws now or hereafter governing the
interest payable on the indebtedness evidenced by this Note. If the applicable
law is ever revised,
3
<PAGE>
repealed or judicially interpreted so as to render usurious any amount called
for under this Note or under any of the other Loan Documents, or contracted for,
charged, taken, reserved or received with respect to the indebtedness evidenced
by this Note, or if Bank's exercise of the option to accelerate the maturity of
this Note, or if any prepayment by Borrower results in Borrower having paid any
interest in excess of that permitted by law, then it is the express intent of
Borrower and Bank that all excess amounts theretofore collected by Bank be
credited on the principal balance of this Note (or, if this Note and all other
indebtedness arising under or pursuant to the other Loan Documents have been
paid in full, refunded to Borrower), and the provisions of this Note and the
other Loan Documents immediately be deemed reformed and the amounts thereafter
collectable hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder. All sums paid, or agreed to be paid, by Borrower for
the use, forbearance, detention, taking, charging, receiving or reserving of the
indebtedness of Borrower to Bank under this Note or arising under or pursuant to
the other Loan Documents shall, to the maximum extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the rate or amount of interest
on account of such indebtedness does not exceed the usury ceiling from time to
time in effect and applicable to such indebtedness for so long as such
indebtedness is outstanding. To the extent federal law permits Bank to contract
for, charge or receive a greater amount of interest, Bank will rely on federal
law instead of TEX. REV. CIV. STAT. ANN. art. 5069-1.04, as amended, for the
purpose of determining the Maximum Rate. Additionally, to the maximum extent
permitted by applicable law now or hereafter in effect, Bank may, at its option
and from time to time, implement any other method of computing the Maximum Rate
under such Article 5069-1.04, as amended, or under other applicable law by
giving notice, if required, to Borrower as provided by applicable law now or
hereafter in effect. Notwithstanding anything to the contrary contained herein
or in any of the other Loan Documents, it is not the intention of Bank to
accelerate the maturity of any interest that has not accrued at the time of such
acceleration or to collect unearned interest at the time of such acceleration.
In no event shall TEX. REV. CIV. STAT. ANN. art. 5069 Ch. 15 (which
regulates certain revolving loan accounts and revolving tri-party accounts)
apply to this Note. To the extent that TEX. REV. CIV. STAT. ANN. art. 5069-1.04,
as amended, is applicable to this Note, the "indicated rate ceiling" specified
in such article is the applicable ceiling; provided that, if any applicable law
permits greater interest, the law permitting the greatest interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all other
sums payable hereunder, all costs and expenses of collection, including but not
limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement
4
<PAGE>
and indulgences of every kind and without further notice hereby agree to
renewals, extensions, exchanges or releases of collateral, taking of additional
collateral, indulgences or partial payments, either before or after maturity.
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
DOCUCON, INCORPORATED
By:
Name:
Its:
EXHIBIT 10.3
DEED OF TRUST, SECURITY AGREEMENT AND FINANCING STATEMENT
DATE: September 30, 1996
GRANTOR: DOCUCON, INCORPORATED ("Grantor")
GRANTOR'S
MAILING ADDRESS: 7461 Callaghan
San Antonio, Bexar County, Texas 78229
TRUSTEE: Christopher T. Klimko ("Trustee")
TRUSTEE'S
MAILING ADDRESS: 105 S. St. Mary's
San Antonio, Bexar County, Texas 78205
BENEFICIARY: BANK ONE, TEXAS, N.A.
BENEFICIARY'S
MAILING ADDRESS: 105 S. St. Mary's
San Antonio, Bexar County, Texas 78205
For value received and to secure payment of the Note and other
Indebtedness described herein, Grantor conveys the Property to Trustee in trust.
Grantor warrants and agrees to defend the title to the Property. If Grantor
performs all the covenants of this Deed of Trust and pays the Note and other
Indebtedness herein described according to their terms, this Deed of Trust shall
have no further effect, and Beneficiary shall release it at Grantor's expense.
INDEBTEDNESS SECURED:
This conveyance is made, IN TRUST, to secure and enforce the payment of
the following Indebtedness, obligation and liability, to-wit:
1. Term Note dated of even date herewith, in the original principal amount
of $1,550,000.00, executed by Grantor and payable to the order of Beneficiary
and a Promissory Note Revolving of even date herewith, in the original principal
amount of $750,000.00, executed by Grantor and payable to the order of
Beneficiary (collectively referred to herein as the "Note").
2. The payment of all loans and future advances made by the Beneficiary to
Grantor and all other debts, obligations and liabilities of every kind and
character of Grantor now or hereafter existing in favor of the Beneficiary,
whether such debts, obligations or liabilities are direct or indirect, primary
or secondary, joint or several, fixed or contingent, and whether originally
payable to the Beneficiary or to a third party and subsequently acquired by the
Beneficiary and whether such debts, obligations and liabilities are evidenced by
a note, open account, overdraft, endorsement, surety agreement, guaranty or
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otherwise, the foregoing being sometimes collectively referred to herein as
"Other Obligations."
3. Any and all renewals and extensions of the above-described
Indebtedness, whether or not such renewals and extensions are evidenced in
writing, and the liens under this Deed of Trust being cumulative of all other
liens and security of any and every other kind or character whatsoever securing
the above-described Indebtedness.
The words "Indebtedness" and "said Indebtedness" wherever used in this
Deed of Trust shall refer to all present and future debts, obligations and
liabilities described or referred to in this and the foregoing paragraphs.
PROPERTY:
As used in the Deed of Trust, the term "Property" shall mean the
following:
4. That certain real property situated in Bexar County, Texas, and being
more particularly described in Exhibit "A" to this Deed of Trust, together with
all and singular the rights, titles, interests, servitudes, hereditaments,
prescriptions, profits, and advantages thereto in anywise belonging (all of the
foregoing hereinafter collectively referred to as the "Land").
5. Any and all buildings, structures, sidewalks, parking areas, fences and
other improvements, and any and all additions, alterations or appurtenances
thereto now or at any time hereafter placed or constructed upon or which may be
used in connection with or related to the Land or any part thereof (all of the
foregoing hereinafter collectively referred to as the "Improvements").
6. All materials, supplies, equipment, apparatus and other items now or
hereafter attached to, installed in or used, whether temporarily or permanently,
in connection with any of the Improvements, or the Land, and all renewals,
replacements, substitutions thereof and additions thereto, including but not
limited to, any and all partitions, ducts, shafts, pipes, radiators, conduits,
wiring, window screens and shades, drapes, rugs and other floor coverings,
awnings, motors, engines, boilers, pumps, transformers, generators, fans,
blowers, vents, switchboards, elevators, escalators, compressors, furnaces,
cleaning, call and sprinkler systems, fire extinguishing apparatus, water tanks,
swimming pools, heaters, ventilators, pumps, laundry, incinerators, air
conditioning and other cooling systems, water, gas and electrical equipment,
disposals, dishwashers, refrigerators and ranges, cafeteria equipment,
recreational equipment and facilities of all kinds, and water, gas, electrical,
storm and sanitary sewer facilities and all other utilities whether or not
situated in easements, all of which property and things, to the extent permitted
by law, are hereby declared to be permitted accessions to the Land (all of the
foregoing hereinafter collectively referred to as the "Fixtures").
7. All of the right, title and interest of Grantor in and to all personal
property other than fixtures, of any kind, as defined in Chapter 9 of the Texas
Business and
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Commerce Code ("UCC"), now or hereafter located upon, within or about the Land
and the Improvements, or which are or may be used in or related to the
development, financing or operation of the Property, together with all now owned
or hereafter acquired personal property, accessories and spare parts, and all
additions, replacements and substitutions therefor, and the proceeds thereof
including, but not limited to, all furniture, furnishings, equipment, machinery,
tools, vehicles, goods, general intangibles (including, but not limited to
patents and good will) insurance proceeds, accounts, contract rights, inventory,
all refundable, returnable or reimbursable fees, deposits or other funds or
evidences of credit or indebtedness deposited by or on behalf of Grantor with
any governmental agencies, boards, corporations, providers of utility services,
public or private, including, but not limited to, all refundable, returnable or
reimbursable tap fees utility deposits, commitment fees and development costs
(all of the foregoing hereinafter collectively referred to as the "Personalty").
8. All leases, subleases, licenses, concessions, contracts or other
agreements, whether written or oral, now or hereafter in effect, which grant a
possessory interest in and to or the right to use any portion of the Property or
which relate to the use or construction of the Improvements, and all other
agreements, such as utility contracts, maintenance agreements and service
contracts, which in any way relate to the use, occupancy, development,
operation, maintenance, enjoyment or ownership of the Property (all of the
foregoing hereinafter collectively referred to as the "Leases").
9. All consideration, whether money or otherwise, paid or payable by
parties to the Leases other than Grantor for using, occupying, leasing,
licensing, possessing, operating from, selling or otherwise enjoying the
Property and all rents, issues, income, profits, insurance proceeds, benefits
and advantages of every nature whatsoever that arise, accrue or are derived from
the Property, pursuant to the Leases or any renewals thereof (all of the
foregoing hereinafter collectively at times referred to as the "Rents").
10. Rights, privileges, tenements, hereditaments, rights-of-way,
easements, appendages and appurtenances in any way pertaining to any of the
above-described property, and rights, titles and interests of Grantor in and to
any streets, alleys, driveways and strips of land adjoining the Land or any part
thereof.
11. All plans, specifications, drawings, feasibility studies, cost
estimates, permits, licenses and certificates for any improvements to be placed
upon the Land, and all contracts and subcontracts relating to the construction
of any such improvements (all of the foregoing hereinafter collectively referred
to as the "Contracts").
12. Additions, substitutions, replacements and revisions of and to and
proceeds of any of the above-described property and all remainders therein.
13. Other security and collateral of any nature whatsoever, now or
hereafter given for the repayment of the Indebtedness hereby secured or the
performance and discharge of the obligations under this Deed of Trust, the Note
hereby secured, or any other document executed in connection herewith
("Obligations").
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PRIOR LIEN(S):
None
OTHER EXCEPTIONS TO CONVEYANCE AND WARRANTY:
This conveyance is made and accepted subject to the matters set forth in
Exhibit "B" attached hereto and incorporated herein for all purposes to
the extent, if any, such matters affect the Property ("Permitted
Encumbrances").
SECURITY AGREEMENT:
14. This Deed of Trust shall also constitute a security agreement under
Chapter 9 of the UCC, subject only to the Permitted Encumbrances, with respect
to the Improvements, Fixtures, Personalty, Contracts, Leases and Rents (all of
the foregoing being hereinafter at times referred to as the "Collateral") to the
extent such Chapter 9 is applicable to any such Collateral. To this end, without
limiting any of the provisions of this Deed of Trust, Grantor, as debtor, has
granted, bargained, conveyed, assigned, transferred and set over, and by these
presents do grant, bargain, convey, assign, transfer and set over unto the
Beneficiary, as secured party, a security interest in all of Grantor's right,
title and interest in and to the Collateral to secure the full and timely
payment of the Indebtedness hereby secured and performance of the Obligations
and Other Obligations.
15. Grantor agrees to execute and deliver to the Beneficiary in the form
and substance satisfactory to the Beneficiary such financing statements and such
further assurances as Beneficiary may from time to time consider necessary to
create, perfect and preserve the security interest granted herein and Grantor
shall cause such statements and assurances to be recorded and filed at such
times and places as may be required or permitted by law to create, perfect and
preserve such security interest.
16. Trustee, on Beneficiary's behalf, as well as the Beneficiary, shall
have all rights, remedies and recourses with respect to the Collateral afforded
a "secured party" by Chapter 9 of the UCC in addition and not in limitation of
the other rights, remedies and recourses afforded the Beneficiary and/or Trustee
by this Deed of Trust.
17. The security interest herein granted shall not be deemed or construed
to constitute the Trustee or the Beneficiary as a party in possession of the
Property or to obligate the Trustee or Beneficiary to lease the Property, or to
take any action, incur any expense, or perform any obligation whatsoever under
any of the Leases or otherwise.
18. Upon the occurrence of an Event of Default as provided herein, and at
any time thereafter:
a. Trustee or Beneficiary shall have, with regard to the Collateral,
the remedies provided in this Deed of Trust and in the UCC. No such remedy
granted
4
<PAGE>
by the UCC is or shall be deemed to be accepted, modified or waived in any
manner by this Deed of Trust.
b. Trustee and Beneficiary shall be entitled, in their sole
discretion, to apply the proceeds of any disposition of any of the
Collateral in the order set forth in the UCC, or, if allowed by the UCC,
in the order set forth in the body of the Deed of Trust. If the proceeds
are not sufficient to pay the Indebtedness and the Other Indebtedness in
full, Grantor shall remain liable for any deficiency.
c. Notwithstanding anything herein to the contrary, the Beneficiary
or the Trustee acting on the Beneficiary's behalf may, at its option and
to the extent permitted by applicable law, dispose of the Collateral and
other items of personal property covered by this Deed of Trust, in
accordance with the Beneficiary's rights and remedies in respect of the
Land, pursuant to the provisions of this Deed of Trust in lieu of
proceeding under the UCC.
19. Beneficiary may require Grantor to assemble the Collateral and make it
available to Beneficiary or the Trustee acting on Beneficiary's behalf at a
place to be designated that is reasonably convenient to both parties. All
expenses of retaking, holding, preparing for sale, lease or other use or
disposition, selling, leasing or otherwise using or disposing of the Collateral
and the like, which are incurred or paid by the Beneficiary, or the Trustee
acting on behalf of the Beneficiary, as authorized and permitted hereunder,
including all reasonable attorney's fees, legal expenses and costs, shall be
added to the Indebtedness and Grantor shall be liable therefor.
20. As to such portion of the Collateral which constitutes fixtures under
applicable law, this Deed of Trust shall be effective as a financing statement
when filed for record in the UCC Records in the Clerk's Office of Bexar County,
Texas, pursuant to Section 9.402(f) of the UCC. The record owner of the Land is
Grantor named in this Deed of Trust, whose mailing address for purposes of such
financing statement is:
7461 Callaghan
San Antonio, Texas 78229
GRANTOR'S OBLIGATIONS:
Grantor agrees to:
21. keep the Property in good repair and condition;
22. pay all taxes and assessments on the Property when due;
23. preserve the lien's priority as it is established in this Deed of
Trust;
5
<PAGE>
24. maintain insurance policies, in a form acceptable to Beneficiary,
including, but not limited to flood insurance in an amount and in a form which
is acceptable to Beneficiary;
25. deliver the insurance policies to Beneficiary and deliver renewals to
Beneficiary at least ten (10) days before expiration;
26. if this is not a first lien, pay all prior lien notes and abide by all
prior lien instruments;
27. deliver or cause to be delivered to Beneficiary within one hundred
twenty (120) days after the last day of each fiscal year, financial statements
of Grantor (audited by a Certified Public Account who is acceptable to
Beneficiary), as of the end of such year. Such statements shall include a
balance sheet, cash flow statement and contingent liability information and
shall be in a form acceptable to Beneficiary;
28. deliver or cause to be delivered to Beneficiary within thirty (30)
days after the last day of each quarterly period, quarterly reports summarizing
financial performance in comparison with the annual budget. Said reports shall
be certified by Grantor to be true and correct and shall be in a form acceptable
to Beneficiary;
29. deliver or cause to be delivered to Beneficiary within thirty (30)
days after the last day of each month, a monthly (i) accounts receivable aging
report, (ii) borrowing base certificate and (iii) compliance certificate
relating to the previous month. Said reports and certificates shall be certified
by Grantor to be true and correct and shall be in a form acceptable to
Beneficiary;
30. deliver or cause to be delivered to Beneficiary within forty five (45)
days after the last day of each quarterly period, quarterly 10Q reports. Said
reports and shall be certified by Grantor to be true and correct and shall be in
a form acceptable to Beneficiary;
31. maintain the following financial ratios:
Minimum current ratio 1.0/1.0
Maximum debt-to-net worth ratio 2.0/1.0
Minimum annual debt coverage ratio 1.25/1.0*
Minimum Tangible Net Worth $1,900,000.00**
*For purposes of this paragraph, "debt coverage ratio" means Net Income,
plus Depreciation, plus Amortization, plus Interest Expense, less
Dividends, DIVIDED by Current Maturities of Long Term Debt, plus Current
Portion of Capitalized Leases, plus Interest Expense.
**The minimum Tangible Net Worth which Grantor shall be required to
maintain hereunder shall increase each year the Note is in effect, by 75%
of the preceding
6
<PAGE>
year's net income. Intangibles do not include software development costs.
The term "Tangible Net Worth" has the meaning set out in the Loan
Agreement.
All other terms used herein shall have the meanings given to them by
generally accepted accounting principles consistently applied.
32. provide other financial information relating to Grantor as is
reasonably required by Beneficiary from time to time and provide access to
Grantor's books and records at such time during ordinary business hours as
Beneficiary may request;
33. provide notice to Beneficiary within ten (10) days after receipt of
any notice of default, notice of acceleration, posting for foreclosure or notice
of any legal action regarding any asset or obligation of Grantor;
34. limit its annual capital expenditures to $500,000.00 per year, unless
prior written approval has been given by Beneficiary, such approval not to be
unreasonably withheld;
35. notify Beneficiary of any claim with a potential liability in excess
of $75,000.00; and
36. comply with any and all other obligations imposed on Grantor by the
Note, that certain Loan Agreement dated of even date herewith entered into by
and between Grantor and Beneficiary ("Loan Agreement"), that certain Loan
Commitment Letter dated September 11, 1996, by and between Grantor and
Beneficiary ("Loan Commitment") and all other documents evidencing, securing,
governing, guaranteeing and/or pertaining to the Note and any other documents
securing the Indebtedness ("Loan Documents").
ADDITIONAL OBLIGATIONS OF GRANTOR:
Grantor agrees not to:
-- make any investments in or loans or advances to any company, person, or
entity, except in the ordinary course of Grantor's business;
-- pay any cash dividends unless approved by Beneficiary;
-- merge or consolidate with any corporation, or enter into any
partnership, joint venture, or acquire any stock or ownership interest in all or
substantially all of the assets of any other entity unless approved by the
Beneficiary;
-- sell, transfer, or otherwise dispose of any of its assets, or enter
into any arrangement accomplishing substantially the same, except for
transactions which occur in the Grantor's ordinary course of business;
7
<PAGE>
-- incur additional indebtedness except for payables or accruals incurred
in the ordinary course of Grantor's business; and
-- pledge assets, guarantee indebtedness of others, nor permit any liens
on its assets.
BENEFICIARY'S RIGHTS:
1. Beneficiary may appoint in writing a substitute or successor trustee,
succeeding to all rights and responsibilities of Trustee.
2. If the proceeds of the Note are used to pay any debt secured by prior
liens, Beneficiary is subrogated to all of the rights and liens of the holders
of any debt so paid.
3. Beneficiary, at its election, may apply any proceeds received under the
insurance policies either to reduce the Note or, as long as Grantor is not in
default hereunder, to repair or replace damaged or destroyed improvements
covered by the policy.
4. If Grantor fails to perform any of Grantor's Obligations, Beneficiary
may perform those Obligations and be reimbursed by Grantor on demand at the
place where the Note is payable for any sums so paid, including attorney's fees,
plus interest on those sums from the dates of payment at the rate stated in the
Note for matured, unpaid amounts. The sum to be reimbursed shall be secured by
this Deed of Trust.
5. If an Event of Default occurs hereunder, Beneficiary may:
a. declare the unpaid principal balance and earned interest on the
Note immediately due and payable;
b. request Trustee to foreclose this lien, in which case Beneficiary
or Beneficiary's agent shall give notice of the foreclosure sale as
provided by the Texas Property Code as then amended; and
c. purchase the Property at any foreclosure sale by offering the
highest bid and then have the bid credited on the Note.
TRUSTEE'S DUTIES:
If requested by Beneficiary to foreclose this lien, Trustee shall:
6. either personally or by agent give notice of the foreclosure sale as
required by the Texas Property Code as then amended;
7. sell and convey all or part of the Property to the highest bidder for
cash with a general warranty binding Grantor, subject to prior liens and to
other exceptions to conveyance and warranty; and
8
<PAGE>
8. from the proceeds of the sale, pay, in this order:
a. expenses of foreclosure, including a commission to Trustee of 5%
of the bid;
b. to Beneficiary, the full amount of principal, interest,
attorney's fees, and other charges due and unpaid;
c. any amounts required by law to be paid before payment to Grantor;
and
d. to Grantor, any balance.
EVENT OF DEFAULT:
As used herein, the term "Event of Default" shall include the following:
9. Any default in the payment of any installment, principal or interest,
of the Note or of any other Indebtedness hereby secured, in accordance with the
terms thereof;
10. Any breach of any of the covenants herein contained or contained in
the Note or in the Loan Documents, including, but not limited to, the Loan
Agreement or the Loan Commitment.;
11. Any failure to perform any of the Obligations to be performed, after
the expiration of all applicable grace or curative periods without cure of such
failure;
12. The Grantor admitting in writing its inability to pay its debts as
they mature or an administrative or judicial order of dissolution or
determination of insolvency being entered against the Grantor; or the Grantor
applying for, consenting to, or acquiescing in the appointment of a trustee or
receiver for the Grantor or any property thereof, or the Grantor making a
general assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee or receiver being appointed for
the Grantor or for a substantial part of its property and not being discharged
within sixty (60) days; or any bankruptcy, reorganization, debt arrangement, or
other proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding being instituted by or against the Grantor, and, if
involuntary, being consented to or acquiesced in by the Grantor or remaining for
sixty (60) days undismissed;
13. Any warranty or representation made by the Grantor herein or in the
Loan Documents proving to have been false or misleading in any material respect
when made, or any schedule, certificate, financial statement, report, notice, or
other writing furnished by the Grantor to the Beneficiary proving to have been
false or misleading in any material respect when made or delivered;
9
<PAGE>
14. Any material change following the date of this agreement in the
assets, net worth or credit standing of Grantor, or any judgment against Grantor
which in Beneficiary's judgment would materially and adversely affect the credit
standing of the Grantor or the ability of Grantor to perform under the Loan
Documents;
SALE OR OTHER DISPOSITION:
If all or any part of the Property or any interest therein or any rents or
income therefrom is sold; transferred; conveyed; assigned; mortgaged or
otherwise encumbered or otherwise disposed of by Grantor without Beneficiary's
prior written consent, any such event shall constitute an "Event of Default" as
provided in this Deed of Trust, and Beneficiary may, at its option, declare the
entire principal indebtedness hereby secured with all interest accrued thereon
and all other sums hereby secured (hereinafter referred to as the "Entire
Indebtedness") immediately due and payable and in the event of default in the
payment of the Entire Indebtedness when declared due, Beneficiary may, at its
option, direct the Trustee, or his successor or substitute, to sell the Property
as herein provided and may exercise any and all other rights and remedies
permitted herein. Any waiver by Beneficiary of or any forbearance by Beneficiary
to exercise its option to accelerate with respect to any particular sale or
transfer shall not be deemed to constitute a waiver of such option with respect
to any other sale or transfer.
LOAN PURPOSE:
The Note hereby secured is given in order to refinance the Property and to
provide financing for the working capital needs of the Grantor.
REPRESENTATIONS AND WARRANTIES:
Grantor makes the following representations and warranties concerning the
Property and the use of the Property:
15. That there has been no storage, production, transportation, disposal,
treatment, release or threatened release of any solid waste, as that term is
defined by the Texas Solid Waste Disposal Act, as amended, Tex. Health & Safety
Code, Ch. 361 (Vernon Pamphlet 1989), or the Resource Conservation and Recovery
Act, 42 U.S.C. ss. 6901 ET. SEQ. ("Solid Waste"), or any hazardous waste, as
that term is defined by the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601 ET. SEQ. ("Hazardous
Waste"), or any substance subject to regulation under the Toxic Substance
Contract Act, 15 U.S.C. ss. 2601 ET. SEQ. ("Regulated Substance"), or any other
pollutants or contaminants on, in, upon or under the Property.
16. That, to the best of Grantor's knowledge, there has been no storage,
disposal, production, treatment, transportation, release or threatened release
of any Solid Waste, Hazardous Waste, Regulated Substance or any other pollutants
or contaminants on adjacent or neighboring properties to the Property which
through soil or groundwater migration could have come to be located on the
Property.
10
<PAGE>
17. To the full extent permitted by applicable law, Grantor and each
Guarantor hereby agree to defend, indemnify and hold harmless Beneficiary and
its directors, officers, employees, attorneys and agents (each an "Indemnified
Party") from and against any and all loss, cost, expenses or liability
(including attorneys' fees and court costs) incurred by any Indemnified Party in
connection with or otherwise arising out of any and all claims or proceedings
(whether brought by a private party, governmental agency or otherwise) for
bodily injury, property damage, abatement, remediation, environmental damage or
impairment or any other injury or damage resulting from or relating to any
hazardous or toxic substance or contaminated material located upon, migrating
into, from or through or otherwise relating to the Property (whether or not the
release of such materials was caused by Grantor, a tenant or subtenant of
Grantor, a prior owner, a tenant or subtenant of any prior owner or any other
party and whether or not the alleged liability is attributable to the handling,
storage, generation, transportation or disposal of such substance or the mere
presence of the substance on the Property), which any Indemnified Party may
incur due to the making of the loan evidenced by the Note, the exercise of any
of its rights under this Deed of Trust or any of the Loan Documents, or
otherwise. For the purposes of the indemnity contained in this paragraph,
hazardous or toxic substances or contaminated material include but are not
limited to asbestos, oil and petroleum products and those substances within the
scope of all federal, state and local environmental laws and ordinances,
including the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act and the Superfund
Amendment and Reauthorization Act of 1986. The provisions of this paragraph
shall survive any exercise of the power of sale granted in this Deed of Trust,
any foreclosure of the liens created by this Deed of Trust or conveyance in lieu
of foreclosure and the repayment of the indebtedness and the discharge and
release of this Deed of Trust and other Loan Documents.
GENERAL PROVISIONS:
18. If any of the Property is sold under this Deed of Trust, Grantor shall
immediately surrender possession to the purchaser. If Grantor fails to do so,
Grantor shall become a tenant at sufferance of the purchaser, subject to an
action for forcible detainer.
19. Recitals in any Trustee's deed conveying the Property will be presumed
to be true.
20. Proceeding under this Deed of Trust, filing suit for foreclosure, or
pursuing any other remedy will not constitute an election of remedies.
21. This lien shall remain superior to liens later created even if the
time of payment of all or part of the Note is extended or part of the Property
is released.
22. If any portion of the Note cannot be lawfully secured by this Deed of
Trust, payments shall be applied first to discharge that portion.
11
<PAGE>
23. All judgments, decrees or awards now or hereafter made for injury or
damage to the Property, or awards, settlements or other compensation now or
hereafter made by any Governmental Authority (as hereinafter defined) including
those for any variation of, or change of grade in, any streets affecting the
Land or the Improvements, are hereby assigned in their entirety to the
Beneficiary, who shall apply same in such manner as the Beneficiary may elect.
Beneficiary, at its election, may apply any proceeds received hereunder either
to reduce the Note or, as long as Grantor is not in default hereunder, to repair
or replace damage or destruction of the Property. Beneficiary or the Trustee on
behalf of the Beneficiary is hereby authorized, in the name of Grantor, to
execute and deliver valid acquittance for, and to appeal from, any such award,
judgment or decree. As used herein, the term "Governmental Authority" shall mean
any and all governmental or quasi-governmental entities of any nature
whatsoever, whether federal, state, county, district, city or otherwise, and
whether now or hereafter in existence. Beneficiary shall not be liable for
failure to collect or to exercise diligence in collecting any such sums.
24. Grantor assigns to Beneficiary absolutely, all present and future rent
and other income and receipts from the Property. Grantor warrants the validity
and enforceability of the assignment. Grantor may as Beneficiary's licensee
collect rent and other income and receipts as long as Grantor is not in default
under the Note or this Deed of Trust. Grantor will apply all rent and other
income and receipts, except receipts for real property tax or interest earned
pursuant to property sales contracts, to payment of the Note and performance of
this Deed of Trust. If Grantor defaults in payment of the Note or performance of
this Deed of Trust, Beneficiary may terminate Grantor's license to collect and
then as Grantor's agent may rent the Property if it is vacant and collect all
rent and other income and receipts. Beneficiary neither has nor assumes any
obligations as lessor or landlord with respect to any occupant of the Property.
Beneficiary may exercise Beneficiary's rights and remedies under this paragraph
without taking possession of the Property. Beneficiary shall apply all rent and
other income and receipts collected under this paragraph first to expenses
incurred in exercising Beneficiary's rights and remedies and then to Grantor's
obligations under the Note and this Deed of Trust in the order determined by
Beneficiary. Beneficiary is not required to act under this paragraph, and acting
under this paragraph does not waive any of Beneficiary's other rights or
remedies. If Grantor becomes a voluntary or involuntary bankrupt, Beneficiary's
filing a proof of claim in bankruptcy will be tantamount to the appointment of a
receiver under Texas law.
25. Interest on the indebtedness secured by this Deed of Trust shall not
exceed the maximum amount of nonusurious interest that may be contracted for,
taken, reserved, charged, or received under law; any interest in excess of that
maximum amount shall be credited on the principal of the indebtedness or, if
that has been paid, refunded. On any acceleration or required or permitted
prepayment, any such excess shall be canceled automatically as of the
acceleration or prepayment or, if already paid, credited on the principal of the
indebtedness or, if the principal of the indebtedness has been paid, refunded.
This provision overrides other provisions in this and all other instruments
concerning the indebtedness.
26. When the context requires, singular nouns and pronouns include the
plural.
12
<PAGE>
27. The term "Note" includes all sums secured by this deed of trust.
28. This Deed of Trust shall bind, inure to the benefit of, and be
exercised by successors in interest of all parties.
29. If Grantor and Borrower are not the same person, the term "Grantor"
shall include Borrower.
30. If there shall be more than one Grantor, each shall be jointly and
severally liable for all obligations and liabilities of Grantor under this Deed
of Trust.
31. THIS WRITTEN DEED OF TRUST REPRESENTS THE FINAL AGREEMENT BETWEEN
GRANTOR AND BENEFICIARY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN GRANTOR AND BENEFICIARY.
EXECUTED as the ________ day of __________________, 1996.
GRANTOR:
DOCUCON, INCORPORATED
By:
Name:
Its:
STATE OF TEXAS ss.
ss.
COUNTY OF BEXAR ss.
This instrument was acknowledged before me on the _____ day of
______________, 1996, by ___________________, ________________ of Docucon,
Incorporated, on behalf of said corporation.
-----------------------------------
Notary Public, State of Texas
13
EXHIBIT 11
DOCUCON, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
---------------------------- -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
COMPUTATION OF PRIMARY EARNINGS PER SHARE:
Net income (loss) ...................................... $ 492,213 $ (182,273) $ 724,878 $ (889,215)
Less- Preferred stock dividend requirements .......... (13,597) (14,675) (42,473) (45,896)
------------ ------------ ------------ ------------
Net income (loss) applicable to common
stockholders used for computation .................. $ 478,616 $ (196,948) $ 682,405 $ (935,111)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING ....................................... 11,978,117 11,722,583 11,914,074 11,662,841
WEIGHTED AVERAGE INCREMENTAL SHARES OUTSTANDING
UPON ASSUMED CONVERSION OF OPTIONS AND WARRANTS ........ 578,350 -- 567,873 --
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS USED FOR COMPUTATION ....................... 12,556,467 11,722,583 12,481,947 11,662,841
============ ============ ============ ============
PRIMARY INCOME (LOSS) PER COMMON SHARE AND COMMON
SHARE EQUIVALENT ........................................ $ .04 $ (.02) $ .05 $ (.08)
============ ============ ============ ============
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE:
Net income (loss) .................................... $ 492,213 $ (182,273) $ 724,878 $ (889,215)
Preferred stock dividend requirements ................ (13,597) (14,675) (42,473) (45,896)
Preferred stock dividends not incurred upon
assumed conversion of preferred stock .............. 13,597 -- 42,473 --
------------ ------------ ------------ ------------
Net income (loss) available to common
stockholders used for computation .................. $ 492,213 $ (196,948) $ 724,878 $ (935,111)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING ....................................... 11,978,117 11,722,583 11,914,074 11,662,841
WEIGHTED AVERAGE INCREMENTAL SHARES OUTSTANDING
UPON ASSUMED CONVERSION OF OPTIONS AND WARRANTS ........ 578,350 -- 567,873 --
WEIGHTED AVERAGE INCREMENTAL SHARES OUTSTANDING
UPON ASSUMED CONVERSION OF THE PREFERRED STOCK ......... 658,689 -- 686,074 --
------------ ------------ ------------ ------------
WEIGHTED AVERAGE SHARES USED FOR COMPUTATION .............. 13,215,156 11,722,583 13,168,021 11,662,841
============ ============ ============ ============
INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE
EQUIVALENT ASSUMING FULL DILUTION ...................... $.04(a) $(.02)(a) $.06(a) $(.08)(a)
============ ============ ============ ============
</TABLE>
(a) This calculation is submitted in accordance with Item 601(b)(11) of
Regulation S-K although it is not required by APB Opinion No. 15
because it results in dilution of less than 3 percent or is
antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM DOCUCON, INC.'S FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,112
<SECURITIES> 0
<RECEIVABLES> 1,908,558
<ALLOWANCES> 4,444
<INVENTORY> 55,678
<CURRENT-ASSETS> 3,696,920
<PP&E> 7,209,268
<DEPRECIATION> 4,642,977
<TOTAL-ASSETS> 7,050,359
<CURRENT-LIABILITIES> 2,782,116
<BONDS> 1,472,271
0
19
<COMMON> 120,305
<OTHER-SE> 2,675,648
<TOTAL-LIABILITY-AND-EQUITY> 7,050,358
<SALES> 9,778,098
<TOTAL-REVENUES> 9,778,098
<CGS> 5,290,035
<TOTAL-COSTS> 8,954,027
<OTHER-EXPENSES> (8,180)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104,373
<INCOME-PRETAX> 727,878
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 724,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 682,405
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
