Exhibit 10.18

 

THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR THE LAWS OF ANY
STATE.  THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY BE
PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED ONLY IF
REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND
STATE SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL, WHICH
OPINION IS SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, TO THE EFFECT THAT
SUCH REGISTRATION AND QUALIFICATION IS NOT REQUIRED.

 

CONVERTIBLE PROMISSORY NOTE

 

Open Line of Credit

 

 

Maximum Principal Amount $1,000,000

 

September 19, 2002

 

In payment of monies loaned or to be loaned, RevCare, Inc., a Nevada corporation
(the “Company”), the principal offices of which are located at 5400 Orange
Avenue, Suite 200, Cypress, California 90630, for value received hereby promises
to pay to FBR Financial Services Partners, L.P. (the “Holder”), the principal
sum of all outstanding amounts advanced or to be advanced from time to time by
the Holder to or on behalf of the Company on the terms and conditions set forth
hereinafter.  Each advance made by the Holder and all payments made by the
Company under this Note shall be recorded by the Holder on the attached Schedule
of Advances and Payments.  The outstanding principal and any accrued and unpaid
interest thereon shall be due and payable on the earlier of (i) demand by the
Holder or (ii) when declared due and payable by the Holder upon the occurrence
of an Event of Default (as defined below) (the occurrence of any event under
either subclause (i) or (ii) shall constitute the “Maturity Date”); provided,
however, that the Holder shall not be entitled to demand any payment hereunder
prior to such time as the Senior Indebtedness has been paid in full.  For
purposes of this Note, the “Senior Indebtedness” shall mean all amounts owed by
the Company to Manual Occiano, Russell and Suzette M. Mohrmann, RBA Rem-Care,
Inc., Insource Medical Solutions, LLC and Hospital Employee Labor Pool
(collectively, the “Senior Lenders”) under any promissory note and/or security
agreement between the Company and any Senior Lender in effect as of the date
hereof and; provided, further, that in the event this Note is converted into
Common Stock (as defined below) as provided herein, any obligation of the
Company with respect to payment of such amount shall be terminated.  Payment for
all amounts due hereunder shall be made by mail to the address of the Holder.

 

The following is a statement of the rights of the Holder and the conditions to
which this Note is subject, and to which the Holder hereof, by the acceptance of
this Note, agrees:

 

1.             Interest.  This Note shall bear interest at the rate of twelve
percent (12%) per annum, compounded quarterly.  The interest shall be paid on
the Maturity Date.

 

2.             Events of Default.  If any of the following events specified in
this Section 2 shall occur (herein individually referred to as an “Event of
Default”), the Holder may, so long as such

 

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condition exists, declare the entire outstanding principal and any accrued and
unpaid interest thereon immediately due and payable, by notice in writing to the
Company:

 

(A)           THE INSTITUTION BY THE COMPANY OF PROCEEDINGS TO BE ADJUDICATED AS
BANKRUPT OR INSOLVENT, OR THE CONSENT BY IT TO THE INSTITUTION OF BANKRUPTCY OR
INSOLVENCY PROCEEDINGS AGAINST IT OR THE FILING BY IT OF A PETITION OR ANSWER OR
CONSENT SEEKING REORGANIZATION OR RELEASE UNDER THE FEDERAL BANKRUPTCY ACT, OR
ANY OTHER SIMILAR FEDERAL OR STATE BANKRUPTCY OR INSOLVENCY LAW, OR THE CONSENT
BY IT TO THE FILING OF ANY SUCH PETITION OR THE APPOINTMENT OF A RECEIVER,
LIQUIDATOR, ASSIGNEE, TRUSTEE OR OTHER SIMILAR OFFICIAL OF THE COMPANY, OR OF
ANY SUBSTANTIAL PART OF ITS PROPERTY, OR THE MAKING BY IT OF AN ASSIGNMENT FOR
THE BENEFIT OF CREDITORS, OR THE TAKING OF CORPORATE ACTION BY THE COMPANY IN
FURTHERANCE OF ANY SUCH ACTION; OR

 

(B)           IF, WITHIN THIRTY (30) DAYS AFTER THE COMMENCEMENT OF AN ACTION
AGAINST THE COMPANY (AND SERVICE OF PROCESS IN CONNECTION THEREWITH ON THE
COMPANY) SEEKING ANY BANKRUPTCY, INSOLVENCY, REORGANIZATION, LIQUIDATION,
DISSOLUTION OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE STATUTE, LAW OR
REGULATION, SUCH ACTION SHALL NOT HAVE BEEN RESOLVED IN FAVOR OF THE COMPANY OR
ALL ORDERS OR PROCEEDINGS THEREUNDER AFFECTING THE OPERATIONS OR THE BUSINESS OF
THE COMPANY STAYED, OR IF THE STAY OF ANY SUCH ORDER OR PROCEEDING SHALL
THEREAFTER BE SET ASIDE, OR IF, WITHIN THIRTY (30) DAYS AFTER THE APPOINTMENT
WITHOUT THE CONSENT OR ACQUIESCENCE OF THE COMPANY OF ANY TRUSTEE, RECEIVER OR
LIQUIDATOR OF THE COMPANY OR OF ALL OR ANY SUBSTANTIAL PART OF THE PROPERTIES OF
THE COMPANY, SUCH APPOINTMENT SHALL NOT HAVE BEEN VACATED; OR

 

(C)           IF THE COMPANY FAILS TO PAY (I) ANY INTEREST OR PRINCIPAL WHEN DUE
AND PAYABLE HEREUNDER, OR (II) ANY OBLIGATIONS OTHER THAN INTEREST AND PRINCIPAL
PAYABLE HEREUNDER WITHIN FIVE (5) DAYS OF THE DATE WRITTEN NOTICE OF DEMAND FOR
PAYMENT IS RECEIVED; OR

 

(D)           UPON THE OCCURRENCE OF AN EVENT OF DEFAULT AS DEFINED IN ANY
MATERIAL AGREEMENT OR INSTRUMENT TO WHICH THE COMPANY IS BOUND, BEYOND ANY
PERIOD OF GRACE.

 

3.             Prepayment.  The Company may prepay, in whole or in part at any
time, without any penalty, the outstanding principal balance under this Note,
provided the Company has paid all Senior Indebtedness in full.

 

4.             Company Covenant.  The Company  hereby covenants and agrees that
it will not incur any additional indebtedness for borrowed money without the
written consent of the Holder.

 

5.             Optional Conversion.  All or any portion of the unpaid principal
balance and any accrued but unpaid interest outstanding under this Note may be
converted into fully paid and nonassessable shares of capital stock of the
Company (the “Stock”) concurrently upon or at any time following a Financing (as
defined below) at the option of Holder.  The Stock shall have all of the rights,
preferences and privileges of the capital stock issued in the Financing.  The
number of shares of Stock into which this Note is to be converted shall be
determined by dividing said unpaid principal balance and all accrued but unpaid
interest by the Conversion Price.  The “Conversion Price” shall be determined at
such time as the Company closes an equity financing of Stock with gross proceeds
to the Company of least $4,000,000 (the “Financing”) and the Conversion Price
shall be equal to eighty-five percent (85%) of the price per share at which the
Stock is sold in the Financing.

 

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6.             Conversion Procedure.

 

6.1           NOTICE OF CONVERSION.  IF HOLDER DESIRES TO CONVERT THE NOTE,
HOLDER SHALL PROVIDE WRITTEN NOTICE TO THE COMPANY AT REVCARE, INC., 5400 ORANGE
AVENUE, SUITE 200, CYPRESS, CALIFORNIA 90630, ATTENTION:  MANUEL OCCIANO, CHIEF
EXECUTIVE OFFICER, NOTIFYING THE COMPANY OF THE REQUESTED CONVERSION TO BE
EFFECTED.  WITHIN TEN (10) DAYS OF RECEIPT OF SUCH NOTICE, COMPANY SHALL RESPOND
TO HOLDER’S REQUEST IN WRITING, SPECIFYING THE NUMBER OF SHARES OF COMMON STOCK
TO BE ISSUED UPON CONVERSION, THE AMOUNT OF ACCRUED INTEREST TO BE PAID IN CASH,
THE DATE ON WHICH SUCH CONVERSION WILL OCCUR AND CALLING UPON SUCH HOLDER TO
SURRENDER TO THE COMPANY, IN THE MANNER AND AT THE PLACE DESIGNATED, THIS NOTE. 
SUCH RESPONSE BY THE COMPANY SHALL BE DELIVERED TO HOLDER AT THE ADDRESS LAST
SHOWN ON THE RECORDS OF THE COMPANY FOR HOLDER OR GIVEN BY HOLDER TO THE COMPANY
FOR THE PURPOSE OF NOTICE.

 

6.2           MECHANICS AND EFFECT OF CONVERSION.  NO FRACTIONAL SHARES OF
COMMON STOCK SHALL BE ISSUED UPON CONVERSION OF THIS NOTE.  IN LIEU OF THE
COMPANY ISSUING ANY FRACTIONAL SHARES TO HOLDER UPON THE CONVERSION OF THIS
NOTE, THE COMPANY SHALL PAY TO HOLDER THE AMOUNT OF OUTSTANDING PRINCIPAL THAT
IS NOT SO CONVERTED.  UPON THE CONVERSION OF THIS NOTE, HOLDER SHALL SURRENDER
THIS NOTE, DULY ENDORSED, AT THE PRINCIPAL OFFICE OF THE COMPANY.  UPON
CONVERSION OF THIS NOTE, THE COMPANY SHALL BE FOREVER RELEASED FROM ALL ITS
OBLIGATIONS AND LIABILITIES UNDER THIS NOTE.

 

6.3           DELIVERY OF STOCK CERTIFICATES.  AS PROMPTLY AS PRACTICABLE AFTER
THE CONVERSION OF THIS NOTE, THE COMPANY AT ITS EXPENSE WILL ISSUE AND DELIVER
TO HOLDER A CERTIFICATE OR CERTIFICATES FOR THE NUMBER OF FULL SHARES OF COMMON
STOCK ISSUABLE UPON SUCH CONVERSION (BEARING SUCH LEGENDS AS ARE REQUIRED BY
APPLICABLE STATE AND FEDERAL SECURITIES LAWS IN THE OPINION OF COUNSEL TO THE
COMPANY), TOGETHER WITH ANY OTHER SECURITIES AND PROPERTY TO WHICH HOLDER IS
ENTITLED UPON SUCH CONVERSION UNDER THE TERMS OF THIS NOTE, INCLUDING A CHECK
PAYABLE TO HOLDER FOR ANY CASH AMOUNTS PAYABLE FOR ANY ACCRUED BUT UNPAID
INTEREST AND FRACTIONAL SHARES AS DESCRIBED ABOVE.  IN THE EVENT ONLY A PORTION
OF THIS NOTE IS CONVERTED, THE COMPANY SHALL, AT THE TIME OF DELIVERY OF THE
STOCK CERTIFICATE OR CERTIFICATES, DELIVER TO HOLDER A NEW NOTE EVIDENCING THE
REMAINING UNPAID PRINCIPAL BALANCE OF THIS NOTE, WHICH NOTE SHALL IN ALL OTHER
RESPECTS BE IDENTICAL WITH THIS NOTE.

 

7.             Investment Representations.  Holder acknowledges that this Note
and the Common Stock issuable upon the conversion of this Note (i) constitute
“securities” under federal and applicable state securities laws, (ii) will be
unregistered as such, and (iii) are being transferred in reliance upon
exemptions from registration based, in part, upon Holder’s representations
contained herein.  Holder is acquiring such securities for its own account and
not with a view to, or for sale in connection with, any distribution thereof.

 

8.             Assignment.  Subject to the restrictions on transfer described in
Section 10 below, the rights and obligations of the Company and the Holder shall
be binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties.

 

9.             Amendments; Waivers.  Any term of this Note may be amended or
waived with the written consent of the Company and the Holder. Any amendment or
waiver effected in accordance with this Section 9 shall be binding upon the
Holder, each future Holder and the

 

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Company.  No waivers of, or exceptions to, any term, condition or provision of
this Note, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision and
shall not be valid unless in writing.

 

10.           Transfers.  This Note may not be transferred or assigned in whole
or in part without compliance with all applicable federal and state securities
laws by the transferor and the transferee (including the delivery of investment
representation letters).  Subject to compliance with such applicable federal and
state securities laws, title to this Note may be transferred by endorsement and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery.

 

11.           Attorneys’ Fees; Waivers.   The Company agrees to pay the Holder’s
reasonable costs incurred in collecting and enforcing this Note, including
reasonable attorneys’ fees.  The Company hereby waives demand, notice,
presentment, protest and notice of dishonor.

 

12.           Governing Law.  This Agreement shall be governed by and construed
under the laws of the State of California (irrespective of its conflict of laws
principles).

 

IN WITNESS WHEREOF, the Company has caused this Note to be issued in Cypress, CA
as of the date set forth above.

 

 

REVCARE, INC.

 

 

 

 

 

By:

 /s/ Manuel Occiano

 

 

Name:

  Manuel Occiano

 

 

Title:

    CEO

 

 

DO NOT DESTROY THIS ORIGINAL NOTE: When paid, said original Note must be
surrendered to the Company for cancellation and retention.

 

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