**Exhibit10.18**

 

THE SECURITIES REPRESENTED BY THIS NOTE HAVENOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1953, AS AMENDED (THE” SECURITIESACT”) OR THE LAWS OF ANY STATE.  THISNOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY BE PLEDGED, HYPOTHECATED,SOLD, TRANSFERRED OR OTHERWISE DISPOSED ONLY IF REGISTERED AND QUALIFIEDPURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR IFTHE COMPANY IS PROVIDED AN OPINION OF COUNSEL WHICH OPINION IS SATISFACTORY INFORM AND SUBSTANCE TO THE COMPANY, TO THE EFFECT THAT SUCH REGISTRATION ANDQUALIFICATION IS NOT REQUIRED.

 

SECUREDCONVERTIBLE PROMISSORY NOTE

 
| $[50,000] | March 16,  2004 |
|-----------|----------------------|

 

For valuereceived, 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 FBRFinancial Services Partners, L.P. (the “Holder”), the principal sum of FiftyThousand Dollars ($50,000), plus interest thereon from the date hereof untilpaid on the terms and conditions set forth herein; provided, however,that in the event this Note is converted into Stock (as defined below) asprovided herein, any obligation of the Company with respect to payment of suchamount shall be terminated as provided in this Note.  Payment for all amounts due hereunder shallbe made by mail or by wire to the address of the Holder.

 

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

 

1.                                       MaturityDate.  The unpaid principal balanceof this Note and all accrued but unpaid interest shall be due and payable onthe earlier of (i) **[November 1, 2005]**or (ii) when declared due and payable by the Holder upon the occurrence of anEvent of Default (as defined below) (the occurrence of any event under eithersubclause (i) or (ii) shall constitute the **“Maturity Date”**),unless this Note is earlier converted or paid in accordance with the termshereof.

 

2.                                       Interest.  This Note shall bear interest as the rate ofthe prime rate of interest plus four percent (4%) per annum, compounded quarterly. Interest will compound on the first dayof the quarter subsequent to the quarter earned.  The outstanding amount of the loan including interestwill be calculated using the following formula.

 

C0*(1+R / M) ^ N

 

Where;

 

C0 = the principalsum of Fifty Thousand Dollars ($50,000).

 

R   =the prime rate of interest plus four percent (4%) per annum.

 

M = the number of compounding periods peryear.

 

N   = the number of compounding periods since the inceptionof the note.

 

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The interest shall be paid on the MaturityDate.  Prime shall be defined as the baserate on corporate loans posted by at least 75% of the nation’s 30 largest banksas posted daily in the Wall Street Journal.

 

3.                                       SecurityInterest.   Payment of this note is secured by a security interestin certain collateral, pursuant to the terms and conditions of that certainAmended and Restated Security Agreement entered into among the Company, theHolder and the other lenders named therein concurrently with the execution ofthis Note (the **“Security Agreement”**).

 

4.                                       Eventsof Default.   If any of the followingevents specified in this Section 4 shall occur (herein individuallyreferred to as an **“Event of Default”**),the Holder may, so long as such condition exists, declare the entireoutstanding principal and any accrued and unpaid interest thereon due andpayable within 30 days, by notice in writing to the company:

 

(a)  The institution by the Company of proceedingsto be adjudicated as bankrupt or insolvent, or the consent by it to the institutionor bankruptcy or insolvency proceedings against it or the filing by it of apetition or answer or consent seeking reorganization or release under thefederal Bankruptcy Act, or any other similar federal or state bankruptcy orinsolvency law, or the consent by it to the filing of any such petition or theappointment of a receiver, liquidator, assignee, trustee or other similarofficial of the Company, or of any substantial part of its property, or themaking by it of an assignment for the benefit of creditors or the taking ofcorporate action by the Company in furtherance of any such action; or

 

(b)  If, within thirty (30) days after thecommencement of an action against the Company (and service of process inconnection therewith on the Company) seeking any bankruptcy, insolvency,reorganization, liquidation, dissolution or similar relief under any present orfuture statute, law or regulation, such action shall not have been resolved infavor of the Company or all orders or proceedings thereunder affecting theoperations or the business of the Company stayed, or if the stay of any suchorder or proceeding shall thereafter be set aside, or if, within thirty (30)days after the appointment without the consent or acquiescence of the Companyof any trustee, receiver or liquidator of the Company or of all or anysubstantial part of the properties of the Company, such appointment shall nothave been vacated; or

 

(c)  If the Company fails to pay (i) any interestor principal when due and payable hereunder, or (ii) any obligations other thaninterest and principal payable hereunder within five (5) days of the datewritten notice of demand for payment is received; or

 

(d)  Upon the occurrence of an event of defaultunder the Security Agreement, should such default not be cured within five (5)days of the date written notice thereof is given to the Company;

 

(e)  Upon the occurrence of an event of default asdefined in any material agreement or instrument to which the Company or thesubsidiaries is bound, beyond any period of grace;

 

(f)  Upon the incurrence of any indebtedness bythe Company or any of its subsidiaries other than (i) to pay off indebtedness owedby the Company its then existing lenders, NA or (ii) indebtedness not to exceed$5,000,000 in any single transaction or series of related transactions; or

 

(g)  any sale, merger or similar transaction orseries of related transactions in which the holders of the outstanding votingequity securities of the Company immediately prior to such

 

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transaction or series of related transactionsown less than a majority of the outstanding voting equity securities of theCompany (or the successor entity) upon the closing of such transaction orseries of related transactions, or

 

(h)  the sale of all or substantially all of theCompany’s assets.

 

5.                                       Prepayment.  Subject to the earlier conversion ofthis Note pursuant to Section 6, all or any portion of the unpaidprincipal balance outstanding under this Note may be prepaid at any time duringthe term of this Note at the option of the Company.  In the event Company elects to prepay thisNote, notice of such election shall be given to the Holder not less the sixty(60) days prior to the date of prepayment. Each such notice shall state the amount of principal to be paid in cash,the date on which such prepayment will occur and the place at which Holder isto surrender this Note to the Company. Such notice by the Company shall be delivered to the Holder at theaddress last shown on the records of the Company for the Holder or given by theHolder to the Company for the purpose of notice.  In the event only a portion of this Note isprepaid, the Company shall at the time of prepayment and receipt of this Note,deliver to the Holder a new Note evidencing the remaining unpaid principal balanceof this Note, which Note shall in all other respects be identical with thisNote.

 

6.                                       OptionalConversion.   All or any portion ofthe unpaid principal balance and any accrued but unpaid interest outstandingunder this Note may be converted (the “Optional Conversion”) at any time at theoption of the Holder into fully paid and nonassessable shares of capital commonstock of the Company (the **“Stock”**).  The number of shares of Stock into which thisNote is to be converted shall be determined by dividing said unpaid principalbalance and all accrued but unpaid interest by the Conversion Price.  The Conversion Price shall be calculated atthe time of the Optional Conversion based on a company valuation of 90% of 12times the average prior 12 months monthly revenue prior to the OptionalConversion, the result will then be divided by the number of then outstandingshares on a fully converted basis.

 

7.                                       ConversionProcedure.

 

7.1  Noticeof Conversion.  If the Holder desiresto convert the Note, this Holder shall provide written notice to the Company RevCareInc., 5400 Orange Avenue, Suite 200, Cypress, California 90630, Attention:Manuel Occiano, Chief Executive Officer, notifying the Company of the requestedconversion to be effected.  Within ten(10) days of receipt of such notice, the Company shall respond to the Holder’srequest in writing, specifying the number of shares of Stock to be issued uponconversion, the date on which such conversion will occur and calling upon theHolder to surrender to the Company, in the manner and at the place designatedthis Note.  Such response by the Companyshall be delivered to the Holder at the address last shown on the records ofthe Company for the Holder or given by the Holder to the Company for thepurpose of notice.

 

7.2  Mechanicsand Effect of Conversion.  Nofractional shares of Stock shall be issued upon conversion of this Note.  In lieu of the Company issuing any fractionalshares to the Holder upon the conversion of this Note, the Company shall pay tothe Holder the amount of outstanding principal or interest that is not soconverted.  Upon the conversion of thisNote, the Holder shall surrender this Note, duly endorsed, at the principaloffice of the Company.  Upon conversion ofthis Note, the Company shall be forever released from all its obligations andliabilities under this Note.

 

7.3  Deliveryof Stock Certificate.  As promptly aspracticable after the conversion of this Note, the Company at its expense willissue and deliver to the Holder a certificate or certificates for the number offull shares of Stock issuable upon such conversion (bearing such legends as arerequired by applicable state and federal securities laws in the opinion ofcounsel to the Company), together with any

 

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other securities and property to which the Holder is entitled upon suchconversion under the terms of this Note, including a check payable to theHolder for any fractional shares as described above.  In the event only a portion of this Note isconverted the Company shall, at the time of delivery of the stock certificateor certificates, deliver to the Holder a new Note evidencing the remainingunpaid principal balance of this Note, which Note shall in all other respectsbe identical with this Note.

 

7.4  IdenticalTerms.  Subject to the Holder’sexecution of any necessary investment documents executed by the other investorsin the Financing, any shares of Stock received by the Holder pursuant to theconversion of this Note shall have the same rights, preferences and privilegesgranted to the other investors in the Financing and under such investmentdocuments.

 

8.               InvestmentRepresentations.  The Holder herebymakes the representations, warranties and covenants set forth on theRepresentation Statement attached hereto as Attachment A, as of the date hereofand as of the date of any conversion of this Note, as though suchrepresentations, warranties and covenants were fully set forth herein.

 

9.                                       Assignment.  Subject to the restrictions on transferdescribed in Section 11 below, the rights and obligations of the Companyand the Holder shall be binding upon and benefit the successors, assigns, heirs,administrators and transferees of the parties.

 

10.                                 Amendments; Waivers.  Any term of this Note may be amended orwaived with the written consent of the Company and the Holder.  Any amendment or waiver effected inaccordance with this Section 10 shall be binding upon the Holder, suchfuture Holder and the Company.  Nowaivers of, or exceptions to, any term, condition or provision of the Note, inany one or more instances, shall be deemed to be, or construed as, a further orcontinuing waiver of any such term, condition or provision and shall not bevalid unless in writing.

 

11.         Transfers.  This Note may not be transferred or assignedin whole or in part without compliance with all applicable federal and statesecurities laws by the transferor and the transferee (including the delivery ofinvestment representation letters).  Subject to compliance with such applicablefederal and state securities laws, title to this Note may be transferred byendorsement and delivery in the same manner as a negotiable instrumenttransferable by endorsement and delivery.

 

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

 

13.         Governing Law.  This Agreement shall be governed by andconstrued under the laws of the State of California (irrespective of itsconflict of laws principles).

 

14.         Subordination.  This Note and the rights of the Holderhereunder and under the Security Agreement are subordinate to the rights ofBridge Bank, N.A. pursuant to the terms of a Subordination Agreement (the **“Subordination Agreement”**). Nothing contained in this Noteshall directly or indirectly modify the provisions of the SubordinationAgreement in any manner which might terminate or impair the subordination ofthe Subordinated debt is (as defined in the Subordination Agreement) or thesubordination of the security interest or lien that the Holder may have in anyproperty of Maker or its subsidiaries.

 

15.         IntercreditorAgreement.  This Agreement and therights of Holder hereunder are subject to the terms of an Amended and RestatedIntercreditor Agreement of August 29, 2003, as such agreement may beamended from time to time (the **“Intercreditor Agreement”**).  Nothing contained in this Note

 

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shall directly or indirectly modify the provisions of the IntercreditorAgreement in any manner which might terminate or impair the parties’ rightsunder each agreement and in the event of any conflict between this Note and theIntercreditor Agreement, the Intercreditor Agreement shall control.

 

16.                                 Miscellaneous.  Holder will receive copies of all forms 10-K,10-Q and 8-K (or equivalents within 5 days of filling with the Securities andExchange Commission, while any debt to lender is outstanding.

 

17.                                 Use of Proceeds. The proceeds of this Note shall be usedfor working capital.

 

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

 
|   | REVCARE, INC. |
|--------|---------------|
|   |          |
|   | By:           |   | /s/ Manuel Occiano |   |
|   | Name:         | Manuel Occiano |   |
|   | Title:        | CEO |   |
|   |          |

 

Acknowledged:

 

Holder:

 
|                                |                                       |
|-------------------------------------|--------------------------------------------|
| FBR FINANCIAL SERVICES Partners, LP |                                       |
|                                |
| By:                                 |   /s/ George  L. McCabe Jr. |   |
| Name:                               | George L. McCabe Jr.                       |   |
| Title:                              | MANAGING DIRECTOR                          |   |
|                                     |                                            |  |  |  |  |

 

**DO NOTDESTROY THIS ORIGINAL NOTE When paid, said original Note must be surrendered tothe Company for cancellation and retention.**

 

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**ATTACHMENTA**

 

**REPRESENTATIONSTATEMENT**

 

The undersigned Holder represents, covenants and agrees as follows:

 

1.                                       Purchase forOwn Account.  The Secured ConvertiblePromissory Note issued by Revcare, Inc., a Delaware corporation (the “**Company**”) to be acquired by Holder (the “Note”) and theshares of capital stock of the Company issued upon conversion of the Note (the“**Shares**”) (collectively, the “**Securities**”) will be acquired for Investment for Holder’sown account, not as a nominee or agent, and not with a view to the publicresale or distribution thereof within the meaning of the Securities Act of1933, as amended, (the “**1933 Act**”), andHolder has no present intention of selling, granting any participation in, orotherwise distributing the same Holder also represents that Holder has not beenformed for the specific purpose of acquiring the Securities.

 

2.                                       Disclosure ofInformation.  Holder believes it hasreceived or has had full access to all the information it considers necessaryor appropriate to make an informed investment decision with respect to theSecurities to be received by Holder under the Note.  Holder further has had an opportunity to askquestions and receive answers from the Company regarding the terms andconditions of the investment in the Securities and to obtain additionalinformation to the extent the Company possessed such information or couldacquire it without unreasonable effort on expense) necessary to verify anyinformation furnished to Holder or to which Holder had access.

 

3.                                       InvestmentExperience.  Holder understands thatthe investment in the Securities involves substantial risk.  Holder has experience as an investor insecurities and acknowledges that Holder is able to fend for itself, can bearthe economic risk of Holder’s investment in the Securities and has suchknowledge and experience in financial or business matters that Holder iscapable of evaluating the merits and risks of this investment in the Securitiesand protecting its own interests in connection with this investment.

 

4.                                       AccreditedInvestor Status.  Holder is an“accredited investor” within the meaning of Regulation D promulgated under the1933 Act.

 

5.                                       RestrictedSecurities.  Holder understands thatthe Securities will be characterized as “restricted securities” under the 1933act in as much as they are being acquired from the Company in a transaction notinvolving a public offering and that under the 1933 Act and applicableregulations thereunder, such securities may be resold without registrationunder the 1933 Act only in certain limited circumstances.  In this connection, Holder represents thatHolder is familiar with Rule 144 promulgated by the Securities and ExchangeCommission, as presently in effect, and understands the resale limitationsimposed thereby and by the 1933 Act. Holder understands that the Company isunder no obligation to register any of the Securities.

 

6.                                       Legends.  It is understood that the certificatesevidencing the Securities will bear the legends set forth below:

 

(a)                                  THE SECURITIESREPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE.  THESE SECURITIES ARE SUBJECT TO RESTRICTIONSON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT ASPERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATIONOR AN EXEMPTION THEREFROM.  THE ISSUER OF

 

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THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM ANDSUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFEROR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIESLAWS.

 

(b)                                 Any legend required bythe laws of the State of California, including any legend required by theCalifornia Department of Corporations and Sections 417 and 418 of theCalifornia Corporations Code or any other state securities laws.

 

The legend set forth in (a) above shall be removed by the Company fromany certificate evidencing the Securities upon delivery to the Company of anopinion by counsel, reasonably satisfactory to the Company, that a registrationstatement under the 1933 Act is at that time in effect with respect to thelegended security or that such security can be freely transferred in a publicsale without such a registration statement being in effect; provided, however,that no opinion of counsel shall be required for such a transfer in compliancewith Rule 144.

 

7.                                       “Market StandOff” Agreement.  If requested by theCompany and an underwriter of shares of the common stock of the Company, Holderherby agrees not to sell or otherwise transfer or dispose of any shares of thecommon stock (or other securities of the Company then owned by Holder (otherthan those included in the registration) during the one hundred eighty (180)day period (or such shorter period as is permitted or requested by theunderwriter) following the effective date of a registration statement of theCompany filed under the 1933 Act.  Inorder to enforce the above covenant, the Company shall have the right to placerestrictive legends of the certificates representing the registrable securitiessubject to this Section 7 and to impose stop-transfer instructions withrespect to the shares (or securities) subject to the foregoing restriction.

 
|    | **HOLDER**    FBR FINANCIAL PARTNERS, LP |
|---------|----------------------------------------------------|
| 3-16-04 |                                               |   |
| (Date)  |                                               | /s/ George  L. McCabe |   |
|    | (Signature)                                        |   |
|    |                                               |   |
|    | GEORGE L. McCABE,  JR                              |   |
|    | (Print Name)                                       |   |

 

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