**Exhibit 10.20**

 

THE SECURITIESREPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF1933, AS AMENDED (THE “SECURITIES ACT”) OR THE LAWS OF ANY STATE. THIS NOTE ANDTHE 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.

 

SECURED CONVERTIBLEPROMISSORY NOTE

 

| $[100,000] |   | 12/29, 2004 |
|------------|--------|-------------|

 

For value received, RevCare, Inc., a Nevada corporation (the **“Company”**), the principal offices of which are located at 5400 OrangeAvenue, Suite 200, Cypress, California 90630, for value received herebypromises to pay to FBR Financial Services Partners, L.P. (the **“Holder”**), the principal sum of One Hundred Thousand Dollars ($100,000),plus interest thereon from the date hereof until paid on the terms andconditions set forth herein; provided, however, that in the eventthis Note is converted into Stock (as defined below) as provided herein, anyobligation of the Company with respect to payment of such amount shall beterminated as provided in this Note. Payment for all amounts due hereundershall be made by mail or by wire to the address of the Holder.

 

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

 

1.               MaturityDate. The unpaid principalbalance of this Note and all accrued but unpaid interest shall be due andpayable on the earlier of (i) **[November 1,****2005]** or (ii) when declared dueand payable by the Holder upon the occurrence of an Event of Default (asdefined below) (the occurrence of any event under either subclause (i) or (ii)shall constitute the **“Maturity Date”),**unlessthis Note is earlier converted or paid in accordance with the terms hereof.

 

2.               Interest. This Note shall bear interest at the rate ofthe prime rate of interest plus four percent (4%) per annum, compoundedquarterly. Interest will compound on the first day of the quarter subsequent tothe quarter earned. The outstanding amount of the loan including interest willbe calculated using the following formula:

 

C0*(1+R/M)^N

 

Where:

 

C0= the principal sum of Fifty Thousand Dollars ($100,000),

 

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

 

M= the number of compounding periods per year,

 

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

 

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Theinterest shall be paid on the Maturity Date. 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 thisNote is secured by a security interest in certain collateral, pursuant to theterms and conditions of that certain Amended and Restated Security Agreemententered into among the Company, the Holder and the other lenders named thereinconcurrently with the execution of this Note (the “**Security Agreement**”).

 

4.               Eventsof Default. If any of thefollowing events specified in this Section 4 shall occur (hereinindividually referred to as an “**Event of Default**”), the Holder may,so long as such condition exists, declare the entire outstanding principal andany accrued and unpaid interest thereon due and payable within 30 days, bynotice in writing to the Company:

 

(a)          Theinstitution by the Company of proceedings to be adjudicated as bankrupt orinsolvent, or the consent by it to the institution of bankruptcy or insolvencyproceedings against it or the filing by it of a petition or answer or consent seekingreorganization or release under the federal Bankruptcy Act, or any othersimilar federal or state bankruptcy or insolvency law, or the consent by it to thefiling of any such petition or the appointment of a receiver, liquidator,assignee, trustee or other similar official of the Company, or of anysubstantial part of its property, or the making by it of an assignment for thebenefit of creditors, or the taking of corporate action by the Company infurtherance 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 anybankruptcy, insolvency, reorganization, liquidation, dissolution or similarrelief under any present or future statute, law or regulation, such actionshall not have been resolved in favor of the Company or all orders or proceedingsthereunder affecting the operations or the business of the Company stayed, orif the stay of any such order or proceeding shall thereafter be set aside, orif, within thirty (30) days after the appointment without the consent oracquiescence of the Company of any trustee, receiver or liquidator of theCompany or of all or any substantial part of the properties of the Company,such appointment shall not have been vacated; or

 

(c)          Ifthe Company fails to pay (i) any interest or principal when due and payablehereunder, or (ii) any obligations other than interest and principal payablehereunder within five (5) days of the date written notice of demand for paymentis received; or

 

(d)         Uponthe occurrence of an event of default under the Security Agreement, should suchdefault not be cured within five (5) days of the date written notice thereof isgiven to the Company;

 

(e)          Uponthe occurrence of an event of default as defined in any material agreement orinstrument to which the Company or its subsidiaries is bound, beyond any periodof grace;

 

(f)            Uponthe incurrence of any indebtedness by the Company or any of its subsidiariesother than (i) to pay off indebtedness owed by the Company its then existinglenders, NA or (ii) indebtedness not to exceed $5,000,000 in any singletransaction or series of related transactions; or

 

(g)         anysale, merger or similar transaction or series of related transactions in whichthe holders of the outstanding voting equity securities of the Companyimmediately prior to such

 

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transactionor series of related transactions own less than a majority of the outstandingvoting equity securities of the Company (or the successor entity) upon theclosing of such transaction or series of related transactions, or

 

(h)         thesale of all or substantially all of the Company’s assets.

 

5.               Prepayment. Subject to the earlier conversion of thisNote pursuant to Section 6, all or any portion of the unpaid principalbalance outstanding under this Note may be prepaid at any time during the termof this Note at the option of the Company. In the event Company elects toprepay this Note, notice of such election shall be given to the Holder not lessthan sixty (60) days prior to the date of prepayment. Each such notice shallstate the amount of principal to be paid in cash, the date on which suchprepayment will occur and the place at which Holder is to surrender this Noteto the Company. Such notice by the Company shall be delivered to the Holder atthe address last shown on the records of the Company for the Holder or given bythe Holder to the Company for the purpose of notice. In the event only aportion of this Note is prepaid, the Company shall, at the time of prepaymentand receipt of this Note, deliver to the Holder a new Note evidencing theremaining unpaid principal balance of this Note, which Note shall in all otherrespects be identical with this Note.

 

6.               OptionalConversion. All or anyportion of the unpaid principal balance and any accrued but unpaid interestoutstanding under this Note may be converted (the “Optional Conversion”) at anytime at the option of the Holder into fully paid and nonassessable shares ofcapital common stock of the Company (the **“Stock”**). Thenumber of shares of Stock into which this Note is to be converted shall be determinedby dividing said unpaid principal balance and all accrued but unpaid interest bythe Conversion Price. The Conversion Price shall be calculated at the time ofthe Optional Conversion based on a company valuation of 90% of 12 times theaverage prior 12 months monthly revenue prior to the Optional Conversion, theresult will then be divided by the number of then outstanding shares on a fullyconverted basis.

 

7.               ConversionProcedure.

 

7.1         Noticeof Conversion. If the Holderdesires to convert the Note, this Holder shall provide written notice to theCompany at RevCare, Inc., 5400 Orange Avenue, Suite 200, Cypress, California90630, Attention: Manuel Occiano, Chief Executive Officer, notifying theCompany of the requested conversion to be effected. Within ten (10) days ofreceipt of such notice, the Company shall respond to the Holder’s request inwriting, specifying the number of shares of Stock to be issued upon conversion,the date on which such conversion will occur and calling upon the Holder tosurrender to the Company, in the manner and at the place designated, this Note.Such response by the Company shall be delivered to the Holder at the addresslast shown on the records of the Company for the Holder or given by the Holderto the Company for the purpose of notice.

 

7.2         Mechanicsand Effect of Conversion. Nofractional shares of Stock shall be issued upon conversion of this Note. Inlieu of the Company issuing any fractional shares to the Holder upon the conversionof this Note, the Company shall pay to the Holder the amount of outstandingprincipal or interest that is not so converted. Upon the conversion of thisNote, the Holder shall surrender this Note, duly endorsed, at the principaloffice of the Company. Upon conversion of this Note, the Company shall beforever released from all its obligations and liabilities under this Note.

 

7.3         Deliveryof Stock Certificates. Aspromptly as practicable after the conversion of this Note, the Company at itsexpense will issue and deliver to the Holder a certificate or certificates for thenumber of full shares of Stock issuable upon such conversion (bearing suchlegends as are required by applicable state and federal securities laws in theopinion of counsel to the Company), together with any

 

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othersecurities and property to which the Holder is entitled upon such conversionunder the terms of this Note, including a check payable to the Holder for anyfractional shares as described above. In the event only a portion of this Noteis converted, the Company shall, at the time of delivery of the stockcertificate or certificates, deliver to the Holder a new Note evidencing theremaining unpaid principal balance of this Note, which Note shall in all otherrespects be identical with this Note.

 

7.4         IdenticalTerms.  Subject to the Holder’s execution of anynecessary investment documents executed by the other investors in theFinancing, 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 hereby makes the representations,warranties and covenants set forth on the Representation Statement attachedhereto as Attachment A, as of the date hereof and as of the date of anyconversion of this Note, as though such representations, warranties and covenantswere fully set forth herein.

 

9.               Assignment.  Subject to the restrictions on transfer described in Section 11below, the rights and obligations of the Company and the Holder shall bebinding upon and benefit the successors, assigns, heirs, administrators andtransferees of the parties.

 

10.         Amendments;Waivers. Any term of thisNote may be amended or waived with the written consent of the Company and theHolder. Any amendment or waiver effected in accordance with this Section 10shall be binding upon the Holder, each future Holder and the Company. Nowaivers of, or exceptions to, any term, condition or provision of this 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.  ThisNote may not be transferred or assigned in whole or in part without compliancewith all applicable federal and state securities laws by the transferor and thetransferee (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 samemanner as a negotiable instrument transferable by endorsement and delivery.

 

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

 

13.         GoverningLaw. This Agreement shall begoverned by and construed under the laws of the State of California (irrespectiveof its conflict 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 (as defined in the Subordination Agreement) or the subordinationof the security interest or lien that the Holder may have in any property ofMaker or its subsidiaries.

 

15.         IntercreditorAgreement.  This Agreement and the rights of Holderhereunder are subject to the terms of an Amended and Restated IntercreditorAgreement of August 29, 2003, as such agreement may be amended from timeto time (the **Intercreditor Agreement”**). Nothing contained in this Note

 

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shalldirectly or indirectly modify the provisions of the Intercreditor Agreement inany manner which might terminate or impair the parties’ rights under suchagreement 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 filing with the Securities andExchange Commission, while any debt to lender is outstanding.

 

17.         Useof Proceeds.  The proceeds of this Note shall be used forworking 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:            |   PRESIDENT/CEO |   |
|            |                   |  |  |  |  |

 

 
| Acknowledged: |
|---------------|
|          |
|          |
| HOLDER:       |
|          |
|          |
|          |   |
|          |
|          |
| By:           |   |   |   |
| Name:         |   |   |   |
| Title:        |   |   |   |
|          |   |
|               |  |  |  |  |  |

 

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

 

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ATTACHMENT A

 

REPRESENTATION STATEMENT

 

Theundersigned Holder represents, covenants and agrees as follows:

 

1.               Purchasefor Own Account.  The Secured Convertible Promissory Note issuedby Revcare, Inc., a Delaware corporation (the **“Company”**) to be acquired by Holder (the **“Note”**) and the shares of capital stock of the Companyissued upon conversion of the Note (the **“Shares”**) (collectively, the **“Securities”**) will be acquired for investment for Holder’s own account, not asa nominee or agent, and not with a view to the public resale or distributionthereof within the meaning of the Securities Act of 1933, 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 notbeen formed for the specific purpose of acquiring the Securities.

 

2.               Disclosureof Information.  Holder believes it has received or has hadfull access to all the information it considers necessary or appropriate tomake an informed investment decision with respect to the Securities to bereceived by Holder under the Note. Holder further has had an opportunity to askquestions and receive answers from the Company regarding the terms and conditionsof the investment in the Securities and to obtain additional information (tothe extent the Company possessed such information or could acquire it withoutunreasonable effort or expense) necessary to verify any information furnished toHolder or to which Holder had access.

 

3.               InvestmentExperience. Holderunderstands that the investment in the Securities involves substantial risk.Holder has experience as an investor in securities and acknowledges that Holderis able to fend for itself, can bear the economic risk of Holder’s investmentin the Securities and has such knowledge and experience in financial orbusiness matters that Holder is capable of evaluating the merits and risks ofthis investment in the Securities and protecting its own interests in connectionwith this investment.

 

4.               AccreditedInvestor Status. Holder isan “accredited investor” within the meaning of Regulation D promulgated underthe 1933 Act.

 

5.               RestrictedSecurities. Holderunderstands that the Securities will be characterized as “restricted securities”under the 1933 Act inasmuch as they are being acquired from the Company in a transactionnot involving 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 that Holder is familiar with Rule 144 promulgated by theSecurities and Exchange Commission, as presently in effect, and understands theresale limitations imposed thereby and by the 1933 Act. Holder understands thatthe Company is under 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)          THESECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACTOF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE.THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE ANDMAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT ANDAPPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTIONTHEREFROM. THE ISSUER OF

 

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THESESECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORYTO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS INCOMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

(b)         Anylegend required by the laws of the State of California, including any legendrequired by the California Department of Corporations and Sections 417 and 418of the California 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.               “MarketStand-Off Agreement. Ifrequested by the Company and an underwriter of shares of the common stock ofthe Company, Holder hereby agrees not to sell or otherwise transfer or disposeof any shares of the common stock (or other securities) of the Company thenowned by Holder (other than those included in the registration) during the onehundred eighty (180) day period (or such shorter period as is permitted orrequested by the underwriter) following the effective date of a registrationstatement of the Company filed under the 1933 Act. In order to enforce theabove covenant, the Company shall have the right to place restrictive legendson the certificates representing the registrable securities subject to this Section 7and to impose stop-transfer instructions with respect to the shares (orsecurities) subject to the foregoing restriction.

 

 
|   | **HOLDER**   |
|--------|--------------|
|   | ** **   |
|   |         | ** ** | ** ** |
| (Date) |         | (Signature) |   |
|   |         |
|   |         |   |
|   | (Print Name) |   |

 

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