Document:

Exhibit 10.7

 

AMENDED AND RESTATED
SECURITY AGREEMENT

 

THIS
AMENDED AND RESTATED SECURITY AGREEMENT (this “Agreement”) is dated as of
the 8th day of January, 2003 by and among RevCare, Inc., a Nevada corporation
(“Debtor”),
and the persons listed on the signature pages hereto (collectively, the “Secured
Parties”).

 

W
I  T  N  E  S  S  E  T  H:

 

WHEREAS,
Debtor and its subsidiary, Orange County Professional Services, Inc., a
California corporation (“OCPS”), previously issued certain
Convertible Secured Promissory Notes dated August 14, 2000 (as the same
may have been amended, restated, supplemented or otherwise modified from time
to time prior to the date hereof, collectively, the “Original Notes”), in favor of
the Secured Parties, in an aggregate original principal sum of Four Million Two
Hundred Thousand Dollars ($4,200,000).

 

WHEREAS,
the obligations of Debtor and OCPS under the Original Notes were secured
pursuant to the terms of a Security Agreement dated August 14, 2000 (the “Original
Security Agreement”).

 

WHEREAS,
Debtor has paid in full certain of the Original Notes and is concurrently
herewith amending and restating the terms and conditions with respect to the
sums still outstanding under the remaining Original Notes pursuant to the terms
and conditions of the following promissory notes (collectively, the “Notes”):

 

(1)                                  That
certain Secured Convertible Promissory Note dated January 8, 2003 issued
by Debtor in favor of Russ Mohrmann and Suzette Mohrmann in the original
principal amount of $1,373,981.03;

 

(2)                                  That
certain Secured Convertible Promissory Note dated January 8, 2003 issued
by Debtor in favor of RBA Rem-Care, Inc. in the original principal amount of
$412,435.40;

 

(3)                                  That
certain Secured Convertible Promissory Note dated January 8, 2003 issued
by Debtor in favor of Insource Medical Solutions, LLC in the original principal
amount of $198,442.10;

 

(4)                                  That
certain Secured Convertible Promissory Note dated January 8, 2003 issued
by Debtor in favor of Hospital Employee Labor Pool in the original principal amount
of $583,653.23; and

 

(5)                                  That
certain Secured Convertible Promissory Note dated August 14, 2000 issued
by Debtor in favor of Rob and Barbara Perez in the original principal amount of
$1,225,000, as amended by that certain Modification Agreement dated
January 8, 2003.

 

WHEREAS,
the parties desire to amend and restate the Original Security Agreement in its
entirety.

 

 

NOW,
THEREFORE, in consideration of the foregoing and in order to induce the Secured
Parties to make the financial accommodations to Debtor as set forth under the
Notes, and for other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, Debtor hereby agrees with the
Secured Parties as follows:

 

1.                                       Grant
of Security Interests.  In order to
secure the prompt and complete payment and performance of the Secured
Obligations (as defined below) in accordance with the terms thereof, Debtor
hereby grants to the Secured Parties a security interest in and to all right,
title and interest of Debtor in the following property, (all being collectively
referred to as the “Collateral”):

 

(a)                                  All
goods, inventory, merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Debtor’s custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;

 

(b)                                 All
general intangibles (other than the “Intellectual Property” described in
paragraph (e)), contract right, leases, license agreements, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kind;

 

(c)                                  All
accounts, contract rights, royalties, license rights and all other forms of
obligations owing to Debtor, whether or not arising out of the sale or lease of
goods, the licensing of technology or the rendering of services by Debtor, and
whether or not earned by performance, and any and all credit insurance, guaranties,
and other security therefor, as well as all merchandise returned to or
reclaimed by Debtor;

 

(d)                                 All
documents, cash, deposit accounts, securities, investment property, letters of
credit, certificates of deposit, instruments and chattel paper and Debtor’s
books relating to the foregoing;

 

(e)                                  All
goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent
applications, copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished; all trade secret rights, including all rights
to unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; all
mask work or similar rights available for the protection of semiconductor
chips; all claims for damages by way of any past, present and future
infringement of any of the foregoing, , collectively the “Intellectual
Property”. Lender’s Security Interest in any Intellectual Property is only to
the extent that (i) such Intellectual Property is proceeds of collateral other
than Intellectual Property or (ii) any collateral described in paragraph (c)
above is proceeds of such Intellectual Property; and

 

2

 

(f)                                    All
Debtor’s books relating to the foregoing and any and all claims, rights and
interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.

 

(g)                                 All
shares of capital stock in OCPS held by Debtor (the “Shares”); and

 

(h)                                 All
proceeds of, and all other profits, rentals or receipts, in whatever form,
arising from the collection, sale, lease, exchange, assignment, licensing or
other disposition of, or realization upon, any of the Collateral described in
subclauses (a) through (g) above including, without limitation, all claims of
Debtor against third parties for loss of, damage to or destruction of, or for
proceeds payable under, or unearned premiums with respect to, policies of
insurance with respect to any Collateral, and any condemnation or requisition
payments with respect to any Collateral, in each case whether now existing or
hereafter arising.

 

2.                                       Security
for Secured Obligations.  This
Agreement secures the prompt and complete payment and performance of the debts,
obligations and liabilities of Debtor to the Secured Parties under the Notes,
together with any renewals, extensions, restructurings and refinancings thereof
(all such debts, obligations and liabilities of Debtor being collectively
referred to herein as the “Secured Obligations”).

 

3.                                       Debtor
Remains Liable.  Anything herein to
the contrary notwithstanding: (a) Debtor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed; (b) the exercise by the
Secured Parties of any of the rights granted hereunder shall not release Debtor
from any of its duties or obligations under the contracts and agreements
included in the Collateral; and (c) the Secured Parties shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Secured Parties be
obligated to perform any of the obligations or duties of Debtor thereunder or
to take any action to collect or enforce any claim for payment assigned
hereunder.

 

4.                                       Further
Assurances; Covenants.

 

4.1                                 Other
Documents and Actions.  Debtor will,
from time to time, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable, or
that the Secured Parties may reasonably request, in order to perfect and protect
the security interests granted hereby or to enable the Secured Parties to
exercise and enforce their rights and remedies hereunder with respect to any
Collateral.  Without limiting the
generality of the foregoing, Debtor will: (a) execute and file such financing
or continuation statements, or amendments thereto, and such other instruments
or notices, as may be necessary or desirable, or as the Secured Parties may
request, in order to perfect and preserve the security interests granted hereby
and (b) upon the Secured Parties’ reasonable request, appear in and defend any
action or proceeding that may affect Debtor’s title to or the security
interests of the Secured Parties in the Collateral.

 

4.2                                 The
Secured Parties Authorized.  Debtor
hereby authorizes the Secured Parties to file one or more financing or
continuation statements, and amendments thereto,

 

3

 

relating to
all or any part of the Collateral without the signature of Debtor to the extent
permitted by law.

 

4.3                                 Taxes
and Claims.  Debtor will pay
promptly when due all property and other taxes, assessments and governmental
charges or levies imposed upon, and all claims against, the Collateral
(including claims for labor, materials and supplies), except to the extent the
validity thereof is being contested in good faith.

 

4.4                                 Insurance.  Debtor shall insure the Collateral against
risk of loss or damage by fire, including extended coverage, theft, and other
casualties in an amount equal to the full replacement cost thereof, without
deduction for depreciation.

 

4.5                                 Corporate
or Name Change.  Debtor will give
the Secured Parties sixty (60) days prior written notice of any change in
Debtor’s name, identity, corporate structure or place of business.

 

4.6                                 No
Distributions.  OCPS shall not, and
Debtor shall not cause OCPS to, pay any dividend or make any distribution to
Debtor in respect of the Shares; provided, however, that
nothing contained herein shall prohibit payments on the Notes out of the assets
of OCPS.

 

5.                                       The
Secured Parties Appointed Attorney-in-Fact.  Debtor hereby irrevocably appoints the Secured Parties as
Debtor’s attorney-in-fact, with full authority in the place and stead of Debtor
and in the name of Debtor, the Secured Parties or otherwise, from time to time
in the Secured Parties’ discretion to take any action and to execute any
instrument that the Secured Parties may deem reasonably necessary or advisable
to accomplish the purposes of this Agreement. 
This power, being coupled with an interest, is irrevocable so long as
this Agreement shall remain in force.

 

6.                                       Transfers
and Other Liens.  Debtor shall not:

 

(a)                                  sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral, except in the ordinary course of
business; or

 

(b)                                 create
or suffer to exist any lien, security interest or other charge or encumbrance
upon or with respect to any of the Collateral to secure indebtedness of any
person except in the ordinary course of business, as disclosed on Schedule 1
or as otherwise permitted under the Notes or this Agreement.

 

7.                                       Pledgeholder,
Delivery of Share Certificates.

 

(a)                                  Debtor
and the Secured Parties hereby designate Andrew Talley, counsel to the Secured
Parties, to act as the pledgeholder (the “Pledgeholder”) of the Shares during the
term of this Agreement.  Except as
provided above, the designated Pledgeholder may be changed only upon the mutual
consent of the parties.  Concurrently
with the execution of this Agreement, Debtor shall deliver to Pledgeholder a
certificate registered in the name of Debtor with separate stock assignment
forms endorsed in blank and undated evidencing the Shares to be held by
Pledgeholder in accordance with the terms of this Agreement.  Debtor agrees to deposit with

 

4

 

Pledgeholder
in the same manner all additional share certificates evidencing additional
Shares which may from time to time be issued by OCPS to Debtor during the term
of this Agreement.

 

(b)                                 Pledgeholder
is not the agent of the Secured Parties or Debtor for the purposes of the
Pledgeholder’s duties hereunder and is not responsible for knowing or
interpreting any provision of the Notes or this Agreement.  Pledgeholder shall perform his duties and
obligations under this Agreement only upon receipt of written instructions of
either the Secured Parties or Debtor, as the case may be, or their authorized
agents or representatives.  Copies of
all instructions delivered to Pledgeholder shall concurrently be delivered to
the noninstructing party at the address set forth on the signature page.

 

(c)                                  In
the event Pledgeholder receives conflicting instructions or demands or an
objection to any one set of instructions, Pledgeholder shall immediately notify
the parties of such conflict or objection and shall take no action of any
nature whatsoever so long as such conflict or objection continues.  In so doing, Pledgeholder shall not be or
become liable for any damages to the parties for Pledgeholder’s failure to
comply with conflicting demands or instructions.  Pledgeholder shall continue to refrain from taking any action
until all differences have been resolved by the mutual agreement of the
parties, a copy of which shall be delivered to Pledgeholder, or until the
rights of the parties have been finally adjudicated in a court of proper
jurisdiction.  Upon the request of
either Debtor or the Secured Parties, Pledgeholder shall file a suit in
interpleader or for a declaratory judgment for the purpose of having the
respective rights of the parties adjudicated in respect to this Agreement and
the Shares held by Pledgeholder.  The
parties jointly and severally agree to pay all costs and expenses, including
reasonable attorneys’ fees, incurred by Pledgeholder; provided, however,
the prevailing party in such action shall have the right to reimbursement from
the other party for all costs and expenses including attorneys’ fees paid by
such prevailing party to Pledgeholder pursuant to this Agreement.

 

(d)                                 The
parties shall jointly and severally indemnify, defend and hold Pledgeholder
harmless from and against any and all claims, losses and liabilities, including
attorneys’ fees, arising out of or in connection with serving as Pledgeholder,
provided Pledgeholder shall not be indemnified for bad faith conduct or
intentional misconduct.

 

(e)                                  The
parties agree so long as there is no default under the Notes or this Agreement,
the Shares shall be held of record by Debtor. 
Debtor shall not vote the Shares for any plan to terminate, liquidate,
or wind-up or dissolve, or merge, consolidate, reorganize or otherwise alter
the form of OCPS, or to sell or otherwise transfer all or substantially all of
the assets of OCPS without obtaining the prior written consent of the Secured
Parties.  In the event of default, the
Shares shall be held of record by the Secured Parties, and they may vote the
Shares for all purposes as they determine in their sole discretion.

 

(f)                                    Debtor
agrees that if any of the following events of default occur, and such default
is not cured within ten (10) days after written notice thereof is delivered to
Debtor at its last known address, Pledgeholder may transfer the Shares to the
Secured Parties without any further instruction from Debtor, and Debtor shall
not object to or contest any such transfer of the Shares by Pledgeholder:

 

5

 

(i):                                  the
failure of Debtor to make the payments required under Section 1 of that certain
Modification Agreement between Russ Mohrmann and Debtor dated January
    , 2003 by March in accordance with the terms set
forth therein; or

 

(ii):                               the
failure of Debtor to make the payments required under Section 1 of that certain
Modification Agreement between Rob Perez and Debtor dated January
    , 2003 by March in accordance with the terms set
forth therein; or

 

(iii):                            the
failure of Debtor to pay any Note in full on January 5, 2004; or

 

(iv)                              the
filing by Debtor of any form, report or document required to be filed with the
Securities and Exchange Commission (“SEC”) in accordance with the requirements
of the Securities Act or the Securities and Exchange Act of 1934, as amended,
and the rules and regulations of the SEC thereunder which reflects that total
shareholders’ equity is below Two Million Seven Hundred Thousand Dollars
($2,700,000).

 

8.                                       Remedies.  Debtor’s default in the payment of
indebtedness under the Secured Obligations or material default in the
performance of its obligations under the Notes or this Agreement shall
constitute an event of default.  If any
default shall have occurred and be continuing for a period of thirty (30) days
after notice thereof to Debtor, the Secured Parties shall have (a) in respect
of the Collateral, all rights and remedies provided for herein or otherwise
available to it all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect on the date hereof in the State of
California (“UCC”), and (b) all rights and remedies of the Secured Parties
provided for herein or otherwise available to it under the Notes.

 

9.                                       Termination
of Security Interests; Release of Collateral.  Upon payment in full of the Notes, the security interests granted
hereunder shall terminate and all rights to the Collateral shall revert to
Debtor.  Upon such termination of the
security interests or release of any Collateral, the Secured Parties will
execute and deliver to Debtor such documents as Debtor shall reasonably request
to evidence the termination of such security interests or the release of such
Collateral, as the case may be.

 

10.                                 Attorneys’
Fees.  Should any Secured Obligation
or any part thereof be collected at law or in equity or through any bankruptcy,
receivership, probate or other court proceedings or by any judicial or
nonjudicial foreclosure proceeding, or if any Secured Obligation is referred to
an attorney for collection after default, Debtor agrees to pay reasonable
attorneys’ fees and  collection and
enforcement costs and expenses.

 

11.                                 Severability.  If any of the provisions of this Agreement
shall be held to be invalid or unenforceable, this Agreement shall be construed
as if not containing those provisions and the rights and obligations of the
parties hereto shall be construed and enforced accordingly.

 

12.                                 Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

6

 

13.                                 Choice
of Law.  This Agreement shall be construed
in accordance with and governed by the laws of the State of California without
regard to the conflicts of law principals thereof.  The UCC as it now exists and as it may hereafter be amended, is
hereby expressly incorporated into this Agreement as if it were fully set forth
herein.

 

14.                                 Integration.  This Agreement and the Notes contain the
entire agreement of the parties relating to the subject matter hereof and
supersedes all prior agreements, understandings, representations and
acknowledgements of the parties.  There
are no representations, agreements, arrangements or understandings, oral or
written, between the parties hereto relating to the subject matter of this
Agreement which are not fully expressed in this Agreement and the Notes.

 

15.                                 Waivers
and Amendments.  No change,
modification, extension, termination or waiver of the Agreement, or any of the
provisions herein contained, shall be valid unless made in writing and signed
by duly authorized representatives of the parties hereto.

 

16.                                 Successors
and Assigns.  In the event of an
assignment of all or any of the Secured Obligations, the rights hereunder, to
the extent applicable to the Secured Obligations so assigned, may be
transferred with such Secured Obligations. 
This Agreement shall be binding on Debtor and its successors and
assigns.

 

17.                                 Headings.  Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any substantive
effect.

 

18.                                 Notices.  Any notices or other communications pursuant
to this Agreement shall be deemed to have been given when delivered personally,
or five (5) days after delivery when deposited in the United States mail,
registered or certified, with proper postage and registration or certification
fees prepaid, or one (1) day after delivery when delivered to Federal Express
or a similar overnight carrier, addressed to parties at the addresses set forth
on the signature pages hereto or to such other addresses as may be designated
by any of the parties from time to time by written notice given to the other
party(ies) in the aforesaid manner.

 

19.                                 Subordination.  The Notes, this Agreement and the rights of
the Secured Parties hereunder and under the Notes are or will be subordinate to
the rights of Bridge Bank, NA pursuant to the terms of a Subordination
Agreement (the “Subordination Agreement”). 
Nothing contained in the Notes or this Agreement shall directly or
indirectly modify the provisions of the Subordination Agreement in any manner
which might terminate or impair the subordination of the Subordinated Debt (as
defined in the Subordination Agreement) or the subordination of the security
interest or lien that the Secured Parties may have in any property of Debtor or
its subsidiaries.

 

[Remainder of page
intentionally left blank]

 

7

 

IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
set forth above.

 

	
   

  	
  DEBTOR:

  
	
   

  	
   

  
	
   

  	
  REVCARE,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Fred McGee

  
	
   

  	
  Name:

  	
  Fred McGee

  
	
   

  	
  Title:

  	
  CFO

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  5400
  Orange Avenue, Suite 200

  Cypress, CA 90630

  
				

 

8

 

	
   

  	
  SECURED
  PARTIES:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Russell E. Mohrmann

  
	
   

  	
  Russ
  Mohrmann

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Suzette M. Mohrmann

  
	
   

  	
  Suzette
  M. Mohrmann

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  9432
  Walker Ranch Circle

  Villa Park, CA 92861-2820

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RBA
  Rem-Care, Inc.,

  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Russell E. Mohrmann

  
	
   

  	
  Name:

  	
  Russell
  E. Mohrmann

  
	
   

  	
  Its:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Insource
  Medical Solutions, LLC,

  
	
   

  	
  a
  California limited liability corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Russell E. Mohrmann

  
	
   

  	
  Name:

  	
  Russell
  E. Mohrmann

  
	
   

  	
  Its:

  	
  Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Hospital
  Employee Labor Pool, a California

  Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Russell E. Mohrmann

  
	
   

  	
  Name:

  	
  Russell
  E. Mohrmann

  
	
   

  	
  Its:

  	
  President

  
					

 

9

 

	
   

  	
  /s/ Rob Perez

  
	
   

  	
  Rob
  Perez

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Barbara C. Perez

  
	
   

  	
  Barbara
  C. Perez

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  9752
  Villa Woods Dr.

  Villa Park, CA 92861

  

 

10

 

SCHEDULE I

 

Permitted Encumbrances and Security Interests

 

1.                                       The Collateral
is subject to certain liens created by security interests granted to Bridge
Bank, NA.  Any and all claims Bridge
Bank, NA may have for payment, damages and/or any sums relating to the secured
obligations of Debtor to such holder are and shall be superior and prior to any
and all existing or future Secured Obligations.

 

11Exhibit
10.8

 

AMENDED
AND RESTATED EMPLOYMENT AGREEMENT

 

This Amended and Restated Employment Agreement (this “Agreement”)
is made as of January 8, 2003 between RevCare, Inc., a Nevada corporation
(the “Company”),
and Russ Mohrmann (“Executive”).  This Agreement amends and restates in its entirety that certain
Employment Agreement between Executive and Orange County Professional Services,
Inc. dated August 14, 2000.

 

1.                                       Employment.  The Company shall employ Executive, and
Executive hereby accepts employment with the Company, upon the terms and
conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in paragraph 4 hereof (the “Employment Period”).

 

2.                                       Position
and Duties.  The Company hereby
engages Executive as an employee of the Company.  During the Employment Period, Executive shall render services to
the Company and its subsidiaries as the Company’s board of directors (the “Board”),
or a person designated by the Board, may from time to time direct.  During the Employment Period, Executive
shall report to the Board, or a person designated by the Board, and shall
devote his best efforts and attention to the business and affairs of the
Company and its subsidiaries.  Executive
shall act as an “Ambassador” for the Company and its subsidiaries, acting as a
key salesperson with existing clients and soliciting and generating new
business opportunities.  As an exempt
employee who will be spending a majority of his time out of the office with
clients, Executive will not be required to account to the Company for a strict
40 hour week.  Executive’s duties will
not include the duties of an executive officer, except, on an interim basis, as
Executive and the Board may mutually agree. 
Executive shall perform his duties, responsibilities and functions to
the Company and its subsidiaries hereunder to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.

 

3.                                       Compensation
and Benefits.

 

(a)                                  During
the Employment Period, Executive’s base salary shall be $200,000.00 per
annum or such other increased rate as the Board may determine from time to time
(as adjusted from time to time, the “Base Salary”), which salary shall be
payable by the Company in regular installments in accordance with the Company’s
general payroll practices.  The Base
Salary shall not be subject to decrease. 
In addition, during the Employment Period, Executive shall be entitled
to participate in all of the Company’s employee welfare benefit programs for
which senior executive employees of the Company and its subsidiaries are
generally eligible, and Executive shall be entitled to four weeks of paid
vacation each year, which if not taken during any year may not be carried
forward to any subsequent year.

 

(b)                                 In
addition to the Base Salary, the Board may, in its sole discretion, award a
bonus to Executive following the end of each fiscal year during the Employment
Period based upon Executive’s performance and the Company’s operating results
during such year.

 

(c)                                  Executive
shall be entitled to such fringe benefits and perquisites as are generally made
available to executive officers of the Company, and such other fringe benefits
as may be approved by the Board for executive officers of the Company during
the term hereof.

 

1

 

(d)                                 During
the Employment Period, the Company shall reimburse Executive for all reasonable
expenses incurred by him in the course of performing his duties and
responsibilities under this Agreement which are consistent with the Company’s
policies in effect from time to time for key employees with respect to travel,
entertainment, auto and other business expenses, subject to the Company’s
requirements with respect to reporting and documentation of such expenses.

 

(e)                                  Executive
may receive such grants of equity-based compensation (e.g., option
grants for Company common stock), if any, as shall be determined within the
sole discretion of the Board (or any committee of the Board which is appointed
to consider matters relative to equity-based compensation).

 

(f)                                    All
amounts payable to Executive as compensation hereunder shall be subject to all
required withholding by the Company.

 

4.                                       Term.

 

(a)                                  Subject
to prior termination of this Agreement as hereinafter provided, the Employment
Period shall end on January 5, 2004 and shall automatically be renewed on
the same terms and conditions set forth herein as modified from time to time by
the parties hereto for additional one-year periods beginning on January 6,
2004, unless the Company or Executive gives the other party written notice of
the election not to renew the Employment Period at least 60 days prior to any
such renewal date;  provided
that (i) the Employment Period shall terminate prior to such date immediately
upon Executive’s resignation, death or inability to perform the essential
duties, responsibilities and functions of Executive’s position with the Company
and its subsidiaries as a result of any mental or physical disability or
incapacity even with reasonable accommodations of such disability or incapacity
provided by the Company and its subsidiaries or if providing such
accommodations would be unreasonable (as determined by the Board in its good
faith judgment), (ii) the Employment Period may be terminated by the Executive
at any time prior to such date upon at least ninety (90) days prior notice to
the Company, (iii) the Employment Period may be terminated by the Company at
any time prior to such date, with Cause (as defined herein) upon at least
ninety (90) days prior notice to the Executive, or (iv) the Employment Period
may be terminated by the Company at any time prior to such date, upon five (5)
days prior notice to the Executive, upon payment by the Company in full of the
promissory notes described in Exhibit A hereto (the “Notes”).  The Company may elect to accelerate the
effective date of termination, but Executive shall still be entitled to receive
the compensation and benefits payable hereunder until the ninety (90) day
notice period has expired.

 

(b)                                 For
purposes of this Agreement, “Cause” shall mean (i) commission of a
felony or other crime involving moral turpitude or the commission of any other
act or omission involving dishonesty, disloyalty or fraud with respect to the
Company or any of its subsidiaries or any of their customers, (ii) reporting to
work under the influence of alcohol or illegal drugs, the use of illegal drugs
(whether or not at the workplace) or other repeated conduct causing the Company
or any of its subsidiaries substantial public disgrace or disrepute or economic
harm, (iii) substantial and repeated failure to perform duties as reasonably
directed by the Board, (iv) gross negligence or willful misconduct with respect
to the Company or any of its subsidiaries or (v) any material breach of this Agreement.

 

2

 

5.                                       Confidential
Information.  Executive acknowledges
that the information, observations and data (including trade secrets) obtained
by him while employed by the Company and its subsidiaries concerning the
business or affairs of the Company and any of its subsidiaries (“Confidential
Information”) are the property of the Company or such
Affiliate.  Therefore, Executive agrees
that he shall not disclose to any unauthorized person or use for his own
purposes any Confidential Information without the prior written consent of the
Board, unless and to the extent that the Confidential Information becomes
generally known to and available for use by the public other than as a result
of Executive’s acts or omissions. 
Executive shall deliver to the Company at the termination or expiration
of the Employment Period, or at any other time the Company may request, all
memoranda, notes, plans, records, reports, computer tapes, printouts and
software and other documents and data (and copies thereof) embodying or
relating to the Confidential Information, Work Product (as defined below) or
the business of the Company and its subsidiaries which he may then possess or
have under his control.

 

6.                                       Inventions
and Patents.  Executive acknowledges
that all inventions, innovations, improvements, developments, methods, designs,
analyses, drawings, reports and all similar or related information (whether or
not patentable) which relate to the Company’s or any of its subsidiaries’
actual or anticipated business, research and development or existing or future
products or services and which are conceived, developed or made by Executive
while employed by the Company and its subsidiaries (“Work Product”) belong to the
Company or such Affiliate.  Executive
shall promptly disclose such Work Product to the Board and, at the Company’s
expense, perform all actions reasonably requested by the Board (whether during
or after the Employment Period) to establish and confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).  If applicable, this
Agreement does not apply to inventions which qualify fully for protection under
Section 2870 of the California Labor Code (which, if applicable, could apply to
ideas or inventions for which no equipment, supplies, facility or trade secret
information of the Company or its subsidiaries were used and which were
developed entirely on Executive’s own time, and (i) which do not relate at the
time of conception or reduction to practice of the invention (A) to the actual
business of the Company or its subsidiaries, or (B) to the Company or its
subsidiaries actual or demonstrably anticipated research or development or (ii)
which do not result from any work performed by Executive for the Company or its
subsidiaries.  Notwithstanding the
foregoing, Executive shall disclose in confidence to the Company any invention
in order to permit the Company to make a determination as to compliance by
Executive with the terms and conditions of this Agreement.

 

7.                                       Enforcement.  If, at the time of enforcement of paragraph
5 or 6 of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area.  Because Executive’s services are unique and
because Executive has access to Confidential Information and Work Product, the
parties hereto agree that money damages would not be an adequate remedy for any
breach of this Agreement.  Therefore, in
the event a breach or threatened breach of this Agreement, the Company or its
successors or assigns, in addition to other rights and remedies existing in
their favor, shall be entitled to specific performance and/or injunctive or
other equitable relief from a court of competent jurisdiction in order to
enforce, or prevent any violations of, the provisions hereof (without posting a
bond or other security).

 

3

 

8.                                       Board
Seat.  Concurrently upon the
execution of this Agreement, Executive shall be elected to serve as a member of
the Board of the Company.  With respect
to all elections of directors occurring prior to the payment in full of the
Notes, the Company shall nominate, and use its reasonable efforts to cause the
election of, Executive to serve as a member of the Board of the Company.  Upon the earlier of (i) the termination or
expiration of the Employment Period or (ii) the payment in full of the Notes,
at the Board’s request, Executive shall resign as a director of the Company.

 

9.                                       Executive’s
Representations.  Executive hereby
represents and warrants to the Company that (a) the execution, delivery and
performance of this Agreement by Executive do not and shall not conflict with,
breach, violate or cause a default under any contract, agreement, instrument,
order, judgment or decree to which Executive is a party or by which he is
bound, (b) Executive is not a party to or bound by any employment
agreement, noncompete agreement or confidentiality agreement with any other
person or entity except the Non-Competition Agreement between Executive and the
Company dated August 14, 2000, and (c) upon the execution and delivery of
this Agreement by the Company, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms.  Executive hereby acknowledges and represents
that he has had an opportunity to consult with independent legal counsel
regarding his rights and obligations under this Agreement and that he fully
understands the terms and conditions contained herein.

 

10.                                 Survival.  Paragraphs 5 through 7 and 9 through 19
shall survive and continue in full force in accordance with their terms
notwithstanding the expiration or termination of the Employment Period.

 

11.                                 Notices.  Any notice provided for in this Agreement
shall be in writing and shall be either personally delivered, sent by reputable
overnight courier service or mailed by first class mail, return receipt
requested, to the recipient at the address below indicated:

 

Notices to Executive:

 

Russ Mohrmann

9432 Walker Ranch Circle

Villa Park, CA 92816-2820

 

With a copy to:

 

Andrew A. Talley, Esq.

Attorney at Law

500 N. State College Blvd., Suite 1030

Orange, CA 92868

 

4

 

Notices to the Company:

 

RevCare, Inc.

5400 Orange Avenue, Suite 200

Cypress, CA 90630

attn: Chief Financial Officer

 

or such other
address or to the attention of such other person as the recipient party shall
have specified by prior written notice to the sending party.  Any notice under this Agreement shall be
deemed to have been given when so delivered, sent or mailed.

 

12.                                 Severability.  Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any action in any other jurisdiction, but
this Agreement shall be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision had never been contained
herein.

 

13.                                 Complete
Agreement.  This Agreement embodies
the complete agreement and understanding among the parties and supersedes and
preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way, including, without limitation, any prior understandings,
agreements or representations between Executive, on the one hand, and the
Company and its subsidiaries, on the other hand.

 

14.                                 No
Strict Construction.  The language
used in this Agreement shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction shall
be applied against any party.

 

15.                                 Counterparts.  This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.

 

16.                                 Successors
and Assigns.  This Agreement is
intended to bind and inure to the benefit of and be enforceable by Executive,
the Company and their respective heirs, successors and assigns, except that
Executive may not assign his rights or delegate his duties or obligations hereunder
without the prior written consent of the Company.

 

17.                                 Choice
of Law.  All issues and questions
concerning the construction, validity, enforcement and interpretation of this
Agreement and the exhibits and schedules hereto shall be governed by, and construed
in accordance with, the laws of the State of California, without giving effect
to any choice of law or conflict of law rules or provisions (whether of the
State of California or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of California.

 

5

 

18.                                 Amendment
and Waiver.  The provisions of this
Agreement may be amended or waived only with the prior written consent of the
Company (as approved by the Board) and Executive, and no course of conduct or
course of dealing or failure or delay by any party hereto in enforcing or
exercising any of the provisions of this Agreement (including, without
limitation, the Company’s right to terminate the Employment Period for Cause)
shall affect the validity, binding effect or enforceability of this Agreement
or be deemed to be an implied waiver of any provision of this Agreement.

 

19.                                 Arbitration.  Except with respect to disputes or claims
under paragraphs 5 and 6 hereof (which may be pursued in any court of competent
jurisdiction as specified below and with respect to which each party shall bear
the cost of its own attorney’s fees and expenses except as otherwise required
by applicable law), each party hereto agrees that the arbitration procedure set
forth in Exhibit B hereto shall be the sole and exclusive method
for resolving any claim or dispute (“Claim”) arising out of or relating to the
rights and obligations acknowledged and agreed to in this Agreement and the
employment of Executive by the Company and its subsidiaries (including, without
limitation, disputes and claims regarding employment discrimination, sexual
harassment, termination and discharge), whether such Claim arose or the facts
on which such Claim is based occurred prior to or after the execution and
delivery of adoption of this Agreement. 
The parties agree that the result of any arbitration hereunder shall be
final, conclusive and binding on all of the parties.  Nothing in this paragraph shall prohibit a party hereto from
instituting litigation to enforce any “Final Determination” (as defined in Exhibit
B hereto).  Each party hereto hereby
irrevocably submits to the jurisdiction of any United States District Court or
California state court of competent jurisdiction sitting in Orange County,
California, and agrees that such court shall be the exclusive forum with
respect to disputes and claims under paragraphs 5 and 6 and for the enforcement
of any Final Determination.  Each party
hereto irrevocably consents to service of process by registered mail or
personal service and waives any objection on the grounds of personal
jurisdiction, venue or inconvenience of the forum.  Each party hereto further agrees that each other party hereto may
initiate litigation in any court of competent jurisdiction to execute any
judicial judgment enforcing a Final Determination.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

 

	
   

  	
  REVCARE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Fred McGee

  
	
   

  	
  Name:

  	
  Fred McGee

  
	
   

  	
  Title:

  	
  CFO

  	 

	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Russell E.
  Mohrmann

  
	
   

  	
  RUSS MOHRMANN

  
					

 

6

 

Exhibit
A

 

1.                                       That
certain Secured Convertible Promissory Note dated January 8, 2003 issued
by RevCare, Inc. in favor of Russ Mohrmann and Suzette Mohrmann in the original
principal amount of $1,373,981.03;

 

2.                                       That
certain Secured Convertible Promissory Note dated January 8, 2003 issued
by RevCare, Inc. in favor of RBA Rem-Care, Inc. in the original principal
amount of $412,435.40;

 

3.                                       That
certain Secured Convertible Promissory Note dated January 8, 2003 issued
by RevCare, Inc. in favor of Insource Medical Solutions, LLC in the original
principal amount of $198,442.10; and

 

4.                                       That
certain Secured Convertible Promissory Note dated January 8, 2003 issued
by RevCare, Inc. in favor of Hospital Employee Labor Pool in the original
principal amount of $583,653.23.

 

A-1

 

Exhibit
B

 

ARBITRATION PROCEDURE

 

1.                                       Notice
of Claim.  A party asserting a Claim
(the “Claimant”)
shall deliver written notice to each party against whom the Claim is asserted
(collectively, the “Opposing Party”), with a copy to the
persons required to receive copies of notices under the Agreement (the “Additional
Notice Parties”), specifying the nature of the Claim and requesting
a meeting to resolve same.  The
Additional Notice Parties shall be given reasonable notice of and invited and
permitted to attend any such meeting. 
If no resolution is reached within 10 business days after delivery of
such notice, the Claimant or the Opposing Party may, within 45 days after
giving such notice, invoke the arbitration procedure provided herein by
delivering to each Opposing Party and the Additional Notice Parties a Notice of
Arbitration, which shall specify the Claim as to which arbitration is sought,
the nature of the Claim, the basis for the Claim, and the nature and amount of
any damages or other compensation or relief sought (a “Notice of Arbitration”).  Each party agrees that no punitive damages
may be sought or recovered in any arbitration, judicial proceeding or
otherwise.  Failure to file a Notice of
Arbitration within 45 days shall constitute a waiver of any right to relief for
the matters asserted in the notice of claim. 
Any Claim shall be forever barred, and no relief may be sought therefor,
if written notice of such Claim is not made as provided above within one year
of the date such claim accrues.

 

2.                                       Selection
of Arbitrator.  Within 20 business
days after receipt of the Notice of Arbitration, the Executive and the Board
shall meet and attempt to agree on an arbitrator to hear and decide the
Claim.  If the Executive and the Board
cannot agree on an arbitrator within ten business days, then they shall request
the Judicial Arbitration and Mediation Service (“JAMS”) in Orange County,
California to appoint an arbitrator experienced in the area of dispute who does
not have an ongoing business relationship with any of the parties to the
dispute.  If the arbitrator selected
informs the parties he cannot hear and resolve the Claim within the time-frame
specified below, the Executive and the Board shall request the appointment of
another arbitrator by the JAMS subject to the same requirements.

 

3.                                       Arbitration
Procedure.  The following procedures
shall govern the conduct of any arbitration under this section.  All procedural matters relating to the
conduct of the arbitration other than those specified below shall be discussed
among counsel for the parties and the arbitrator.  Subject to any agreement of the parties, the arbitrator shall
determine all procedural matters not specified herein.

 

(a)                                  Within
30 days after the delivery of a Notice of Arbitration, each party shall afford
the other, or its counsel, with reasonable access to documents relating
directly to the issues raised in the Notice of Arbitration.  All documents produced and all copies
thereof shall be maintained as strictly confidential, shall be used for no
purpose other than the arbitration hereunder, and shall be returned to the
producing party upon completion of the arbitration.  There shall be no other discovery except that, if a reasonable
need is shown, limited depositions may be allowed in the discretion of the arbitrator,
it being the expressed intention and agreement of each party to have the
arbitration proceedings conducted and resolved as expeditiously, economically
and fairly as reasonably practicable, and with the maximum degree of
confidentiality.

 

B-1

 

(b)                                 All
written communications regarding the proceeding sent to the arbitrator shall be
sent simultaneously to each party or its counsel, with a copy to the Additional
Notice Parties.  Oral communications
between any of the parties or their counsel and the arbitrator shall be
conducted only when all parties or their counsel are present and participating
in the conversation.

 

(c)                                  Within
20 days after selection of the arbitrator, the Claimant shall submit to the
arbitrator a copy of the Notice of Arbitration, along with a supporting
memorandum and any exhibits or other documents supporting the Claim.

 

(d)                                 Within
20 days after receipt of the Claimant’s submission, the Opposing Party shall
submit to the arbitrator a memorandum supporting its position and any exhibits
or other supporting documents.  If the
Opposing Party fails to respond to any of the issues raised by the Claimant
within 20 days of receipt of the Claimant’s submission, then the arbitrator may
find for the Claimant on any such issue and bar any subsequent consideration of
the matter.

 

(e)                                  Within
20 days after receipt of the Opposing Party’s response, the Claimant may submit
to the arbitrator a reply to the Opposing Party’s response, or notification
that no reply is forthcoming.

 

(f)                                    Within
10 days after the last submission as provided above, the arbitrator shall
notify the parties and the Additional Notice Parties of the date of the hearing
on the issues raised by the Claim. 
Scheduling of the hearing shall be within the sole discretion of the
arbitrator, but in no event more than 30 days after the last submission by the
parties, and shall take place within 50 miles of the corporate headquarters of
the Company at a place selected by the arbitrator or such other place as is
mutually agreed.  Both parties shall be
granted substantially equal time to present evidence at the hearing.  The hearing shall not exceed one business
day, except for good cause shown.

 

(g)                                 Within
30 days after the conclusion of the hearing, the arbitrator shall issue a written
decision to be delivered to both parties and the Additional Notice Parties (the
“Final
Determination”).  The Final
Determination shall address each issue disputed by the parties, state the
arbitrator’s findings and reasons therefor, and state the nature and amount of
any damages, compensation or other relief awarded.

 

(h)                                 The
award rendered by the arbitrator shall be final and non-appealable, except as
otherwise provided under applicable law, and judgment may be entered upon it in
accordance with applicable law in such court as has jurisdiction thereof.

 

4.                                       Costs
of Arbitration.  As part of the
Final Determination, the arbitrator shall determine the allocation of the costs
and expenses of the arbitration, including the arbitrator’s fee and both
parties’ attorneys’ fees and expenses, based upon the extent to which each
party prevailed in the arbitration.  In
the event that any relief which is awarded is non-monetary, then such costs and
expenses shall be allocated in any manner as may be determined by the arbitrators.

 

5.                                       Confidentiality
of Proceedings.  The parties hereto
agree that all of the arbitration proceedings provided for herein, including
any notice of claim, the Notice of Arbitration, the submissions of the parties,
and the Final Determination issued by the arbitrator, shall be

 

B-2

 

confidential and
shall not be disclosed at any time to any person other than the parties, their
representatives, the arbitrator and the Additional Notice Parties; provided,
however, that this provision shall not prevent the party prevailing in the
arbitration from submitting the Final Determination to a court for the purpose
of enforcing the award, subject to comparable confidentiality protections if
the court agrees; and further provided that the foregoing shall not prohibit
disclosure to the minimum extent reasonably necessary to comply with
(i) applicable law (or requirement having the force of law), court order,
judgment or decree, including, without limitation, disclosures which may be
required pursuant to applicable securities laws, and (ii) the terms of
contractual arrangements (such as financing arrangements) to which the Company
or any Additional Notice Party may be subject so long as such contractual
arrangements were not entered into for the primary purpose of permitting
disclosure which would otherwise be prohibited hereunder.

 

B-3

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