**Exhibit 10.17**

 

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

 

SECURED CONVERTIBLEPROMISSORY NOTE

 

| $[250,000] | February 9, 2004 |
|------------|-----------------------|

 

For value received, RevCare, Inc., a Nevada corporation (the **“Company”),**the principal offices of whichare located at 5400 Orange Avenue, Suite 200, Cypress, California90630, for value received hereby promises to pay to Frontline Management Ltd. (the“**Holder**”), the principal sum of TwoHundred Fifty Thousand Dollars ($250,000), plus interest thereon from the datehereof until paid on the terms and conditions set forth herein; provided,however, that in the event this Note is converted into Stock (as definedbelow) as provided herein, any obligation of the Company with respect topayment of such amount shall be terminated as provided in this Note. Paymentfor all amounts due hereunder shall be made by mail or by wire to the addressof 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.                    Maturity Date

 

The unpaid principal balance of this Note and all accrued but unpaidinterest shall be due and payable on the earlier of (i) [**November 1, 2005**] or (ii) when declared due and payableby the Holder upon the occurrence of an Event of Default (as defined below)(the occurrence of any event under either sub clause (i) or (ii) shallconstitute the **“Maturity****Date**”), unless this Note is earlier converted or paid inaccordance with the terms hereof.

 

2.                    Interest

 

This Note shall bear interest at the rate of the prime rate of interestplus four percent (4%) per annum, compounded quarterly. Interest will compoundon the first day of the quarter subsequent to the quarter earned. Theoutstanding amount of the loan including interest will be calculated using thefollowing formula:

 

C0*(1+R/M)^N

 

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Where

 

C0 = the principal sum of Two Hundred Fifty Thousand Dollars($250,000),

 

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.

 

The interest shall be paid on the Maturity Date. Prime shall be definedas the base rate on corporate loans posted by at least 75% of the nation’s 30largest banks as posted daily in the Wall Street Journal.

 

3.                    Security Interest

 

Payment of this Note is secured by a security interest in certaincollateral, pursuant to the terms and conditions of that certain Amended and RestatedSecurity Agreement entered into among the Company, the Holder and the otherlenders named therein concurrently with the execution of this Note (the **“Security Agreement”).**

 

4.                  Events of Default

 

If any of the following events specified in this Section 4 shalloccur (herein individually referred to as an **“Eventof Default”),**the Holder may, so long as such condition exists,declare the entire outstanding principal and any accrued and unpaid interestthereon due and payable within 30 days, by notice 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 insolvency proceedingsagainst 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 tothe filing of any such petition or the appointment of a receiver, liquidator,assignee, trustee or other similar official of the Company, or of any substantialpart of its property, or the making by it of an assignment for the benefit ofcreditors, or the taking of corporate action by the Company in furtherance ofany such action; or

 

(b)               If,within thirty (30) days after the commencement of an action against the Company(and service of process in connection therewith on the Company) seeking any bankruptcy,insolvency, reorganization, liquidation, dissolution or similar relief underany present or future statute, law or regulation, such action shall not havebeen resolved in favor of the Company or all orders or proceedings thereunderaffecting the operations or the business of the Company stayed, or if the stayof any such order or proceeding shall thereafter be set aside, or if, withinthirty (30) days after the appointment without the consent or acquiescence ofthe Company of any trustee, receiver or liquidator of the Company or of all orany substantial part of the properties of the Company, such appointment shallnot have been vacated; or

 

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(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 transaction or series of related transactions ownless than a majority of the outstanding voting equity securities of the Company(or the successor entity) upon the closing of such transaction or series ofrelated transactions, or

 

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

 

5.                    Prepayment

 

Subject to the earlier conversion of this Note pursuant to Section 6,all or any portion of the unpaid principal balance outstanding under this Notemay be prepaid at any time during the term of this Note at the option of theCompany. In the event Company elects to prepay this Note, notice of suchelection shall be given to the Holder not less than sixty (60) days prior tothe date of prepayment. Each such notice shall state the amount of principal tobe paid in cash, the date on which such prepayment will occur and the place atwhich Holder is to surrender this Note to the Company. Such notice by theCompany shall be delivered to the Holder at the address last shown on therecords of the Company for the Holder or given by the Holder to the Company forthe purpose of notice. In the event only a portion of this Note is prepaid, theCompany shall, at the time of prepayment and receipt of this Note, deliver tothe Holder a new Note evidencing the remaining unpaid principal balance of thisNote, which Note shall in all other respects be identical with this Note.

 

6.                    Optional Conversion

 

All or any portion of the unpaid principal balance and any accrued butunpaid interest outstanding under this Note may be converted (the “OptionalConversion”) at any time at the option of the Holder into fully paid andnonassessable shares of capital common stock of the Company (the “**Stock**”). The number of shares of Stock into which this Noteis to be converted shall be determined by dividing said unpaid principalbalance and all accrued but unpaid interest by the Conversion Price. TheConversion Price shall be calculated at the time of the Optional

 

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Conversionbased on a company valuation of 90% of 12 times the average prior 12 months monthlyrevenue prior to the Optional Conversion, the result will then be divided bythe number of then outstanding shares on a fully converted basis.

 

7.                   Conversion Procedure

 

7.1                Notice of Conversion.If the Holder desires to convert the Note, this Holder shall provide writtennotice to the Company at RevCare, Inc., 5400 Orange Avenue, Suite 200, Cypress,California 90630, Attention: Manuel Occiano, Chief Executive Officer, notifyingthe Company 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                Mechanics and Effect of Conversion. No fractional shares of Stock shall be issued upon conversion of thisNote. In lieu of the Company issuing any fractional shares to the Holder uponthe conversion of 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                Delivery of Stock Certificates. As promptly as practicable after the conversion of this Note, theCompany at its expense will issue and deliver to the Holder a certificate orcertificates for the number of full shares of Stock issuable upon suchconversion (bearing such legends as are required by applicable state andfederal securities laws in the opinion of counsel to the Company), togetherwith any other securities and property to which the Holder is entitled uponsuch conversion under the terms of this Note, including a check payable to theHolder for any fractional shares as described above. In the event only aportion of this Note is converted, the Company shall, at the time of delivery ofthe stock certificate or certificates, deliver to the Holder a new Noteevidencing the remaining unpaid principal balance of this Note, which Noteshall in all other respects be identical with this Note.

 

7.4                Identical Terms.Subject to the Holder’s execution of any necessary investment documentsexecuted by the other investors in the Financing, any shares of Stock receivedby the Holder pursuant to the conversion of this Note shall have the samerights, preferences and privileges granted to the other investors in theFinancing and under such investment documents.

 

8.                   Investment Representations

 

The Holder hereby makes the representations, warranties and covenantsset forth on the Representation Statement attached hereto as Attachment A, asof the date hereof and as of the

 

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dateof any conversion of this Note, as though such representations, warranties andcovenants were fully set forth herin.

 

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 this Note may be amended or waived with the written consentof the Company and the Holder. Any amendment or waiver effected in accordancewith this Section 10 shall be binding upon the Holder, each future Holderand the Company. No waivers of, or exceptions to, any term, condition orprovision of this Note, in any one or more instances, shall be deemed to be, orconstrued as, a further or continuing waiver of any such term, condition orprovision and shall not be valid unless in writing.

 

11.             Transfers

 

This Note may not be transferred or assigned in whole or in partwithout compliance with all applicable federal and state securities laws by thetransferor and the transferee (including the delivery of investmentrepresentation letters). Subject to compliance with such applicable federal andstate securities laws, title to this Note may be transferred by endorsement anddelivery in the same manner as a negotiable instrument transferable byendorsement 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 be governed by and construed under the laws of theState of California (irrespective of 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 “SubordinationAgreement”). Nothing contained in this Note shall directly or indirectly modifythe provisions of the Subordination Agreement in any manner which mightterminate or impair the subordination of the Subordinated Debt (as defined inthe Subordination Agreement) or the subordination of the security interest orlien that the Holder may have in any property of Maker or its subsidiaries.

 

15.              IntercreditorAgreement. This Agreementand the rights of Holder hereunder are subject to the terms of an Amended andRestated Intercreditor Agreement of even date herewith, as such agreement maybe amended from time to time (the **IntercreditorAgreement”).**Nothing contained in this Note shall directly or indirectlymodify the provisions of the Intercreditor Agreement in any manner which mightterminate or impair the parties’ rights under

 

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such agreement and in the event of any conflictbetween this Note and the Intercreditor Agreement, the Intercreditor Agreementshall control.

 

16.              Miscellaneous. Holder will receive copies of all Forms10-K, 10-Q and 8-K (or equivalents) within 5 days of filing with the Securitiesand Exchange Commission, while any debt to lender is outstanding.

 

17.              Useof Proceeds. The proceeds ofthis Note shall be used first to pay any outstanding amounts owed to LighthousePartners Solutions, Inc. at December 31, 2003 and then for working capitaland to reduce the collections payable owed to the Company’s California-baseddelinquent debt collections clients.

 

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:               |   |   |
| ** ** | Name:             |   |   |
| ** ** | Title:            |   |   |
|            |                   |  |  |  |  |

 

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

 

REPRESENTATIONSTATEMENT

 

Theundersigned Holder represents, covenants and agrees as follows:

 

1.                                           Purchase for Own Account.

 

The Secured Convertible Promissory Note issued by Revcare, Inc., aDelaware corporation (the **“Company”)**tobe 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’s own account, not as a nominee oragent, and not with a view to the public resale or distribution thereof withinthe meaning of the Securities Act of 1933, as amended, (the “**1933 Act**”), and Holder has no present intention of selling,granting any participation in, or otherwise distributing the same. Holder alsorepresents that Holder has not been formed for the specific purpose ofacquiring the Securities.

 

2.                                           Disclosure of Information.

 

Holder believes it has received or has had full access to all theinformation it considers necessary or appropriate to make an informed investmentdecision with respect to the Securities to be received by Holder under theNote. Holder further has had an opportunity to ask questions and receiveanswers from the Company regarding the terms and conditions of the investmentin the Securities and to obtain additional information (to the extent theCompany possessed such information or could acquire it without unreasonableeffort or expense) necessary to verify any information furnished to Holder orto which Holder had access.

 

3.                                           Investment Experience.

 

Holder understands that the investment in the Securities involvessubstantial risk. Holder has experience as an investor in securities andacknowledges that Holder is able to fend for itself, can bear the economic riskof Holder’s investment in the Securities and has such knowledge and experiencein financial or business matters that Holder is capable of evaluating themerits and risks of this investment in the Securities and protecting its owninterests in connection with this investment.

 

4.                                           Accredited Investor Status.

 

Holder is an “accredited investor” within the meaning of Regulation Dpromulgated under the 1933 Act.

 

5.                                           Restricted Securities.

 

Holder understands that the Securities will be characterized as “restrictedsecurities” under the 1933 Act inasmuch as they are being acquired from theCompany in a transaction not involving a public offering and that, under the1933 Act and applicable regulations thereunder, such securities may be resoldwithout registration under the 1933 Act only in certain limited circumstances.In this connection, Holder represents that Holder is familiar with Rule 144

 

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promulgatedby the Securities and Exchange Commission, as presently in effect, andunderstands the resale limitations imposed thereby and by the 1933 Act. Holderunderstands that the Company is under no obligation to register any of theSecurities.

 

6.                                           Legends.

 

It is understood that the certificates evidencing the Securities willbear 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 AND APPLICABLESTATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THEISSUER OF 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)                 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.

 

Thelegend set forth in (a) above shall be removed by the Company from anycertificate 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 transferin compliance with Rule 144.

 

7.                                           “Market Stand-Off” Agreement.

 

If requested by the Company and an underwriter of shares of the commonstock of the Company, Holder hereby agrees not to sell or otherwise transfer ordispose of any shares of the common stock (or other securities) of the Companythen owned by Holder (other than those included in the registration) during theone hundred 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.

 

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**HOLDER**

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

 

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**OutsourcingAgreement**

 

**Section **25.      **Entire Agreement.**This Agreement constitutes the entireagreement between the Parties and may not be amended, changed or modified by awriting signed by both Parties. This Agreement supersedes all prior written ororal agreements between RevCare and Lighthouse and governs all outstandingaccounts outsourced to Lighthouse by RevCare prior to the effective date ofthis Agreement.

 

**Section 26.      BusinessAssociates Agreement.**Asa condition of this Agreement Lighthouse agrees to sign and maintain current aBusiness Associates Agreement with RevCare under HIPAA.

 

**Section **27.      **Non Exclusive Services.**The Agreement is a non exclusivecontract. Lighthouse may provide similar services to other businesses andRevCare may use other vendors to provide it with similar services.

 

INWITNESS WHEREOF, the Parties have hereunto affixed their signatures throughtheir duly authorized representatives on this  9th day of  February  2004at Cypress, CA.

 

 
| **RevCare, Inc.**    |   | **Lighthouse Partners Solutions, Inc.** |
|----------------------|--------|-----------------------------------------|
| ** **           |   | ** **                              |
| /s/ Manuel Occiano   |   | /s/ Robert W. Tam                       |
| **MANUEL  OCCIANO**  |   | **ROBERT W. TAM**                       |
| President  & CEO |   | President  & CEO                    |

 

 

SIGNED IN THE PRESENCE OF:

 

 
|   | /s/ Gary A. Bemis    |   |   | /s/ Teresa Magallon             |   |
|--------|----------------------|--------|--------|---------------------------------|--------|
|   | Signature            |   |   | Signature                       |   |
|   |                 |   |   |                            |   |
|   |                 |   |   |                            |   |
|   | Gary A. Bemis        |   |   | Teresa Magallon - Notary public |   |
|   | Name (Type or Print) |   |   | Name (Type or Print) Teresa M   |   |
|   |                 |   |   |                            |   |
|   |                 |   |   | [SEAL]                          |   |

 

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