Document:

Exhibit 10.16

 

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

 

SECURED CONVERTIBLE
PROMISSORY NOTE

 

	
  $[100,000]

  	
   

  	
  February 19, 2004

  

 

For value received, RevCare, Inc., a Nevada corporation (the “Company”), the principal offices of which are located at 5400 Orange
Avenue, Suite 200, Cypress, California 90630, for value received hereby
promises to pay to FBR Financial Services Partners, L.P. (the “Holder”), the principal sum of One Hundred Thousand Dollars ($100,000),
plus interest thereon from the date hereof until paid on the terms and
conditions set forth herein; provided, however, that in the event
this Note is converted into Stock (as defined below) as provided herein, any
obligation of the Company with respect to payment of such amount shall be
terminated as provided in this Note. Payment for all amounts due hereunder
shall 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 the
conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:

 

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

 

2.               Interest. This Note shall bear interest at the rate of
the prime rate of interest plus four percent (4%) per annum, compounded
quarterly. Interest will compound on the first day of the quarter subsequent to
the quarter earned. The outstanding amount of the loan including interest will
be 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.

 

 

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

 

3.               Security
Interest. Payment of this
Note is secured by a security interest in certain collateral, pursuant to the
terms and conditions of that certain Amended and Restated Security Agreement
entered into among the Company, the Holder and the other lenders 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 shall occur (herein
individually referred to as an “Event of Default”), the Holder may,
so long as such condition exists, declare the entire outstanding principal and
any accrued and unpaid interest thereon due and payable within 30 days, by
notice in writing to the Company:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

(h)         the
sale 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 Note may be prepaid at any time during the term
of this Note at the option of the Company. In the event Company elects to
prepay this Note, notice of such election shall be given to the Holder not less
than sixty (60) days prior to the date of prepayment. Each such notice shall
state the amount of principal to be paid in cash, the date on which such
prepayment will occur and the place at which Holder is to surrender this Note
to the Company. Such notice by the Company shall be delivered to the Holder at
the address last shown on the records of the Company for the Holder or given by
the Holder to the Company for the purpose of notice. In the event only a
portion of this Note is prepaid, the Company shall, at the time of prepayment
and receipt of this Note, deliver to the Holder a new Note evidencing the
remaining unpaid principal balance of this Note, 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 but unpaid interest
outstanding under this Note may be converted (the “Optional Conversion”) at any
time at the option of the Holder into fully paid and nonassessable shares of
capital common stock of the Company (the “Stock”). The
number of shares of Stock into which this Note is to be converted shall be determined
by dividing said unpaid principal balance and all accrued but unpaid interest
by the Conversion Price. The Conversion Price shall be calculated at the time
of the Optional Conversion based on a company valuation of 90% of 12 times the
average prior 12 months monthly revenue prior to the Optional Conversion, the
result will then be divided by the 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 written notice to the
Company at RevCare, Inc., 5400 Orange Avenue, Suite 200, Cypress, California
90630, Attention: Manuel Occiano, Chief Executive Officer, notifying the
Company of the requested conversion to be effected. Within ten (10) days of
receipt of such notice, the Company shall respond to the Holder’s request in
writing, 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 to
surrender 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 address
last shown on the records of the Company for the Holder or given by the Holder
to 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 this Note. In
lieu of the Company issuing any fractional shares to the Holder upon the conversion
of this Note, the Company shall pay to the Holder the amount of outstanding
principal or interest that is not so converted. Upon the conversion of this
Note, the Holder shall surrender this Note, duly endorsed, at the principal
office of the Company. Upon conversion of this Note, the Company shall be
forever released from all its obligations and liabilities under this Note.

 

7.3         Delivery
of Stock Certificates. As
promptly as practicable after the conversion of this Note, the Company at its
expense will issue and deliver to the Holder a certificate or certificates for the
number of full shares of Stock issuable upon such conversion (bearing such
legends as are required by applicable state and federal securities laws in the
opinion of counsel to the Company), together with any

 

3

 

other
securities and property to which the Holder is entitled upon such conversion
under the terms of this Note, including a check payable to the Holder for any
fractional shares as described above. In the event only a portion of this Note
is converted, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Holder a new Note evidencing the
remaining unpaid principal balance of this Note, which Note shall in all other
respects be identical with this Note.

 

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

 

8.               Investment
Representations.   The Holder hereby makes the representations,
warranties and covenants set forth on the Representation Statement attached
hereto as Attachment A, as of the date hereof and as of the date of any
conversion of this Note, as though such representations, warranties and covenants
were fully set forth herein.

 

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

 

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

 

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

 

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

 

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

 

14.         Subordination. This Note and the rights of the Holder
hereunder and under the Security Agreement are subordinate to the rights of
Bridge Bank, N.A. pursuant to the terms of a Subordination Agreement (the “Subordination Agreement”). Nothing contained in this Note
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 Holder may have in any property of
Maker or its subsidiaries.

 

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

 

4

 

shall
directly or indirectly modify the provisions of the Intercreditor Agreement in
any manner which might terminate or impair the parties’ rights under such
agreement and in the event of any conflict between this Note and the
Intercreditor 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 and
Exchange Commission, while any debt to lender is outstanding.

 

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

 

IN WITNESS WHEREOF, the Company has caused this Secured Promissory Note
to 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 original
Note must be surrendered to the Company for cancellation and retention.

 

5

 

ATTACHMENT A

 

REPRESENTATION STATEMENT

 

The
undersigned Holder represents, covenants and agrees as follows:

 

1.               Purchase
for Own Account.  The Secured Convertible Promissory Note issued
by Revcare, Inc., a Delaware corporation (the “Company”) to be acquired by Holder (the “Note”) and the shares 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 or agent, and not with a view to the public resale or distribution
thereof within the 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 also represents that Holder has not
been formed for the specific purpose of acquiring the Securities.

 

2.               Disclosure
of Information.  Holder believes it has received or has had
full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Securities to be
received by Holder under the Note. Holder further has had an opportunity to ask
questions and receive answers from the Company regarding the terms and conditions
of the investment in the Securities and to obtain additional information (to
the extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify any information furnished to
Holder or to which Holder had access.

 

3.               Investment
Experience. Holder
understands that the investment in the Securities involves substantial risk.
Holder has experience as an investor in securities and acknowledges that Holder
is able to fend for itself, can bear the economic risk of Holder’s investment
in the Securities and has such knowledge and experience in financial or
business matters that Holder is capable of evaluating the merits and risks of
this investment in the Securities and protecting its own interests in
connection with this investment.

 

4.               Accredited
Investor Status. Holder is
an “accredited investor” within the meaning of Regulation D promulgated under
the 1933 Act.

 

5.               Restricted
Securities. Holder
understands that the Securities will be characterized as “restricted securities”
under the 1933 Act inasmuch as they are being acquired from the Company in a transaction
not involving a public offering and that, under the 1933 Act and applicable
regulations thereunder, such securities may be resold without registration
under the 1933 Act only in certain limited circumstances. In this connection,
Holder represents that Holder is familiar with Rule 144 promulgated by the
Securities and Exchange Commission, as presently in effect, and understands the
resale limitations imposed thereby and by the 1933 Act. Holder understands that
the Company is under no obligation to register any of the Securities.

 

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

 

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

 

6

 

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

 

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

 

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

 

7.               “Market
Stand-Off Agreement. If
requested by the Company and an underwriter of shares of the common stock of
the Company, Holder hereby agrees not to sell or otherwise transfer or dispose
of any shares of the common stock (or other securities) of the Company then
owned by Holder (other than those included in the registration) during the one
hundred eighty (180) day period (or such shorter period as is permitted or
requested by the underwriter) following the effective date of a registration
statement of the Company filed under the 1933 Act. In order to enforce the
above covenant, the Company shall have the right to place restrictive legends
on the certificates representing the registrable securities subject to this Section 7
and to impose stop-transfer instructions with respect to the shares (or
securities) subject to the foregoing restriction.

 

 

	
   

  	
  HOLDER

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Date)

  	
   

  	
  (Signature)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Print Name)

  	
   

  

 

7Exhibit 10.17

 

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

 

SECURED CONVERTIBLE
PROMISSORY NOTE

 

	
  $[250,000]

  	
  February 9, 2004

  

 

For value received, RevCare, Inc., a Nevada corporation (the “Company”), the principal offices of which
are located at 5400 Orange Avenue, Suite 200, Cypress, California
90630, for value received hereby promises to pay to Frontline Management Ltd. (the
“Holder”), the principal sum of Two
Hundred Fifty Thousand Dollars ($250,000), plus interest thereon from the date
hereof until paid on the terms and conditions set forth herein; provided,
however, that in the event this Note is converted into Stock (as defined
below) as provided herein, any obligation of the Company with respect to
payment of such amount shall be terminated as provided in this Note. Payment
for all amounts due hereunder shall 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 the
conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:

 

1.                    Maturity Date

 

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

 

2.                    Interest

 

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

 

C0*(1+R/M)^N

 

 

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 defined
as the base rate on corporate loans posted by at least 75% of the nation’s 30
largest banks as posted daily in the Wall Street Journal.

 

3.                    Security Interest

 

Payment of this Note is secured by a security interest in certain
collateral, pursuant to the terms and conditions of that certain Amended and Restated
Security Agreement entered into among the Company, the Holder and the other
lenders 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 shall
occur (herein individually referred to as an “Event
of Default”), the Holder may, so long as such condition exists,
declare the entire outstanding principal and any accrued and unpaid interest
thereon due and payable within 30 days, by notice in writing to the Company:

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

(g)          any
sale, merger or similar transaction or series of related transactions in which
the holders of the outstanding voting equity securities of the Company
immediately prior to such transaction or series of related transactions own
less than a majority of the outstanding voting equity securities of the Company
(or the successor entity) upon the closing of such transaction or series of
related transactions, or

 

(h)          the
sale 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 Note
may be prepaid at any time during the term of this Note at the option of the
Company. In the event Company elects to prepay this Note, notice of such
election shall be given to the Holder not less than sixty (60) days prior to
the date of prepayment. Each such notice shall state the amount of principal to
be paid in cash, the date on which such prepayment will occur and the place at
which Holder is to surrender this Note to the Company. Such notice by the
Company shall be delivered to the Holder at the address last shown on the
records of the Company for the Holder or given by the Holder to the Company for
the purpose of notice. In the event only a portion of this Note is prepaid, the
Company shall, at the time of prepayment and receipt of this Note, deliver to
the Holder a new Note evidencing the remaining unpaid principal balance of this
Note, 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 but
unpaid interest outstanding under this Note may be converted (the “Optional
Conversion”) at any time at the option of the Holder into fully paid and
nonassessable shares of capital common stock of the Company (the “Stock”). The number of shares of Stock into which this Note
is to be converted shall be determined by dividing said unpaid principal
balance and all accrued but unpaid interest by the Conversion Price. The
Conversion Price shall be calculated at the time of the Optional

 

3

 

Conversion
based on a company valuation of 90% of 12 times the average prior 12 months monthly
revenue prior to the Optional Conversion, the result will then be divided by
the 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 written
notice to the Company at RevCare, Inc., 5400 Orange Avenue, Suite 200, Cypress,
California 90630, Attention: Manuel Occiano, Chief Executive Officer, notifying
the Company of the requested conversion to be effected. Within ten (10) days of
receipt of such notice, the Company shall respond to the Holder’s request in
writing, 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 to
surrender 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 address
last shown on the records of the Company for the Holder or given by the Holder
to 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 this
Note. In lieu of the Company issuing any fractional shares to the Holder upon
the conversion of this Note, the Company shall pay to the Holder the amount of outstanding
principal or interest that is not so converted. Upon the conversion of this
Note, the Holder shall surrender this Note, duly endorsed, at the principal
office of the Company. Upon conversion of this Note, the Company shall be
forever released from all its obligations and liabilities under this Note.

 

7.3                Delivery of Stock Certificates. As promptly as practicable after the conversion of this Note, the
Company at its expense will issue and deliver to the Holder a certificate or
certificates for the number of full shares of Stock issuable upon such
conversion (bearing such legends as are required by applicable state and
federal securities laws in the opinion of counsel to the Company), together
with any other securities and property to which the Holder is entitled upon
such conversion under the terms of this Note, including a check payable to the
Holder for any fractional shares as described above. In the event only a
portion of this Note is converted, the Company shall, at the time of delivery of
the stock certificate or certificates, deliver to the Holder a new Note
evidencing the remaining unpaid principal balance of this Note, which Note
shall in all other respects be identical with this Note.

 

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

 

8.                   Investment Representations

 

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

 

4

 

date
of any conversion of this Note, as though such representations, warranties and
covenants were fully set forth herin.

 

9.                   Assignment

 

Subject to the restrictions on transfer described in Section 11
below, the rights and obligations of the Company and the Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties.

 

10.             Amendments;
Waivers

 

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

 

11.             Transfers

 

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

 

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

 

13.             Governing
Law

 

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

 

14.              Subordination. This Note and the rights of the Holder
hereunder and under the Security Agreement are subordinate to the rights of
Bridge Bank, N.A. pursuant to the terms of a Subordination Agreement (the “Subordination
Agreement”). Nothing contained in this Note 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 Holder may have in any property of Maker or its subsidiaries.

 

15.              Intercreditor
Agreement. This Agreement
and the rights of Holder hereunder are subject to the terms of an Amended and
Restated Intercreditor Agreement of even date herewith, as such agreement may
be amended from time to time (the Intercreditor
Agreement”). Nothing contained in this Note shall directly or indirectly
modify the provisions of the Intercreditor Agreement in any manner which might
terminate or impair the parties’ rights under

 

5

 

such agreement and in the event of any conflict
between this Note and the Intercreditor 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
and Exchange Commission, while any debt to lender is outstanding.

 

17.              Use
of Proceeds. The proceeds of
this Note shall be used first to pay any outstanding amounts owed to Lighthouse
Partners Solutions, Inc. at December 31, 2003 and then for working capital
and to reduce the collections payable owed to the Company’s California-based
delinquent debt collections clients.

 

IN WITNESS WHEREOF, the Company has caused this Secured Promissory Note
to 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 original
Note must be surrendered to the Company for cancellation and retention.

 

6

 

ATTACHMENT A

 

REPRESENTATION
STATEMENT

 

The
undersigned Holder represents, covenants and agrees as follows:

 

1.                                           Purchase for Own Account.

 

The Secured Convertible Promissory Note issued by Revcare, Inc., a
Delaware corporation (the “Company”) to
be acquired by Holder (the “Note”) and the
shares 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 or
agent, and not with a view to the public resale or distribution thereof within
the 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 also
represents that Holder has not been formed for the specific purpose of
acquiring the Securities.

 

2.                                           Disclosure of Information.

 

Holder believes it has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Securities to be received by Holder under the
Note. Holder further has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the investment
in the Securities and to obtain additional information (to the extent the
Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify any information furnished to Holder or
to which Holder had access.

 

3.                                           Investment Experience.

 

Holder understands that the investment in the Securities involves
substantial risk. Holder has experience as an investor in securities and
acknowledges that Holder is able to fend for itself, can bear the economic risk
of Holder’s investment in the Securities and has such knowledge and experience
in financial or business matters that Holder is capable of evaluating the
merits and risks of this investment in the Securities and protecting its own
interests in connection with this investment.

 

4.                                           Accredited Investor Status.

 

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

 

5.                                           Restricted Securities.

 

Holder understands that the Securities will be characterized as “restricted
securities” under the 1933 Act inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that, under the
1933 Act and applicable regulations thereunder, such securities may be resold
without registration under the 1933 Act only in certain limited circumstances.
In this connection, Holder represents that Holder is familiar with Rule 144

 

7

 

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

 

6.                                           Legends.

 

It is understood that the certificates evidencing the Securities will
bear the legends set forth below:

 

(a)                  THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER
OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.

 

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

 

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

 

7.                                           “Market Stand-Off” Agreement.

 

If requested by the Company and an underwriter of shares of the common
stock of the Company, Holder hereby agrees not to sell or otherwise transfer or
dispose of any shares of the common stock (or other securities) of the Company
then owned by Holder (other than those included in the registration) during the
one hundred eighty (180) day period (or such shorter period as is permitted or
requested by the underwriter) following the effective date of a registration
statement of the Company filed under the 1933 Act. In order to enforce the
above covenant, the Company shall have the right to place restrictive legends
on the certificates representing the registrable securities subject to this Section 7
and to impose stop-transfer instructions with respect to the shares (or
securities) subject to the foregoing restriction.

 

8

 

HOLDER

 

	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Date

  	
   

  	
  (Signature)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Print Name)

  	
   

  

 

9

 

Outsourcing
Agreement

 

Section 25.      Entire Agreement. This Agreement constitutes the entire
agreement between the Parties and may not be amended, changed or modified by a
writing signed by both Parties. This Agreement supersedes all prior written or
oral agreements between RevCare and Lighthouse and governs all outstanding
accounts outsourced to Lighthouse by RevCare prior to the effective date of
this Agreement.

 

Section 26.      Business
Associates Agreement. As
a condition of this Agreement Lighthouse agrees to sign and maintain current a
Business Associates Agreement with RevCare under HIPAA.

 

Section 27.      Non Exclusive Services. The Agreement is a non exclusive
contract. Lighthouse may provide similar services to other businesses and
RevCare may use other vendors to provide it with similar services.

 

IN
WITNESS WHEREOF, the Parties have hereunto affixed their signatures through
their duly authorized representatives on this  9th day of  February  2004
at 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]

  	
   

  

 

10

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