THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO SVC FINANCIAL
SERVICES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
Principal Amount: $__________
Issue Date: September ___, 2005
SECURED CONVERTIBLE NOTE
FOR VALUE
RECEIVED, SVC FINANCIAL SERVICES, INC., a Colorado corporation
(hereinafter called "Borrower"), hereby
promises to pay to ALPHA CAPITAL
AKTIENGESELLSCHAFT, Pradafant 7, 9490
Furstentums, Vaduz, Lichtenstein, Fax:
011-42-32323196 (the "Holder") or order,
without demand, the sum of
___________________________________ Dollars
($_________), with accrued interest
on September ___, 2007 (the "Maturity
Date"), or sooner as described herein.
This Note
has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the
Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be
governed by the terms of such
Subscription Agreement. Unless otherwise
separately defined herein, all
capitalized terms used in this Note shall
have the same meaning as is set forth
in the Subscription Agreement. The
following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1
Interest Rate. Subject to Section 5.6 hereof, interest payable on
this
Note shall accrue at a rate per annum (the
"Interest Rate") equal to ten percent
(10%) per year. Interest on the Principal
Amount shall be payable on the sooner
of (i) 170 days after the Issue Date, or
(ii) 180 days after the Filing Date,
and each 90 days thereafter and on the
Maturity Date, whether by acceleration or
otherwise. Interest shall compound
annually. Subject to the Holder's right to
convert interest pursuant to Section
2.1(a), interest may be paid at the
Company's election in cash or with
free-trading registered Common Stock valued
at 85% of the average of the volume
weighted average prices of the Common Stock
as reported by Bloomberg L.P. for the
Principal Market for the twenty trading
days preceding an interest payment due
date.
1.2
Default Interest Rate. A default interest rate of fifteen
percent
(15%) per annum shall apply to amounts owed
hereunder which are not paid on
their respective due dates.
1.3
Conversion Privileges. The Conversion Privileges set forth in
Article
II shall remain in full force and effect
immediately from the date hereof and
until the Note is paid in full regardless
of the occurrence of an Event of
Default. The Note shall be payable in full
on the Maturity Date, unless
previously converted into Common Stock in
accordance with Article II hereof,
provided, that if an Event of Default has
occurred, the Holder may extend the
Maturity Date for up to a time period equal
to the duration of the Event of
Default.
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<PAGE>
ARTICLE II
CONVERSION RIGHTS
The Holder
shall have the right to convert the outstanding principal and
interest due under this Note into Shares of
the Borrower's Common Stock, no par
value per share ("Common Stock") as set
forth below.
2.1.
Conversion into the Borrower's Common Stock.
(a)
Subject to the terms of this Note, the Holder shall have the
right
from and after the date of the issuance of
this Note and then at any time until
this Note is fully paid, to convert any
outstanding and unpaid principal portion
of this Note, and accrued interest, at the
election of the Holder (the date of
giving of such notice of conversion being a
"Conversion Date") into fully paid
and nonassessable shares of Common Stock as
such stock exists on the date of
issuance of this Note, or any shares of
capital stock of Borrower into which
such Common Stock shall hereafter be
changed or reclassified, at the conversion
price as defined in Section 2.1(b) hereof
(the "Conversion Price"), determined
as provided herein. Upon delivery to the
Borrower of a completed Notice of
Conversion, a form of which is annexed
hereto, Borrower shall issue and deliver
to the Holder within three (3) business
days from the Conversion Date (such
third day being the "Delivery Date") that
number of shares of Common Stock for
the portion of the Note converted in
accordance with the foregoing. At the
election of the Holder, the Borrower will
deliver accrued but unpaid interest on
the Note through the Conversion Date
directly to the Holder on or before the
Delivery Date. The number of shares of
Common Stock to be issued upon each
conversion of this Note shall be determined
by dividing that portion of the
principal of the Note and interest to be
converted, by the Conversion Price.
(b)
Subject to adjustment as provided in this Note and the
Subscription
Agreement, the Conversion Price per share
of Common Stock shall be the lesser of
(i) $0.15 ("Maximum Conversion Price"), or
(ii) 75% of the average of the volume
weighted average prices of the Common Stock
as reported by Bloomberg L.P. for
the Principal Market for the three trading
days preceding a Conversion Date.
(c) The
Maximum Conversion Price and number and kind of shares or other
securities to be issued upon conversion
determined pursuant to Section 2.1(a),
shall be subject to adjustment from time to
time upon the happening of certain
events while this conversion right remains
outstanding, as follows:
A. Merger,
Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or
convey all or substantially all its
assets to any other corporation, this Note,
as to the unpaid principal portion
thereof and accrued interest thereon, shall
thereafter be deemed to evidence the
right to purchase such number and kind of
shares or other securities and
property as would have been issuable or
distributable on account of such
consolidation, merger, sale or conveyance,
upon or with respect to the
securities subject to the conversion or
purchase right immediately prior to such
consolidation, merger, sale or conveyance
as if the Holder had converted this
Note immediately prior to such event. The
foregoing provision shall similarly
apply to successive transactions of a
similar nature by any such successor or
purchaser. Without limiting the generality
of the foregoing, the anti-dilution
provisions of this Section shall apply to
such securities of such successor or
purchaser after any such consolidation,
merger, sale or conveyance.
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<PAGE>
B.
Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the
Common Stock into the same or a
different number of securities of any class
or classes that may be issued or
outstanding, this Note, as to the unpaid
principal portion thereof and accrued
interest thereon, shall thereafter be
deemed to evidence the right to purchase
an adjusted number of such securities and
kind of securities as would have been
issuable as the result of such change with
respect to the Common Stock
immediately prior to such reclassification
or other change as if the Holder had
converted this Note immediately prior to
such event.
C. Stock
Splits, Combinations and Dividends. If the shares of Common
Stock
are subdivided or combined into a greater
or smaller number of shares of Common
Stock, or if a dividend is paid on the
Common Stock in shares of Common Stock,
the Maximum Conversion Price shall be
proportionately reduced in case of
subdivision of shares or stock dividend or
proportionately increased in the case
of combination of shares, in each such case
by the ratio which the total number
of shares of Common Stock outstanding
immediately before such event bears to the
total number of shares of Common Stock
outstanding immediately after to such
event.
D. Share
Issuance. So long as this Note is outstanding, if the Borrower
shall issue or agree to issue any shares of
Common Stock, except for the
Excepted Issuances, for a consideration
less than the Maximum Conversion Price
in effect at the time of such issue, then,
and thereafter successively upon each
such issue, the Maximum Conversion Price
shall be reduced to such other lower
issue price. For purposes of this
adjustment, the issuance of any security
carrying the right to convert such security
into shares of Common Stock or of
any warrant, right or option to purchase
Common Stock shall result in an
adjustment to the Maximum Conversion Price
upon the issuance of the
above-described security and again upon the
issuance of shares of Common Stock
upon exercise of such conversion or
purchase rights if such issuance is at a
price lower than the then applicable
Maximum Conversion Price. The reduction of
the Maximum Conversion Price described in
this paragraph is in addition to other
rights of the Holder described in this Note
and the Subscription Agreement.
(d)
Whenever the Maximum Conversion Price is adjusted pursuant to
Section
2.1(c) above, the Borrower shall promptly
mail to the Holder a notice setting
forth the Conversion Price after such
adjustment and setting forth a statement
of the facts requiring such adjustment.
(e) During
the period the conversion right exists, Borrower will reserve
from its authorized and unissued Common
Stock not less than 175% of the number
of shares of Common Stock issuable upon the
full conversion of this Note.
Borrower represents that upon issuance,
such shares will be duly and validly
issued, fully paid and non-assessable.
Borrower agrees that its issuance of this
Note shall constitute full authority to its
officers, agents, and transfer
agents who are charged with the duty of
executing and issuing stock certificates
to execute and issue the necessary
certificates for shares of Common Stock upon
the conversion of this Note.
2.2 Method
of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section
2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this
Note, a new Note containing the same
date and provisions of this Note shall, at
the request of the Holder, be issued
by the Borrower to the Holder for the
principal balance of this Note and
interest which shall not have been
converted or paid.
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<PAGE>
2.3
Maximum Conversion. The Holder shall not be entitled to convert on
a
Conversion Date that amount of the Note in
connection with that number of shares
of Common Stock which would be in excess of
the sum of (i) the number of shares
of Common Stock beneficially owned by the
Holder and its affiliates on a
Conversion Date, (ii) any Common Stock
issuable in connection with the
unconverted portion of the Note, and (iii)
the number of shares of Common Stock
issuable upon the conversion of the Note
with respect to which the determination
of this provision is being made on a
Conversion Date, which would result in
beneficial ownership by the Holder and its
affiliates of more than 4.99% of the
outstanding shares of Common Stock of the
Borrower on such Conversion Date. For
the purposes of this Section 2.3,
beneficial ownership shall be determined in
accordance with Section 13(d) of the
Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Holder
shall not be limited to aggregate
conversions of only 4.99% and aggregate
conversion by the Holder may exceed 4.99%.
The Holder shall have the authority
and obligation to determine whether the
restriction contained in this Section
2.3 will limit any conversion hereunder and
to the extent that the Holder
determines that the limitation contained in
this Section applies, the
determination of which portion of the Notes
are convertible shall be the
responsibility and obligation of the
Holder. The Holder may waive the conversion
limitation described in this Section 2.3,
in whole or in part, upon and
effective after 61 days prior written
notice to the Borrower. The Holder may
allocate which of the equity of the
Borrower deemed beneficially owned by the
Holder shall be included in the 4.99%
amount described ab
