EXHIBIT 10.12
THIS CONVERTIBLE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES OR BLUE SKY LAWS, AND MAY NOT BE SOLD,
OFFERED FOR SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS IT IS SO
REGISTERED OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
MILITARY RESALE GROUP, INC.
CONVERTIBLE NOTE
Principal Amount: $_______ ________, 2002
MILITARY RESALE GROUP, INC., a New York corporation (the "Company"), for
value received, hereby promises to pay to ______________, or assigns ("Holder"),
on December 31, 2002, the principal amount of _____________________________
Dollars ($_____) (or so much thereof as shall not have been prepaid or
surrendered for conversion) in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, together with interest (computed on the basis of
360-day year of twelve 30-day months) on the unpaid portion of the principal
amount hereof at the annual rate of eight percent (8%) from the date hereof
until June 30, 2002 and, thereafter, at the annual rate of nine percent (9%)
until the unpaid portion of such principal amount shall have become due and
payable.
Section 1. DEFINITIONS.
Section 1.01. TERMS DEFINED. The terms defined in this Section 1.01
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Convertible Note shall have the respective
meanings specified in this Section 1.01.
COMMON STOCK. The term "Common Stock" means shares of the Company's
Common Stock, par value $.0001 per share.
COMPANY. The term "Company" means MILITARY RESALE GROUP, INC., a New
York corporation, and any successor corporation to the Company (including the
corporation surviving any subsequent merger).
CURRENT CONVERSION PRICE. The term "Current Conversion Price" means
the Conversion Price as most recently adjusted pursuant to Section 3.06.
EVENT OF DEFAULT. The term "Event of Default" means any event
specified in Section 2.01, continued for the period of time, if any, and after
the giving of notice, if any, therein designated.
MATURITY. The term "Maturity" when used with respect to this
Convertible Note means the date on which the principal (and premium, if any) of
this Convertible Note becomes due and payable as herein provided, whether at (a)
December 31, 2002, (b) declaration of acceleration or (c) otherwise.
REGISTRATION STATEMENT. The term "Registration Statement" means a
Registration Statement on Form SB-2 filed by the Company with the Securities and
Exchange Commission pursuant to which the shares of Common Stock issuable upon
conversion of this Convertible Note are registered under the Securities Act.
SECURITIES ACT. The term "Securities Act" means the Securities Act of
1933, as amended.
Section 2. REMEDIES.
Section 2.01. EVENTS OF DEFAULT. An "Event of Default" occurs if one
or more of the following shall happen (for any reason whatsoever and whether
such happening shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
(a) if default be made in the punctual payment of the principal
of (or premium, if any) or interest on this Convertible Note when and as the
same shall become due and payable; or
(b) the Registration Statement is not declared effective by the
Securities and Exchange Commission on or before December 31, 2002, or such
Registration Statement does not remain effective for at least 90 days; or
(c) the Company pursuant to or within the meaning of any
Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an
order for relief against it in an involuntary case, (iii) to the appointment of
a Custodian of it or for any substantial part of its property, (iv) makes a
general assignment for the benefit of its creditors; or
(d) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (i) is for relief against the Company in an
involuntary case, (ii) appoints a Custodian of the Company or for any
substantial part of its property, (iii) orders the liquidation of the Company;
and the order or decree remains unstayed and in effect for 30 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator, sequestrator or similar official under
any Bankruptcy Law.
Section 2.02. REMEDIES. In case any one or more of the Events of
Default specified in Section 2.01 shall have occurred and be continuing, the
Holder of this Convertible Note may proceed to protect and enforce its rights by
suit in equity, action at law or by other appropriate
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proceedings or both, whether for the specific performance of any covenant or
agreement contained in this Convertible Note or in aid of the exercise of any
power granted in this Convertible Note, or may proceed to enforce the payment of
this Convertible Note or to enforce any other legal or equitable right of the
Holder of this Convertible Note.
Section 2.03. REMEDIES CUMULATIVE. No remedy herein conferred upon the
Holder of this Convertible Note is intended to be exclusive of any other remedy
and each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
Section 2.04. ENFORCEMENT. If there shall be any Event of Default
under this Convertible Note and this Convertible Note shall be placed in the
hands of an attorney for collection, or shall be collected through any court,
including any bankruptcy court, the Company promises to pay to the order of the
Holder hereof the Holder's reasonable attorneys' fees and court costs incurred
in collecting or attempting to collect or securing or attempting to secure this
Convertible Note or enforcing the holder's rights with respect to any collateral
securing this Convertible Note, to the extent allowed by the laws of the State
of New York or any state in which any collateral for this Note shall be
situated.
Section 3. CONVERSION.
Section 3.01. RIGHT OF CONVERSION, CONVERSION PRICE.
(a) Subject to and upon compliance with the provisions of this
Section 3, at any time following the issuance of this Convertible Note, the
Holder shall have the right, at his option, at any time during usual business
hours to convert the principal and accrued interest of this Convertible Note
owned by the Holder into fully paid and nonassessable shares of Common Stock
that have been registered under the Securities Act pursuant to the Registration
Statement, at the rate of $0.50 of principal for each share of Common Stock
(provided, that the closing price per share of Common Stock, as reported on the
OTC Bulletin Board, on the date of conversion, is at least $0.75 per share, or
if such closing price is less than $0.75 per share, a proportionate reduction to
the $0.50 price, but in no event to a conversion price that is less than $0.10
per share, so that the Holder will be able to immediately sell such shares on
the OTC Bulletin Board and receive a 50% rate of return on the principal amount
of this Note) (the "Conversion Price"), which price per share shall be payable
by surrender of this Convertible Note.
(b) In the event that the shares of Common Stock issuable upon
conversion of this Note have not been registered under the Securities Act, on or
prior to December 31, 2002, until such time as such shares are so registered, at
the option of the Holder and in lieu of taking any remedial action in respect of
the Event of Default resulting therefrom, the Holder may convert this Note into
a number of shares of Common Stock as is equal to twice the number of shares of
Common Stock as would have been issuable had such shares been registered under
the Securities Act on the date of conversion.
Section 3.02. MANNER OF EXERCISE.
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(a) In order to exercise the conversion right, the Holder of
this Convertible Note shall surrender this Convertible Note at the office of the
Company, accompanied by written notice to the Company stating (i) that the
Holder elects to convert this Convertible Note or, if less than the entire
principal amount of this Convertible Note is to be converted, the portion
thereof (a multiple of $1,000) to be converted, and (ii) the name or names (with
addresses) in which the certificate or certificates for shares of Common Stock
issuable on such conversion shall be issued. Convertible Notes surrendered for
conversion shall be accompanied by proper assignment thereof to the Company or
in blank for transfer if the shares are to be issued in a name other than that
of the Holder.
(b) In the event this Convertible Note which is converted in
part only, upon such conversion the Company shall execute and deliver to the
Holder, at the expense of the Company, a new Convertible Note of authorized
denominations in principal amount equal to the unconverted portion of this
Convertible Note.
Section 3.03. ISSUANCE OF SHARES OF COMMON STOCK ON CONVERSION.
(a) As promptly as practicable after the receipt of such notice
and the surrender of this Convertible Note as aforesaid, the Company shall
issue, at its expense, and shall deliver to the Holder, or on his written order,
at the aforesaid office of the Company (i) a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of this
Convertible Note (or specified portion thereof), and (ii) a certificate or
certificates for any fractional shares of Common Stock issuable upon conversion
of this Convertible Note (or specified portion thereof) or, at the Company's
option, cash in lieu of scrip for any fraction of a share to which the Holder is
entitled upon conversion as provided in Section 3.05.
(b) Such conversion shall be deemed to have been effected
immediately prior to the close of business on the date ("Conversion Date") on
which the Company shall have received both such notice and the surrendered
Convertible Note as aforesaid, and at such time the rights of the Holder of this
Convertible Note shall cease and the Person or Persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or the Holder of
record of the shares represented thereby.
(c) In the event this Convertible Note is converted in whole or
in part into shares of Common Stock pursuant to Section 3.01(b) hereof, the
certificates representing such shares shall contain an appropriate legend
indicating that the shares represented thereby are "restricted securities"
within the meaning of the Securities Act, and may not be transferred unless
registered under the Securities Act or transferred pursuant to an exemption
therefrom.
Section 3.04. NO ADJUSTMENTS FOR INTEREST OR DIVIDENDS. No payment or
adjustment shall be made by or on behalf of the Company on account of any
interest accrued on this Convertible Note surrendered for conversion or on
account of any cash dividends on the shares of Common Stock issued upon such
conversion which were declared for payment to the Holder of shares of Common
Stock of record as of a date prior to the Conversion Date. All payments of
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accrued interest on this Convertible Note shall be made in cash or additional
stock at the Conversion Price, at the Holder's option.
Section 3.05. FRACTIONAL SHARES. The Company, at its option, may issue
fractional shares of Common Stock upon any conversion of this Convertible Note
or, in lieu of any fraction of a share of Common Stock to which any Holder would
otherwise be entitled upon conversion of this Convertible Note (or specified
portions thereof), the Company may pay a cash adjustment for such fraction in an
amount equal to same fraction of the Conversion Price per share.
Section 3.06. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price
shall be adjusted as set forth in this section.
(a) In the event that the Company shall make any distribution of
its assets upon or with respect to its shares of Common Stock, as a liquidating
or partial liquidating dividend, or other than as a dividend payable out of
earnings or any surplus legally available for dividends under the laws of the
state of incorporation of the Company, the Holder of this Convertible Note, upon
the exercise of his right to convert after the record date for such distribution
or, in the absence of a record date, after the date of such distribution,
receive, in addition to the shares subscribed for, the amount of such assets
(or, at the option of the Company, a sum equal to the value thereof at the time
of distribution as determined by the Board of Directors in its sole discretion)
which would have been distributed to the Holder if he had exercised his right to
convert immediately prior to the record date for such distribution or, in the
absence of a record date, immediately prior to the date of such distribution.
(b) In case at any time the Company shall subdivide its
outstanding shares of Common Stock into a greater number of shares, the Current
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced and conversely, in case the outstanding shares of Common
Stock of the Company shall be combined into a smaller number of shares, the
Current Conversion Price in effect immediately prior to such combination shall
be proportionately increased.
(c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale, transfer or lease of all or substantially all
of its assets to another corporation, shall be effected in such a way that the
holder of shares of Common Stock shall be entitled to receive shares, securities
or assets with respect to or in exchange for shares of Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, the Company or such successor or purchasing corporation, as the case may
be, shall execute an amendment to this Convertible Note providing that the
Holder of this Convertible Note shall have the right thereafter and until the
expiration of the period of convertibility to convert this Convertible Note into
the kind and amount of shares, securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale by a holder of
the number of shares of Common Stock into which this Convertible Note might have
been converted immediately prior to such reorganization, reclassification,
consolidation, merger or sale, subject to adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
3.
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(d) Upon such adjustment of the Conversion Price pursuant to the
provisions of this Section 3.06, the number of shares issuable upon conversion
of this Convertible Note shall be adjusted to the nearest full amount by
multiplying a number equal to the Conversion Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Convertible Note immediately prior to such adjustment and
dividing the product so obtained by the adjusted Conversion Price.
Section 3.07. COVENANT TO RESERVE SHARES FOR CONVERSION.
The Company covenants that it will at all times reserve and keep
available out of its authorized shares of Common Stock, such number of shares of
Common Stock as shall then be deliverable upon the conversion of this
Convertible Note. All shares of Common Stock which shall be deliverable shall be
duly and validly issued and fully paid and nonassessable.
Section 3.08. NOTICE OF CHANGE OF CONVERSION PRICE. Whenever the
Conversion Price is adjusted, as herein provided, the Company shall promptly
send to the Holder a certificate of a firm of independent public accountants
(who may be the accountants regularly employed by the Company) selected by the
Board of Directors setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment. Such
certificate shall be conclusive evidence of the correctness of such adjustment.
Section 4. MISCELLANEOUS.
Section 4.01. OPTIONAL PREPAYMENTS. The Company shall have the
privilege, at any time and from time to time prior to Maturity, upon at least 90
days prior written notice to the Holder, of prepaying this Convertible Note,
either in whole or in part, by payment of the principal amount of this
Convertible Note, or portion thereof to be prepaid, and accrued interest thereon
to the date of such prepayment, without premium or penalty; provided, however,
that nothing in this Section 4.01 shall prohibit the Holder from converting this
Convertible Note in accordance with Section 3 hereof after the date of receipt
of notice of prepayment and prior to the date of receipt in cash of all amounts
to be prepaid.
Section 4.02. GOVERNING LAW. This Convertible Note shall be construed
in accordance with the laws of the State of New York applicable to contracts
entered into and to be performed wholly within said State.
Section 4.03. SUCCESSORS AND ASSIGNS. All the covenants, stipulations,
promises and agreements in this Convertible Note contained by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
Section 4.04. COURSE OF DEALING; NO WAIVER. No course of dealing
between the Company and the Holder shall operate as a waiver of any right of the
Holder and no delay on the part of the Holder in exercising any right hereunder
shall so operate.
Section 4.05. WAIVER OF COMPLIANCE. Any term, covenant, agreement or
condition hereof may be amended, or compliance therewith may be waived (either
generally or in a particular
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instance and either retroactively or prospectively), if the Company shall have
obtained the agreement or consent in writing of the Holder.
Section 4.06. OTHER PROVISIONS. The Company waives demand,
presentment, protest, notice of dishonor and any other form of notice, that may
be required to hold the Company liable on this Note.
IN WITNESS WHEREOF, the undersigned has caused this Convertible Note to be
signed in its corporate name by one of its officers thereunto duly authorized,
and to be dated as of the date first written above.
MILITARY RESALE GROUP, INC.
By: /s/ XXXXXX X. XXXXXX
---------------------------
Xxxxxx X. Xxxxxx
Chief Executive Officer
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