THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR
ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT AND ANY APLICABLE STATE SECURITIES LAWS, OR
(2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
MILITARY RESALE GROUP, INC.
10% PROMISSORY NOTE
$120,000 JANUARY 11, 2005
NEW YORK, NEW YORK
MILITARY RESALE GROUP, INC., a New York corporation with offices
located at 2180 Executive Circle Colorado Springs, Colorado 80906 (the
"COMPANY"), for value received, hereby promises to pay to LEE BRUKMAN, an
individual residing at c/o Data Recovery Continuum, Inc., P.O. Box 105, La
Jolla, California 92038 or registered assigns (the "HOLDER"), the principal
amount of ONE TWENTY THOUSAND UNITED STATES DOLLARS ($120,000) on the Maturity
Date (as defined below), and to pay interest on the unpaid principal balance
hereof at the rate (calculated on the basis of a 360-day year consisting of
twelve 30-day months) of 10% per annum from the date hereof until the Maturity
Date. Accrued interest on the unpaid principal balance hereof shall be payable
on the Maturity Date or upon the earlier repayment of this Note. In no event
shall any interest to be paid hereunder exceed the maximum rate permitted by
law. In any such event, this Note shall automatically be deemed amended to
permit interest charges at an amount equal to, but no greater than, the maximum
rate permitted by law. All capitalized terms used, but not otherwise defined,
herein shall have the respective definitions assigned thereto in the Agreement
(as hereinafter defined).
1. NOTE.
This Note is the "Note" described in the Agreement, dated as of January
11, 2005, between the Company and Lee Brukman.
2. PAYMENTS.
(a) Of the principal amount of this Note, (i) $6,000 shall be
payable on February 1, 2005, (ii) $6,000 shall be payable on February 22, 2005;
(iii) $6,000 shall be payable on March 8, 2005; and (iv) $6,000 shall be payable
on March 29, 2005. Such payments are hereinafter referred to as the "PERIODIC
PAYMENTS". The remainder of the principal of this Note shall be due and payable
in full on the Maturity Date. The "MATURITY Date" shall be July 8, 2005.
(b) Interest on this Note shall accrue from the date of issuance
hereof through the Maturity Date.
(c) If the Maturity Date falls on a day that is not a Business Day
(as defined below), the payment due on the Maturity Date will be made on the
next succeeding Business Day with the same force and effect as if made on the
Maturity Date. "BUSINESS DAY" means any day which is not a Saturday or Sunday
and is not a day on which banking institutions are generally authorized or
obligated to close in the City of New York, New York.
(d) (i) The Company may, without the prior written consent of the
Holder, prepay all or any part of the principal of this Note, without payment of
any premium or penalty. All payments on this Note shall be applied first to
accrued interest hereon and the balance to the payment of principal hereof.
(ii) Commencing on the date of first Periodic Payment, this
Note shall be mandatorily prepaid by the Company to the extent of the excess of
(A) over (B), where (A) equals twenty-five (25%) percent of any capital raised
by the Company, whether in the form of equity, derivative securities (e.g.,
warrants, options, convertible securities, exchangeable securities, or
otherwise), or indebtedness (other than trade indebtedness), and (B) equals the
Periodic Payments made through the date of the prepayment.
(e) Payments of principal of, and interest on, this Note shall be
made by check sent to the Holder's address set forth above or to such other
address as the Holder may designate for such purpose from time to time by
written notice to the Company, 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. Alternatively, principal of, and interest on, this
Note with respect to the Maturity Date may be paid by electronic wire transfer
in accordance with instructions provided by the Holder to the Company at least
10 Business Days prior to the Maturity Date.
(f) The obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment, or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit,
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereon, regardless of and without any notice, diligence, act, or
omission with respect to the collection of any amount called for hereunder.
3. RANKING OF NOTE.
This Note constitutes senior unsecured indebtedness of the Company.
4. COVENANTS.
The Company covenants and agrees with the Holder that, so long
as any amount remains unpaid on the Note, unless the consent of the majority in
interest of all of the Holders is obtained or except as otherwise provided
herein, the Company:
(a) Shall not pay any dividend or make any distribution on, or
purchase, redeem, or retire, any shares of its capital stock or any warrants,
options, or other rights to reacquire any such shares, except that the Company
may pay dividends payable solely in shares of its capital stock.
(b) Shall deliver to each Holder:
(i) Quarterly Reports on Form 10-QSB promptly upon filing with
the Securities and Exchange Commission;
(ii) Annual Reports on Form 10-KSB promptly upon filing with
the Securities and Exchange Commission;
(iii) promptly after the Company shall obtain knowledge of
such, written notice of all legal or arbitral proceedings, and of all
proceedings by or before any governmental or regulatory authority or agency, and
each material development in respect of such legal or other proceedings,
affecting the Company and its subsidiaries, except proceedings which, if
adversely determined, would not have a material adverse effect on the Company
and its subsidiaries taken as a whole; and
(iv) promptly after the Company shall obtain knowledge of the
occurrence of any Event of Default (as hereinafter defined) or any event which
with notice or lapse of time or both would become an Event of Default (an Event
of Default or such other event being a "DEFAULT"), a notice specifying that such
notice is a "NOTICE OF DEFAULT" and describing such Default in reasonable
detail, and, in such Notice of Default or as soon thereafter as practicable, a
description of the action the Company has taken or proposes to take with respect
thereto.
5. EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an event
of default (an "EVENT OF DEFAULT"):
(a) A default in the payment of the principal on any Note, when
and as the same shall become due and payable.
- 3 -
(b) A default in the payment of any interest on any Note, when and
as the same shall become due and payable, which default shall continue for five
business days after the date fixed for the making of such interest payment.
(c) A default in the performance, or a breach, of any of the
covenants of the Company contained in Sections 2 or 4 of this Note or contained
in the Agreement.
(d) A default in the performance, or a breach, of any other
covenant or agreement of the Company in (i) this Note and continuance of such
default or breach for a period of 10 days after receipt of notice from the
Holder as to such breach or after the Company had or should have had knowledge
of such breach (ii) the Agreement.
(e) Any representation, warranty, or certification made by the
Company pursuant to this Note or the Agreement shall prove to have been false or
misleading as of the date made in any material respect.
(f) A final judgment or judgments for the payment of money in
excess of $100,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals or other bodies having jurisdiction against
the Company and the same shall not be discharged (or provision shall not be made
for such discharge), or a stay of execution thereof shall not be procured,
within 60 days from the date of entry thereof and the Company shall not, within
such 60-day period, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
(g) The entry of a decree or order by a court having jurisdiction
adjudging the Company bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment, or composition of or in respect of the
Company, under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency, or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, 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 relief
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator, or 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 admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action.
- 4 -
6. REMEDIES UPON DEFAULT.
(a) Upon the occurrence of an Event of Default referred to in
Section 5(g), the principal amount then outstanding of, and the accrued interest
on, this Note shall automatically become immediately due and payable without
presentment, demand, protest, or other formalities of any kind, all of which are
hereby expressly waived by the Company. Upon the occurrence of an Event of
Default referred to in Section 5(a) or (b), the Holder, by notice in writing
given to the Company, may declare the entire principal amount then outstanding
of, and the accrued interest on, this Note to be due and payable immediately,
and upon any such declaration the same shall become and be due and payable
immediately, without presentation, demand, protest, or other formalities of any
kind, all of which are expressly waived by the Company. Upon the occurrence of
an Event of Default other than one referred to in Sections 5(a), (b) or (g), the
Holders of not less than 50% in principal amount of then outstanding Notes
(excluding any Notes held by or for the account of the Company or any affiliate
of the Company) may declare the principal amount then outstanding of, and the
accrued interest on, the Notes to be due and payable immediately, and upon such
declaration the same shall become due and payable immediately, without
presentation, demand, protest, or other formalities of any kind, all of which
are expressly waived by the Company.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, attorneys' fees and expenses.
7. TRANSFER.
(a) Any Notes issued upon the transfer or exchange of this Note
shall be numbered and shall be registered in a Note Register as they are issued.
The Company shall be entitled to treat the registered holder of any Note on the
Note Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Note on
the part of any other person, and shall not be liable for any registration or
transfer of Notes which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amounts to bad faith. This Note shall be transferable only
on the books of the Company upon delivery thereof duly endorsed by the Holder or
by his duly authorized attorney or representative, or accompanied by proper
evidence of succession, assignment, or authority to transfer. In all cases of
transfer by an attorney, executor, administrator, guardian, or other legal
representative, duly authenticated evidence of his or its authority shall be
produced. Upon any registration of transfer, the Company shall deliver a new
Note or Notes to the person entitled thereto. This Note may be exchanged, at the
option of the Holder thereof, for another Note, or other Notes of different
denominations, of like tenor and representing in the aggregate a like principal
amount, upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Notes to be transferred on its books to any person if, in the opinion of counsel
to the Company, such transfer does not comply with the provisions of the
Securities Act and the rules and regulations thereunder.
- 5 -
(b) The Holder acknowledges that he has been advised by the
Company that this Note has not been registered under the Securities Act, that
this Note is being issued on the basis of the statutory exemption provided by
Section 4(2) of the Act or Regulation D promulgated thereunder, or both,
relating to transactions by an issuer not involving any public offering. The
Holder acknowledges that he has been informed by the Company of, or is otherwise
familiar with, the nature of the limitations imposed by the Securities Act and
the rules and regulations thereunder on the transfer of securities. In
particular, the Holder agrees that no sale, assignment or transfer of this Note
shall be valid or effective, and the Company shall not be required to give any
effect to any such sale, assignment or transfer, unless (i) the sale,
assignment, or transfer of this Note is registered under the Securities Act, it
being understood that this Note is not currently registered for sale and that
the Company has no obligation or intention to so register the Notes, or (ii)
this Note is sold, assigned, or transferred in accordance with all the
requirements and limitations of Rule 144 under the Act, it being understood that
Rule 144 is not available at the time of the original issuance of this Note for
the sale of this Note and that there can be no assurance that Rule 144 sales
will be available at any subsequent time, or (iii) such sale, assignment, or
transfer is otherwise exempt from registration under the Securities Act.
8. MISCELLANEOUS.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address, 2180 Executive
Circle Colorado Springs, Colorado 80906 Attention: President, (ii) if to the
Holder, at its address set forth on the first page hereof, or (iii) in either
case, to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 8(a). Notice to the estate of any
party shall be sufficient if addressed to the party as provided in this Section
8(a). Any notice or other communication given by certified mail shall be deemed
given at the time of certification thereof, except for a notice changing a
party's address which shall be deemed given at the time of receipt thereof. Any
notice given by other means permitted by this Section 8(a) shall be deemed given
at the time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Note (and upon surrender of this
Note if mutilated), the Company shall execute and deliver to the Holder a new
Note of like date, tenor, and denomination.
(c) No course of dealing and no delay or omission on the part of
the Holder in exercising any right or remedy shall operate as a waiver thereof
or otherwise prejudice the Holder's rights, powers or remedies. No right, power,
or remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power, or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
- 6 -
(d) This Note may be amended only by a written instrument executed
by the Company and the Holder hereof. Any amendment shall be endorsed upon this
Note, and all future Holders shall be bound thereby.
(e) This Note has been negotiated and consummated in the State of
New York and shall be governed by, and construed in accordance with, the laws of
the State of New York, without giving effect to principles governing conflicts
of law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 7 -
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
MILITARY RESALE GROUP, INC.
BY:
-------------------------------
NAME:
TITLE:
- 8 -