-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UMQRlG/1DAwq+7SF/gsn8CHO5QiSAfml2230YRYuz/E1vR/DtVpn65yY9sR7U/R/ iiK8VHg8xHrCXOJIKCFXPg== 0000930413-01-501719.txt : 20020413 0000930413-01-501719.hdr.sgml : 20020413 ACCESSION NUMBER: 0000930413-01-501719 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20011220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MILITARY RESALE GROUP INC CENTRAL INDEX KEY: 0001088436 STANDARD INDUSTRIAL CLASSIFICATION: [9995] IRS NUMBER: 112665282 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-75630 FILM NUMBER: 1820167 BUSINESS ADDRESS: STREET 1: 2180 EXECUTIVE CIRCLE STREET 2: * CITY: COLORADO SPRINGS STATE: CO ZIP: 80906 BUSINESS PHONE: 7193914564 MAIL ADDRESS: STREET 1: 2180 EXECUTIVE CIRCLE STREET 2: * CITY: COLORADO SPRINGS STATE: CO ZIP: 80906 FORMER COMPANY: FORMER CONFORMED NAME: BACTROL TECHNOLOGIES INC /FL DATE OF NAME CHANGE: 19990610 SB-2 1 c22565-sb2.txt FORM SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 2001 REGISTRATION NO. 333-_____ =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------- MILITARY RESALE GROUP, INC. (Name of Small Business Issuer in Its Charter) NEW YORK 5141 11-2665282 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification No.)
2180 EXECUTIVE CIRCLE COLORADO SPRINGS, COLORADO 80906 (719) 391-4564 (Address and Telephone Number of Principal Executive Offices) 2180 EXECUTIVE CIRCLE COLORADO SPRINGS, COLORADO 80906 (Address of Principal Place of Business or Intended Principal Place of Business) ETHAN D. HOKIT, PRESIDENT MILITARY RESALE GROUP, INC. 2180 EXECUTIVE CIRCLE COLORADO SPRINGS, COLORADO 80906 (719) 391-4564 (Name, address and telephone number of agent for service) ----------- COPIES TO: Eric M. Hellige, Esq. Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022-4441 (212) 421-4100 CALCULATION OF REGISTRATION FEE
=================================================================================================================================== Title of Each Proposed Maximum Proposed Maximum Class of Securities Amount to be Aggregate Offering Aggregate Offering Amount of to be Registered Registered Price Per Share(1) Price(1) Registration Fee(2) - ---------------------------- -------------------------- -------------------------- -------------------------- --------------------- Common Stock, $0.001 par 5,000,000 shares $1.00 $5,000,000 $1,195.00 value ====================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee. (2) Calculated pursuant to Rule 457(a) based on an estimate of the maximum offering price. ----------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. =============================================================================== MILITARY RESALE GROUP, INC. 5,000,000 SHARES COMMON STOCK Military Resale Group, Inc., a New York corporation, is offering up to 5,000,000 shares of its common stock at a price of $1.00 per share. We may offer the shares for cash from time to time from the date of this prospectus until the termination of this offering. Our common stock is traded in the over-the-counter market and prices are reported on the OTC Bulletin Board under the symbol "MRGI." See "Risk Factors" beginning on page 3 for risks of an investment in the securities offered by this prospectus, which you should consider before your purchase any shares. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. We are offering the shares on a "best efforts, no minimum" basis. In a "best efforts, no minimum offering," we do not need to reach a specific level of subscriptions before the proceeds are available to us. There will be no escrow of funds. There is no underwriter assisting us in the offer and sale of the shares. We intend to keep the offering open until May 30, 2002. However, if we have not sold all of the shares by that date, we may extend the offering period at our sole discretion for an additional 120 days, and we may offer the remaining shares on a continuous basis thereafter. We may accept or reject any subscription in whole or in part. If your subscription is rejected, we will promptly return your investment to you without interest or other deductions. We may terminate this offering prior to the expiration date.
============================================================================================= Underwriting Discounts and Price to Public(2) Commissions(1) Per Share............................. $1.00 $0.00 Total................................. $5,000,000 $0.00 =============================================================================================
(1) We have not engaged a selling agent or underwriter. See "Plan of Distribution." (2) Assumes the sale of the maximum offered by this prospectus before deducting expenses, including professional fees, printing costs, and filing fees related to the offering payable by us, estimated at $100,000. The date of this prospectus is __________, 2002 We have not registered the sale of the shares under the securities laws of any state. Brokers or dealers effecting transactions in the shares should confirm that the shares have been registered under the securities laws of the state or states in which sales of the shares occur as of the time of such sales, or that there is an available exemption from the registration requirements of the securities laws of such states. This prospectus is not an offer to sell any securities other than the shares. This prospectus is not an offer to sell securities in any circumstances in which such an offer is unlawful. We have not authorized anyone, including any salesperson or broker, to give oral or written information about this offering, Military Resale Group, Inc., or the shares that is different from the information included in this prospectus. You should not assume that the information in this prospectus, or any supplement to this prospectus, is accurate at any date other than the date indicated on the cover page of this prospectus or any supplement to it. TABLE OF CONTENTS Page Prospectus Summary ...................................................... 1 Risk Factors ............................................................ 3 Special Note Regarding Forward-Looking Statements ....................... 11 Use of Proceeds ......................................................... 11 Dilution ................................................................ 12 Capitalization .......................................................... 13 Determination of Offering Price ......................................... 15 Market for Common Equity and Related Shareholder Matters ................ 15 Management's Discussion and Analysis or Plan of Operation ............... 17 Business ................................................................ 20 Management .............................................................. 28 Principal Stockholders .................................................. 31 Certain Relationships and Related Transactions .......................... 33 Description of Securities ............................................... 34 Plan of Distribution .................................................... 35 Legal Matters ........................................................... 35 Experts ................................................................. 35 Where You Can Find Additional Information ............................... 36 Index to Financial Statements ........................................... F-1 - ------------------------------------------------------------------------------- PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE SHARES. YOU ARE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. ------------------ We are a regional distributor of grocery and household items specializing in distribution to the military market. We distribute a wide variety of items, including fresh and frozen meat and poultry, seafood, frozen foods, canned and dry goods, beverages, dairy products, paper goods and cleaning and other supplies. Our operations are currently directed to servicing the commissaries and exchanges at six military installations located in Colorado, Wyoming and South Dakota, including the Air Force Academy, located in Colorado Springs, Colorado. We are approved by the Department of Defense to contract with military commissaries and exchanges. Military commissaries are large supermarket-type stores operated by the United States Defense Commissary Agency ("DeCA") to provide grocery items for sale to authorized patrons at the lowest practicable prices in facilities designed and operated under standards similar to those in commercial food stores. As of September 2000, there were 296 commissaries worldwide, of which 182 were located in the Continental U.S. and 114 were located overseas. Commissaries are authorized by law to sell goods only to authorized patrons, which include the approximately 1.4 million active duty U.S. military personnel, their dependents and certain authorized reservists and retirees. As of September 30, 2000, these authorized patrons totaled approximately 13.7 million individuals. Annual worldwide commissary sales totaled more than $5 billion in 2000. We were formed as a New York corporation on August 31, 1983 under the name Owl Capital Corp. On June 17, 1988, we changed our name to Bactrol Technologies, Inc. On November 15, 2001, we acquired 98.2% of the issued and outstanding shares of Military Resale Group, Inc., a Maryland corporation, in a reverse acquisition (the "Reverse Acquisition") and subsequently changed our name to Military Resale Group, Inc. In connection with the Reverse Acquisition, we commenced operations in our current line of business. Prior to the Reverse Acquisition, we were inactive and had nominal assets and liabilities. Our principal address is 2180 Executive Circle, Colorado Springs, Colorado 80906. In this Prospectus, reference to the terms "Military Resale Group," "we," "us" and "the company" refer collectively to Military Resale Group, Inc. (a New York corporation) unless otherwise indicated. ABOUT THIS OFFERING We are offering up to 5,000,000 shares of common stock at a price of $1.00 per share. At December 10, 2001, we had 6,630,004 shares of common stock issued and outstanding. If we were to sell all of the shares offered by us in this offering, there would be 11,630,004 shares of common stock outstanding after the offering. There is no underwriter of this offering. We are offering the shares on a best efforts, no minimum basis. This means that we may sell as many or as few shares as we determine and we may terminate the offering at any time before we have sold all 5,000,000 shares. We will not escrow any of the proceeds we receive from this offering. There is no minimum offering and the proceeds from any subscription accepted by us will be immediately available to us. We may reject any subscription in whole or in part. If we reject a subscription we will return the investor's check or other funds without deduction and without the payment of any interest. - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Common Stock Offered.......................................... 5,000,000 shares Common Stock Outstanding Immediately Prior to the Offering...................................... 6,630,004 shares Common Stock to be Outstanding Following the Offering................................................ 11,630,004 shares Use of Proceeds............................................... The net proceeds of this offering will be used (i) to repay indebtedness; and (ii) for working capital and general purposes. OTC Bulletin Board Ticker Symbol.............................. MRGI
SELECTED FINANCIAL INFORMATION The selected financial information presented below is derived from and should be read in conjunction with our financial statements, including notes thereto, appearing elsewhere in this Prospectus. See "Financial Statements." MILITARY RESALE GROUP, INC. SUMMARY OPERATING INFORMATION
FISCAL YEAR ENDED NINE MONTHS DECEMBER 31, ENDED SEPTEMBER 30, 1999 2000 2000 2001 ---- ---- ---- ---- Net sales ....................... $ 3,117,010 $ 4,480,305 $ 3,385,383 $ 3,516,543 Net loss ........................ (145,948) (13,673) (10,186) (184,486) Net loss per common share ....... $ (0.03) $ (0.002) $ (0.06) $ (0.02) Weighted average number of common shares outstanding ............ 5,360,000 5,360,000 5,360,000 5,410,000
SUMMARY BALANCE SHEET INFORMATION
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 2000 AS ADJUSTED(1) ---- ---- ---- -------------- Working capital ......................... $ (169,233) $ (161,382) $ (233,114) $ 4,480,886 Total assets............................. 517,509 650,343 731,984 5,364,343 Total liabilities ....................... 563,385 709,892 1,047,519 543,892 Stockholders' equity .................... (45,876) (59,549) (315,535) 4,820,451
- ----------- (1) Gives effect to the application of the net proceeds from the sale of 5,000,000 shares in this offering as set forth under "Use of Proceeds." 2 - -------------------------------------------------------------------------------- RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE BUYING SHARES IN THIS OFFERING. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY RISKS WE FACE. THESE RISKS ARE THE ONES WE CONSIDER TO BE SIGNIFICANT TO YOUR DECISION WHETHER TO INVEST IN OUR COMMON STOCK AT THIS TIME. WE MIGHT BE WRONG. THERE MAY BE RISKS THAT YOU IN PARTICULAR VIEW DIFFERENTLY THAN WE DO, AND THERE ARE OTHER RISKS AND UNCERTAINTIES THAT ARE NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL, BUT THAT MAY IN FACT IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE SERIOUSLY HARMED, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. OUR OPERATING HISTORY IS LIMITED, SO IT WILL BE DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS IN MAKING AN INVESTMENT DECISION. Although, we were incorporated in 1983, we commenced operations in our current line of business in November 2001 (at which time we acquired Military Resale Group, Inc., a Maryland corporation that commenced operations in November 1998) and have a limited operating history. We are still in the early stages of our development, which makes the evaluation of our business operations and our prospects difficult. Before buying our common stock, you should consider the risks and difficulties frequently encountered by early stage companies. These risks and difficulties, as they apply to us in particular, include: o potential fluctuations in operating results and uncertain growth rates; o limited market acceptance of the products we distribute; o concentration of our revenues in a single market; o our dependence on the military market for most of our revenue; o our need to expand our direct sales forces; o our need to manage rapidly expanding operations; and o our need to attract and train qualified personnel. We have incurred losses since inception and we may be unable to achieve profitability or generate positive cash flow. We incurred net losses of $43,372 in 1998, $145,948 in 1999, $13,673 in 2000 and $334,236 for the nine months ended September 30, 2001 and we may be unable to achieve profitability in the future. If we continue to incur net losses in future periods, we may be unable to achieve one or more key elements of our strategy, including the following: o increase the number of products we distribute; o increase our sales and marketing activities, including the number of our sales personnel; o increase the number of regions in which we distribute products; or o acquire additional distributorships. As of September 30, 2001, we had an accumulated deficit of approximately $543,985. We may not achieve profitability if our revenues increase more slowly than we expect, or if operating expenses exceed our expectations or cannot be adjusted to compensate for lower than expected revenues. If we do 3 achieve profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis. Any of the factors discussed above could cause our stock price to decline. WE ARE DEPENDENT ON THIRD PARTY PRODUCERS AND MANUFACTURERS FOR THE PRODUCTS WE DISTRIBUTE. Although we have good working relationships with our principal suppliers, we do not have long-term arrangements with these entities. Our relationships with the suppliers for which we distribute products may be terminated at any time by any supplier. Therefore, we cannot be assured that we will be able to maintain or increase the number of producers and manufacturers for which we distribute and products that we currently distribute and sell. Any disruption in our relationship with the producers and manufacturers for which we distribute goods could result in the termination of our representation of such producers and manufacturers and their products, which could have a material adverse effect on our business and results of operations. OUR REVENUES COULD BE NEGATIVELY AFFECTED BY THE LOSS OF A MAJOR SUPPLIER. We derive a significant portion of our revenues from the distribution of products that are manufactured by a limited number of suppliers. The loss of any major supplier could dramatically reduce our revenues. In 2000, Tyson Foods, Inc. accounted for over 45% of our revenues, Johnson & Johnson and Leiner Health each accounted for over 20% of our revenues and two other suppliers each accounted for nearly 10% of our revenues. In the first nine months of 2001, our three largest suppliers (Tyson Foods Inc., Johnson & Johnson and Leiner Health) accounted for approximately 80% of our revenues. VARIOUS CHANGES IN THE DISTRIBUTION AND RETAIL MARKETS IN WHICH WE OPERATE HAVE LED AND MAY CONTINUE TO LEAD TO REDUCED SALES AND MARGINS AND LOWER PROFITABILITY FOR OUR CUSTOMERS AND, CONSEQUENTLY, FOR US. The distribution and retail markets in which we operate are undergoing accelerated change as distributors and retailers, including military commissaries, seek to lower costs and provide additional services in an increasingly competitive environment. An example of this is the growing trend of large self-distributing chains consolidating to reduce costs and gain efficiencies. Eating away from home and alternative format food stores, such as warehouse stores and supercenters, have taken market share from traditional supermarket operators, including military commissaries, some of which are our customers. Venders, seeking to ensure that more of their promotional fees and allowances are used by retailers to increase sales volume, increasingly direct promotional dollars to large self-distributing chains. We believe that these changes have led to reduced sales, reduced margins and lower profitability among many of our customers and, consequently, for us. If the strategies we have developed in response to these changing market conditions are not successful, it could harm our financial condition and business prospects. CONSUMABLE GOODS DISTRIBUTION IS A LOW-MARGIN BUSINESS AND IS SENSITIVE TO ECONOMIC CONDITIONS. We derive most of our revenues from the consumable goods distribution industry. This industry is characterized by a high volume of sales with relatively low profit margins. A significant portion of our sales are at prices that are based on product cost plus a percentage markup. Consequently, our results of operations may be negatively impacted when the price of consumable goods go down, even though our percentage markup may remain constant. The consumable goods industry is also sensitive to national and regional economic conditions, and the demand for our consumable goods has been adversely affected from time to time by economic downturns. Additional, our distribution business is sensitive to increases in fuel and other transportation-related costs. 4 REDUCTIONS IN THE ARMED FORCES MAY ADVERSELY AFFECT OUR BUSINESS AND PROSPECTS. We distribute and sell products for resale to active and retired military personnel. Since the end of the Cold War, the United States has streamlined its Armed Forces by reducing the number of military personnel and closing military bases. Reductions in funding for force modernization and military end strength have outpaced reductions in support services and overhead. Proposals have been made to decrease the cost to taxpayers of operating commissaries, including: o increasing the surcharge charged to commissary patrons; o merging commissaries with exchanges; and o privatizing the commissary system. Funding for commissaries has decreased since the early 1990s. In October 1996, DeCA became a "Performance Based Operation," which has resulted in DeCA's obtaining special waivers from Federal procurement regulations for the purpose of striving to operate more efficiently by adopting some characteristics of private-sector companies. The impact of these trends on our business is uncertain and could have a material adverse effect on our business or results of operations. THERE IS NO MINIMUM NUMBER OF SHARES TO BE SOLD IN THIS OFFERING. There is no minimum number of shares of common stock that we must sell in this offering prior to the initial closing, and we expect to accept subscriptions for shares of common stock as they are received. As a result, there can be no assurance that we will raise sufficient funds in this offering to carry out our business plan as currently proposed, or that the net proceeds from the initial subscriptions for shares will be in an amount sufficient to enable us to continue operations in any meaningful manner. WE MAY NEED ADDITIONAL FINANCING TO IMPLEMENT OUR BUSINESS PLAN. Assuming at least 500,000 shares of common stock offered hereby are sold in this offering, we believe the net proceeds from this offering, together with our projected cash flow from operations, will be sufficient to fund our operations as currently conducted for at least the next 12 months. Such belief, however, cannot give rise to an assumption that our cost estimates are accurate or that unforeseen events will not occur that will require us to seek additional funding to meet our operational needs. As a result, we may require substantial additional financing in order to implement our business objectives. There can be no assurances that we will be able to obtain additional funding when needed, or that such funding, if available, will be obtainable on terms we find acceptable. In the event our operations do not generate sufficient cash flow, or we cannot obtain additional funds if and when needed, we may not be able to: o attract additional suppliers; o expand into additional regions; o develop or enhance our product line; o take advantage of future opportunities; or o respond to competitive pressures or unanticipated requirements. For additional information on our anticipated future capital requirements, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." 5 WE ARE DEPENDENT ON THIRD PARTY BROKERS TO STOCK AND DISPLAY THE PRODUCTS WE DISTRIBUTE. We rely on a network of brokers to ensure that sufficient inventories of products are received by commissaries and exchanges and that products are properly stocked and displayed. Our arrangements with brokers may be terminated at any time by any broker. Although we have good working relationships with our brokers, there can be no assurance that we will be successful in maintaining our existing arrangements with brokers or in acquiring, or entering into arrangements with, additional brokers. In addition, we do not have exclusive relationships with the brokers we utilize. Many of these brokers may represent other products in addition to the products we distribute. There can be no assurance that the representation by brokers of multiple products does not result in conflicts of interest. WE CARRY ONLY A LIMITED AMOUNT OF PRODUCT LIABILITY INSURANCE AND ANY SIGNIFICANT PRODUCT LIABILITY CLAIM MAY ADVERSELY AFFECT US. The marketing and sale of products of the type we distribute entails a risk of product liability claims by consumers and others. Although we have obtained product liability insurance in the amount of $2,000,000, there is no assurance that such policy will be sufficient to cover us against all possible liabilities or that the policy can be maintained in force at a cost we find acceptable. In the event of a successful product liability claim against us, lack or insufficiency of insurance coverage could have a material adverse effect on our business and results of operations. FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO DECLINE. Our quarterly operating results have varied significantly in the past and will likely fluctuate significantly in the future. Significant annual and quarterly fluctuations in our results of operations may be caused by, among other factors: o the volume of revenues we have generated; o the timing of our announcements for the distribution of new products, and any such announcements by our competitors; o the acceptance of the products we distribute in the military marketplace; and o general economic conditions. There can be no assurance that the level of revenues and profits, if any, achieved by us in any particular fiscal period will not be significantly lower than in other, including comparable, fiscal periods. We believe quarter-to-quarter comparisons of our revenues and operating results are not necessarily meaningful and should not be relied on as indicators of future performance. Operating expenses are based on management's expectations of future revenues and are relatively fixed in the short term. We plan to increase operating expenses to: o expand our product line; o expand our sales and marketing operations; o increase our services and support capabilities; and o improve our operational and financial systems. 6 If our revenues do not increase along with these expenses, our business will be seriously harmed and net losses in a given quarter would be larger than expected. It is possible that in some future quarter our operating results may be below the expectations of public market analysts or investors, which could cause a reduction in the market price of our common stock. WE MAY PURSUE ACQUISITIONS THAT BY THEIR NATURE PRESENT RISKS AND THAT MAY NOT BE SUCCESSFUL. ACQUISITION STRATEGY. Our growth strategy includes the acquisition of additional distributors and, possibly, of brokers in the business of selling consumer goods in the military market. Our ability to accomplish our acquisition strategy will depend upon a number of factors including, among others, our ability to: o identify acceptable acquisition candidates; o consummate the acquisition of such businesses on terms that we find acceptable; o retain, hire and train professional management and sales personnel at each such acquired business; and o promptly and profitably integrate the acquired business operations into our then-existing business. No assurance can be given that we will be successful with respect to such factors or that any acquired operations will be profitable or be successfully integrated into our then-existing business without substantial costs, delays or other problems. In addition, to the extent that consolidation becomes more prevalent in the industry, the prices for attractive acquisition candidates may be bid to higher levels. In any event, there can be no assurance that businesses acquired in the future will achieve sales and profitability that justify the investments we make therein. CAPITAL REQUIREMENTS OF ACQUISITIONS. Acquiring additional broker or distribution businesses will require additional capital and may have a significant impact on our financial position. We currently intend to finance future acquisitions by using our common stock for all or a portion of the consideration to be paid. In the event our common stock does not maintain sufficient value, or potential acquisition candidates are unwilling to accept our common stock as consideration for the sale of their businesses, we may be required to utilize more of our cash resources, if available, in order to continue our acquisition program. If we do not have sufficient cash resources, our growth could be limited unless we are able to obtain capital through the issuance of additional debt or the issuance of one or more series or classes of our equity securities, which could have a dilutive effect on our then-outstanding capital stock. We do not currently have a line of credit or other lending arrangement with a lending financial institution, and there can be no assurance that we will be able to obtain such an arrangement on terms we find acceptable or sufficient for our needs, if at all, should we determine to do so. Acquisitions could result in the accumulation of substantial goodwill and intangible assets, which may result in substantial amortization charges that could our reduce reported earnings. ENVIRONMENTAL RISKS ASSOCIATED WITH ACQUISITIONS. Although we intend to perform a detailed investigation of each business that we acquire, there may nevertheless be liabilities that we fail or are unable to discover, including liabilities arising from non-compliance with environmental laws by prior owners, and for which we, as a successor owner, may be responsible. We will seek to minimize the impact of these liabilities by obtaining indemnities and warranties from the seller that may be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if 7 obtained, may not fully cover the liabilities due to their limited scope, amount or duration, the financial limitations of the indemnitor or warrantor, or other reasons. THE LOSS OF THE SERVICES OR ONE OR MORE OF OUR EXECUTIVE OFFICERS OR KEY EMPLOYEES COULD HARM OUR BUSINESS. Our success will be dependent on the efforts of Ethan D. Hokit, our President. We have no employment agreement with Mr. Hokit. In addition, we have no key man life insurance on the life of any of our employees, and we have not entered into any employment agreements or non-competition arrangements with any of our key personnel. Our key personnel at the present time, however, are our executive officers and directors, and we believe such persons have certain fiduciary obligations to our company. The loss of the services of Mr. Hokit, or our inability to attract and retain other qualified personnel, may adversely effect our business and prospects. OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS THAT MAY NOT BE IN THE BEST INTERESTS OF OUR OTHER STOCKHOLDERS. Assuming all shares of common stock offered hereby are sold in this offering, upon completion of this offering our executive officers and directors and their affiliates will beneficially own, in the aggregate, approximately 39.04% of our outstanding common stock. As a result, these stockholders will be able to exercise significant control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, which could delay or present an outside party from acquiring or merging with us. For a full presentation of the equity ownership of these stockholders, see "Principal Stockholders." OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE PUBLIC OFFERING PRICE. There has been only a limited public market for our common stock prior to this offering. The public offering price for our common stock has been determined arbitrarily by our management and bears no relationship to our assets, book value, net worth or other economic or recognized criteria of value. This public offering price may vary from the market price of our common stock after the offering. If you purchase shares of common stock, you may not be able to resell those shares at or above the public offering price. The market price of our common stock may fluctuate significantly in response to factors, some of which are beyond our control, including the following: o actual or anticipated fluctuations in our operating results; o changes in market valuations of other companies in our industry; o announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; o additions or departures of key personnel; and o sales of common stock in the future. In addition, the stock market has experienced extreme volatility that often has been unrelated to the performance of particular companies. These market fluctuations may cause our stock price to fall regardless of our performance. 8 You should read the information under the heading "Market For Common Equity and Related Shareholder Matters" for a more complete discussion of the factors which were considered in determining the public offering price of our common stock. YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR SHARES. The public offering price is expected to be substantially higher than the book value per share of our outstanding common stock immediately after this offering. For example, if we sell all 5,000,000 shares offered hereby and you purchase common stock in this offering, you will incur immediate dilution of approximately $0.58 in the book value per share of our common stock from the price you pay for our common stock. If we sell half (2,500,000) of the shares offered hereby, you will incur immediate dilution of approximately $0.74 in such book value per share, and if we sell only 500,000 of the shares offered hereby, you will incur immediate dilution of $0.94 in such book value per share. For additional information on these calculations, see "Dilution." WE FACE SIGNIFICANT COMPETITION. We operate in a highly competitive industry. Many companies are engaged in the sale and distribution of consumer products to the military market, and we compete on the basis of price, quality and assortment, schedules and reliability of deliveries and the range and quality of services provided. Many of our competitors have financial resources, research and development capabilities, marketing staffs and facilities substantially greater than ours. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS This Prospectus contains certain forward-looking statements regarding the plans and objectives of management for future operations, including plans and objectives relating to the development of our business. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based on a successful execution of our business strategy and assumptions that we will be profitable, that the market for the products we distribute will not change materially or adversely, and that there will be no unanticipated material adverse change in our operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate. As a result, there can be no assurance that the forward-looking statements included in this Prospectus will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the objectives and plans of ours will be achieved. SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK PRICE. We currently have 5,448,400 shares of our common stock outstanding that are "restricted securities", as that term is defined under Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). In general, under Rule 144, a person who has satisfied a one-year holding period may, under certain circumstances, sell within any three-month period a number of shares of common stock that does not exceed the greater of 1% of the then outstanding shares of our common stock or the average weekly trading volume in such shares during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity or other 9 limitation by a person who is not one of our affiliates and who has satisfied a two-year holding period. Any substantial sale of restricted securities under Rule 144 could have a significant adverse effect on the market price of our common stock. In addition, the sale of these shares could impair our ability to raise capital through the additional sale of stock. We have reserved from the authorized, but unissued, common stock 1,500,000 shares of our common stock for issuance to key employees, officers, directors and consultants pursuant to options granted or available for grant under our existing stock option plan and have reserved 1,000,000 shares of our common stock for issuance upon exercise of warrants issued to Ronald Steenbergen, a consultant to the company. The existence of any outstanding options issued under our stock option plan, and other options or warrants may prove to be a hindrance to future financings, since the holders of such warrants and options may be expected to exercise them at a time when we would otherwise be able to obtain additional equity capital on terms we would find more favorable. WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE. The holders of our common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available therefor. To date, we have not paid any cash dividends. Our board of directors does not intend to declare any cash dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in our business operations. WE HAVE NOT RETAINED AN UNDERWRITER TO ASSIST US IN THE OFFER AND SALE OF SHARES OFFERED HEREBY, AND THERE IS A RISK THAT WE WILL BE UNABLE TO SELL THE SHARES WE ARE OFFERING. This offering is a self-underwritten offering, and therefore there is no guarantee that we will sell all or any part of the shares offered in this offering. We will require additional funding to continue our business, and there is no assurance that we will be able to locate additional funding. OUR COMMON STOCK IS SUBJECT TO SPECIAL REGULATIONS GOVERNING THE SALE OF PENNY STOCKS, WHICH COULD MAKE IT MORE DIFFICULT FOR YOU TO SELL YOUR SHARES IN THE FUTURE. Our stock is considered a penny stock. Penny stocks are subject to special regulations, which may make them more difficult to trade on the open market. Our common stock trades on the OTC Bulletin Board under the ticker symbol "MRGI." Securities in the OTC market are generally more difficult to trade than those on the Nasdaq National Market, the Nasdaq SmallCap Market or the major stock exchanges. In addition, accurate price quotations are more difficult to obtain. Additionally, our common stock is subject to special regulations governing the sale of a penny stock. A "penny stock," is defined by regulations of the Securities and Exchange Commission as an equity security with a market price of less than $5.00 per share. However, an equity security with a market price under $5.00 will not be considered a penny stock if it fits within any of the following exceptions, which are not applicable to our securities: o The equity security is listed on Nasdaq or a national securities exchange; o The issuer of the equity security has been in continuous operation for less than three years, and either has (a) net tangible assets of at least $5,000,000, or (b) average annual revenue of at least $6,000,000; or 10 o The issuer of the equity security has been in continuous operation for more than three years, and has net tangible assets of at least $2,000,000. If you buy or sell a penny stock, these regulations require that you receive, prior to the transaction, a disclosure explaining the penny stock market and associated risks. Furthermore, trading in our common stock would be subject to Rule 15g-9 of the Exchange Act, which relates to non-Nasdaq and non-exchange listed securities. Under this rule, broker-dealers who recommend our securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Penny stock regulations will tend to reduce market liquidity of our common stock, because they limit the broker-dealers' ability to trade, and a purchaser's ability to sell the stock in the secondary market. The low price of our common stock will have a negative effect on the amount and percentage of transaction costs paid by individual shareholders. The low price of our common stock may also limit our ability to raise additional capital by issuing additional shares. There are several reasons for these effects. First, the internal policies of many institutional investors prohibit the purchase of low-priced stocks. Second, many brokerage houses do not permit low-priced stocks to be used as collateral for margin accounts or to be purchased on margin. Third, some brokerage house policies and practices tend to discourage individual brokers from dealing in low-priced stocks. Finally, broker's commissions on low-priced stocks usually represent a higher percentage of the stock price than commissions on higher priced stocks. As a result, our shareholders will pay transaction costs that are a higher percentage of their total share value than if our share price were substantially higher. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," and elsewhere in this prospectus constitute forward-looking statements. These statements involve risks known to us, significant uncertainties, and other factors which may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by those forward-looking statements. You can identify forward-looking statements by the use of the words "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "potential," "proposed," or "continue" or the negative of those terms. These statements are only predictions. In evaluating these statements, you should specifically consider various factors, including the risks outlined above. These factors may cause our actual results to differ materially from any forward-looking statement. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. USE OF PROCEEDS We estimate that we will receive net proceeds of approximately $4,900,000 from the sale of 5,000,000 shares of our common stock after deducting expenses of this offering. We expect to use the net proceeds over the next 12 months approximately as follows: We intend to use approximately $183,000 to repay a portion of our outstanding indebtedness, of which, at November 30, 2001, approximately $83,000 was owed to Shannon Investments, Inc., a 11 shareholder of the Company, and approximately $100,000 was owed to Oncor Partners, Inc., a company of which Edward T. Whelan, our Chief Executive Officer and one of our directors, is President and a shareholder. We intend to use the remaining net proceeds (approximately $4,717,000) for working capital and for general corporate purposes. Pending such uses, the net proceeds will be invested in short-term, interest-bearing, investment grade securities. The foregoing represents our current estimate of the uses of the net proceeds of this offering and is based on certain assumptions regarding our business, including the assumption that our sales and marketing plan can be accomplished at the projected costs. Future events, including the problems, delays, expenses and complications frequently encountered by companies which seek to establish new products or introduce products to a new market, as well as changes in economic, regulatory or competitive conditions, and the success of our marketing activities, may make shifts in the allocation of funds necessary or desirable. There can be no assurance that our estimates will prove to be accurate or that unforeseen expenses will not be incurred. We believe that the net proceeds of the sale of at least 500,000 shares in this offering, together with anticipated revenues from sales of our products, will satisfy our capital requirements for at least the next 12 months. DILUTION If you purchase shares in this offering, you will experience immediate and substantial dilution in your investment. "Dilution" is the reduction in the value of a purchaser's investment and represents the difference between the price paid for the shares and the "net tangible book value" per share of the common stock acquired in the offering. Net tangible book value per share represents the book value of our tangible assets less the amount of our liabilities, divided by the number of shares of common stock outstanding. At December 10, 2001, there were 6,630,004 shares of common stock issued and outstanding. Without taking into account any changes in our net tangible book value after that date other than to give effect to the estimated net cash proceeds of $4,900,000 from the sale of the 5,000,000 shares offered hereby (after deducting estimated expenses of the offering that total approximately $100,000), at an offering price of $1.00 per share, the amount of increase in net tangible book value as of that date attributable to the sale of shares offered hereby would have been $0.42 per share, representing an immediate dilution to investors in this offering of $0.58 per share and an immediate increase of $0.43 per share to present shareholders. The following table illustrates the per share dilution if we sell all 5,000,000 shares at a price of $1.00 per share, less offering expenses of $100,000. Net tangible book value per share at September 30, 2001..................... $(0.01) Pro Forma net tangible book value per share after the offering.............. 0.42 Pro Forma increase in net tangible book value per share attributable to investors in this offering................................ 0.43 Pro Forma dilution per share to investors in the offering................... 0.58
12 The following table illustrates the per share dilution if we sell only 2,500,000 shares at a price of $1.00 per share, less the offering expenses of $100,000. Net tangible book value per share at September 30, 2001..................... (0.01) Pro Forma net tangible book value per share after the offering.............. 0.26 Pro Forma increase in net tangible book value per share attributable to investors in this offering................................ 0.27 Pro Forma dilution per share to investors in the offering................... 0.74
The following table illustrates the per share dilution if we sell only 500,000 shares at a price of $1.00 per shares, less the offering expenses of $100,000. Net tangible book value per share at September 30, 2001..................... (0.01) Pro Forma net tangible book value per share after the offering.............. 0.06 Pro Forma increase in net tangible book value per share attributable to investors in this offering................................ 0.07 Pro Forma dilution per share to investors in the offering................... 0.94
The following table summarizes the investments of all existing shareholders and new investors after giving effect to the sale of all of the shares offered hereby:
Shares Purchased --------------------------- Total Number Percent Amount ---------- -------- ---------- Existing Shareholders.............. 6,630,004 57% $ (59,549) New Investors(1)................... 5,000,000 43% 5,000,000 --------- --- --------- Total.............................. 11,630,004 100% $4,940,451 ========== === =========
- --------------- (1) Assumes the sale of all 5,000,000 shares offered under this prospectus. The dilutive effect of the offering would be different if we are unsuccessful in selling all of the shares. For example, if we were to sell only (A) a nominal number of shares in this offering, or (B) half of the shares offered by this prospectus, the investment by the new investors and existing shareholders would be as follows:
Shares Purchased ------------------------- Total (A) Number Percent Amount ------ ------- ------ Existing Shareholders.............. 6,630,004 93% $ (59,549) New Investors(1)................... 500,000 7% 500,000 --------- --- --------- Total.............................. 7,130,004 100% $440,451 ========= === ========= Shares Purchased -------------------------- Total (B) Number Percent Amount ------ ------- ------ Existing Shareholders.............. 6,630,004 73% $ (59,549) New Investors(1)................... 2,500,000 27% 2,500,000 --------- ---- ---------- Total.............................. 9,130,004 100% $2,440,451 ========= === =========
CAPITALIZATION We are authorized to issue 50,000,000 shares of common stock par value $0.0001 per share and 13 10,000,000 shares of preferred stock par value $0.0001 per share. At September 30, 2001, there were 6,630,004 shares of common stock issued and outstanding. Since that date, we issued an aggregate of 179,004 shares of common stock. A total of 1,500,000 shares of common stock are reserved for issuance upon the exercise of options granted under our stock option plan to key employees, officers, directors and consultants. The following table sets forth (i) our total capitalization as of September 30, 2001, (ii) capitalization at the date on a pro forma basis to reflect acquisitions completed after September 30, 2001; and (iii) our total capitalization at that date on a pro forma as adjusted basis to reflect the sale of the shares of common stock offered hereby (based on an assumed offering price of $1.00 per share) and the application of the estimated net proceeds therefrom, all as if they occurred on September 30, 2001. The information below is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements appearing at the end of this prospectus.
As of September 30, 2001 --------------------------------------------------------- Pro Forma Actual Pro Forma as Adjusted -------- ----------- ----------- Cash and Cash Equivalents $ 12,784 $ 4,736,784 $ 4,736,784 ========= =========== =========== Debt: Shannon investment..................................... $ 60,000 $ $ Accrued interest....................................... 23,540 23,540 - Note payable - Navistar................................ 20,835 20,835 - Note payable - Gerren.................................. - - - Note payable - Other................................... 100,000 - - ------- ----------- ----------- Total Debt......................................... 204,375 44,375 - ------- ---------- Stockholders Equity: Common stock of the Predecessor Common Stock of the Company, par value $.01 per share 50,000,000 shares authorized, 6,580,004 and 11,480,004 issued and outstanding pro forma and pro forma as adjusted.................................... 65,800 111,800 114,800 Additional paid-in capital............................. 162,650 5,012,650 5,012650 Accumulated deficit.................................... (543,985) (543,985) (543,985) ----------- ---------- ----------- Total stockholders equity.......................... (315,535) 4,584,465 4,583,465 ----------- --------- --------- Total capitalization...................................... $ (111,160) $ 4,628,840 $ 4,583,465 =========== ========= =========
14 DETERMINATION OF OFFERING PRICE Our management has arbitrarily determined the offering price of the shares offered hereby. The offering price bears no relationship to our assets, book value, net worth, or other economic or recognized criteria of value. You should not regard the offering price to be an indication of future market price of our securities. In determining the offering price, we considered factors such as the prospects for our products, our management's previous experience, our historical and anticipated results of operations and our present financial resources. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDERS MATTERS MARKET FOR COMMON STOCK Our common stock is traded on the OTC Bulletin Board under the symbol "MRGI." Our shares began trading on the OTC Bulletin Board on January 10, 2001. Prior to that date, there was no public market for our shares. The following table contains information about the range of high and low bid prices for our common stock for each full quarterly period since our shares began publicly trading, based upon reports of transactions on the OTC Bulletin Board.
High Low ---- ---- 2001 First Quarter (commencing January 10)............ $1.88 $0.03 Second Quarter................................... 0.75 0.20 Third Quarter.................................... 2.27 0.45 Fourth Quarter (through December 17)............. 1.30 0.33
The source of these high and low prices was the OTC Bulletin Board. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. The high and low prices listed have been rounded up to the next highest two decimal places. The market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, our public announcements regarding our then-pending acquisition of Military Resale Group, general trends in the market for the products we distribute, and other factors, over many of which we have little or no control. In addition, board market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance. On December 17, 2001, the closing bid price of the common stock as reported by the OTC Bulletin Board was $0.42 per share. HOLDERS As of December 10, 2001, there were approximately 300 shareholders of record of our common stock. 15 DIVIDEND POLICY We have not paid cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion and analysis of the financial condition and results of operations should be read in conjunction with our financial statements and notes appearing elsewhere in this Prospectus. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth below. During the past two fiscal years and prior to November 15, 2001 in fiscal year 2001, we did not generate any signification revenue, and accumulated no significant assets, as we explored various business opportunities. On November 15, 2001, the date of the Reverse Acquisition, in exchange for a controlling interest in our publicly-held "shell" corporation, we acquired 98.2% of the issued and outstanding capital stock of Military Resale Group, Inc., a Maryland corporation ("MRG-Maryland"). For financial reporting purposes, MRG-Maryland was considered the acquirer in such transaction. As a result, our historical financial statements for any period prior to November 15, 2001 are those of MRG-Maryland. We are a regional distributor of grocery and household items specializing in distribution to the military market. We distribute a wide variety of items, including fresh and frozen meat and poultry, seafood, frozen foods, canned and dry goods, beverages, dairy products, paper goods and cleaning and other supplies. Our operations are currently directed to servicing the commissaries and exchanges at five military installations located in Colorado, Wyoming and South Dakota, including the Air Force Academy, located in Colorado Springs, Colorado. We are approved by the Department of Defense to contract with military commissaries and exchanges. Military commissaries are large supermarket-type stores operated by the United States Defense Commissary Agency ("DeCA") to provide grocery items for sale to authorized patrons at the lowest practicable prices in facilities designed and operated under standards similar to those in commercial food stores. As of September 2000, there were 296 commissaries worldwide, of which approximately 182 were located in the Continental U.S. and approximately 114 were located overseas. Commissaries are authorized by law to sell goods only to authorized patrons, which include the approximately 1.4 million active duty U.S. military personnel, their dependents and certain authorized reservists and retirees. As of September 30, 2000, these authorized patrons totaled approximately 13.7 million individuals. Annual worldwide commissary sales totaled more than $5 billion in 2000. RESULTS OF OPERATIONS In our two most recent fiscal years, we generated $7,597,315 in revenue and we incurred operating losses totaling $133,955. During the nine months ended September 30, 2001, we had sales revenues of $3,539,734 and we incurred operating losses totaling $328,007. This factor, among others, raises substantial doubt concerning our ability to continue as a going concern. We intend to use capital and debt financing as needed to supplement the cash flows that we expect will be provided by on-going operations. Our primary source of capital historically has been the current shareholders. Management intends to augment the current source of capital through the sale of our securities offered in this offering and private equity sources if available. During the year ended December 31, 2000, we had sales revenues of $4,480,305. During the year then ended, we devoted our efforts primarily to developing our products and services, implementing our 17 business strategy and raising working capital through equity financing. Our revenues are primarily dependent upon our ability to cost-effectively and efficiently develop and market our products and services. Realization of sales of our products and services is vital to operations. We may not be able to continue as a going concern without realizing additional sales or raising additional capital. We cannot guarantee that we will be able to compete successfully or that the competitive pressures we may face will not have a material adverse effect on our business, results of operations and financial condition. Additionally, other companies with superior capital resources could force us out of business. While we have been able to generate revenues since inception, we have been limited in the scope of potential clients that could expand due to the lack of working capital. We expect that this offering will enhance our ability to pursue and enter into distribution agreement and contracts to offer additional products to the military bases we serve. FUTURE BUSINESS EXPAND DISTRIBUTION CAPABILITIES. We currently direct our focus to the distribution of products to commissaries located in the Midwest Region of the United States, which represents only one of the four DeCA regions. We do not currently sell to commissaries located overseas or to military exchanges. An important part of our strategic plan is to expand our distribution capabilities, both in the domestic and overseas markets, by acquiring or contracting with distributors, as opportunities permit. EXPAND PRODUCT OFFERINGS. Industry data indicate that the average number of items stocked by the typical civilian supermarket is approximately 18,015 as compared to approximately 13,111 for a commissary. We believe the discrepancy results primarily from the reluctance of certain large manufacturers and many medium and small manufacturers to undertake the administrative burden of obtaining DeCA's approval of products to be sold to commissaries. Under Federal procurement rules, a manufacturer may either represent itself or retain a third-party representative on an exclusive basis to negotiate, supply, invoice and otherwise manage its products within the DeCA system. Our management believes there are many additional manufacturers with products that would meet the DeCA procurement standards and are desirous of selling to the military but that are unable or unwilling to commit the personnel and other resources necessary to comply with the DeCA procurement regulations and procedures required to enable them to sell their products to military commissaries. GROWTH THROUGH ACQUISITIONS. We intend to pursue an aggressive acquisition program to increase the number of our offered products, strengthen our ability to sell to the military exchange and commissary systems, and broaden our geographic reach to sell and distribute products in domestic and overseas regions that we do not currently service. We believe the industry in which we operate is highly fragmented, consisting primarily of small local brokers and distributors that limit their operations to a narrow range of offered products or distribute products only to commissaries or exchanges in selected regions. In view of the current state of the industry and the trend to centralize the management of the commissary system and enhance its cost-effectiveness, we believe significant opportunities are available to a business that can consolidate the capabilities and resources of a number of existing brokers and distributors in the military consumer goods market, including the cost savings that are inherent in a vertically integrated business. We intend to implement an aggressive acquisition program promptly that is designed to expand our range of offered products and enable us to distribute products to commissaries and exchanges in additional geographic markets. 18 IMPROVE MANAGEMENT INFORMATION SYSTEMS. We are committed to improving our management information systems to enable management to more efficiently track sales and product shipments. We believe that, upon completion of this project, we will have achieved significant progress in creating an improved infrastructure capable of supporting expanded product offerings. LIQUIDITY AND CAPITAL RESOURCES Given our current negative cash flows, it will be difficult for us to continue as a going concern. While the recent borrowings from related parties allow us to pursue revenue, and cash, generating contracts and opportunities, it may be necessary to raise additional funds or reduce cash expenditures. Funds could be generated through the issuance of additional stock or through the sale of debenture or other debt offerings. Cash expenditures could be eased through a reduction in overhead costs, including but not limited to labor and associated employee benefits. As mentioned in our audited financial statements included in this filing our un-audited financial statements have been prepared on the assumption that we will continue as a going concern. Our product line is limited and it has been necessary to rely upon financing from the sale of our equity securities to sustain operations. Additional financing will be required if we are to continue as a going concern. If additional financing cannot be obtained, we may be required to scale back or discontinue operations. Even if additional financing is available there can be no assurance that it will be on terms favorable to us. In any event, such financing will result in immediate and possibly substantial dilution to existing shareholders. 19 BUSINESS Overview We are a regional distributor of grocery and household items specializing in distribution to the military market. We distribute a wide variety of items, including fresh and frozen meat and poultry, seafood, frozen foods, canned and dry goods, beverages, dairy products, paper goods and cleaning and other supplies. Our operations are currently directed to servicing the commissaries and exchanges at six military installations located in Colorado, Wyoming and South Dakota, including the Air Force Academy located in Colorado Springs, Colorado. We are approved by the Department of Defense to contract with military commissaries and exchanges. Military commissaries are large supermarket-type stores operated by the United States Defense Commissary Agency ("DeCA") to provide grocery items for sale to authorized patrons at the lowest practicable prices in facilities designed and operated under standards similar to those in commercial food stores. As of September 2000, there were 296 commissaries worldwide, of which 182 were located in the continental United States and 114 were located overseas. Commissaries are authorized by law to sell goods only to authorized patrons, which include the approximately 1.4 million active duty U.S. military personnel, their dependents and certain authorized reservists and retirees. As of September 30, 2000, these authorized patrons totaled approximately 13.7 million individuals. Annual worldwide commissary sales totaled more than $5 billion in 2000. The categories and varieties of merchandise that may be sold in a commissary is strictly regulated by DeCA, as is the cost at which items may be purchased for resale. Under DeCA regulations, all items sold though the commissary system must be sold at cost. The military commissary system is generally self-funded and receives an annual appropriation from Congress primarily to pay the salaries of those who work for the commissaries. Store operations are funded by a 5% surcharge (not a tax) levied on the total amount of the customers' purchases. The surcharge pays for new commissary construction and renovation, new equipment and maintenance, paper bags, shopping carts and other operating costs. In selling products at cost, commissaries are considered an integral part of the military's pay and compensation package. The military exchange system consists of nearly two dozen separate business enterprises, including main exchange stores, convenience stores, package stores, food operations, gas stations, movie theaters and others, operated by the various military services for the benefit of military personnel and other qualified patrons. As of September 30, 2000, there were 548 "main exchanges" worldwide, and approximately 20,000 other exchange service-operated facilities. Annual sales from the exchange systems' worldwide business operations totaled more than $10 billion in 2000. Currently, we do not sell products to the military exchange system, but plan to begin selling to this area in the future. STRATEGIC PLAN EXPAND DISTRIBUTION CAPABILITIES. We currently direct our focus to the distribution of products to commissaries located in the Midwest Region of the United States, which represents only one of the seven DeCA regions. We do not currently sell to commissaries located overseas or to military exchanges. An important part of our strategic plan is to expand our distribution capabilities, both in the domestic and overseas markets, by acquiring or contracting with distributors, as opportunities permit. EXPAND PRODUCT OFFERINGS. Industry data indicate that the average number of items stocked by the typical civilian supermarket is approximately 18,015 as compared to approximately 13,111 for a commissary. We believe the discrepancy results primarily from the reluctance of certain large manufacturers and many medium and small manufacturers to undertake the administrative burden of 20 obtaining DeCA's approval of products to be sold to commissaries. Under Federal procurement rules, a manufacturer may either represent itself or retain a third-party representative on an exclusive basis to negotiate, supply, invoice and otherwise manage its products within the DeCA system. Our management believes there are many additional manufacturers with products that would meet the DeCA procurement standards and are desirous of selling to the military but that are unable or unwilling to commit the personnel and other resources necessary to comply with the DeCA procurement regulations and procedures required to enable them to sell their products to military commissaries. GROWTH THROUGH ACQUISITIONS. We intend to pursue an aggressive acquisition program to increase the number of our offered products, strengthen our ability to sell to the military exchange and commissary systems, and broaden our geographic reach to sell and distribute products in domestic and overseas regions that we do not currently service. We believe the industry in which we operate is highly fragmented, consisting primarily of small local brokers and distributors that limit their operations to a narrow range of offered products or distribute products only to commissaries or exchanges in selected regions. In view of the current state of the industry and the trend to centralize the management of the commissary system and enhance its cost-effectiveness, we believe significant opportunities are available to a business that can consolidate the capabilities and resources of a number of existing brokers and distributors in the military consumer goods market, including the cost savings that are inherent in a vertically integrated business. We intend to implement an aggressive acquisition program promptly that is designed to expand our range of offered products and enable us to distribute products to commissaries and exchanges in additional geographic markets. IMPROVE MANAGEMENT INFORMATION SYSTEMS. We are committed to improving our management information systems to enable management to more efficiently track sales and product shipments. We believe that, upon completion of this project, we will have achieved significant progress in creating an improved infrastructure capable of supporting expanded product offerings. PURCHASING AND SUPPLY Currently, we distribute an aggregate of over 3,325 Stock Keeping Units (SKUs) from approximately 65 manufacturers. Products distributed include including fresh and frozen meat and poultry, seafood, frozen foods, canned and dry goods, beverages, dairy products, paper goods and cleaning and other supplies. The majority of our revenues are derived from products that we purchase outright from manufacturers and resell to commissaries. In this arrangement, the manufacturer maintains an account with DeCA through the Electronic Data Interchange ("EDI") system. Generally, the manufacturer also selects the broker or brokers to merchandise the products and is actively involved in the sale of its products to commissaries/exchanges and the interaction between the commissaries/exchanges, brokers and us. Payment for products are remitted by DeCA to the manufacturer within seven days after the end of each roll-up period with respect to meats, 10 days with respect to dairy products and 23 days with respect to most other products. The manufacturer pays us a fee based on a specified percentage of the purchase price paid by DeCA. For the year ended December 31, 2001, approximately 40% of our revenues were derived from the sale of products on a consignment basis. In a consignment sale, the manufacturer is involved in all facets of the transaction. It appoints and monitors brokers, maintains the account with DeCA, receives payment from DeCA, and pays us a fee based on a percentage of the purchase price paid by DeCA. 21 For the year ended December 31, 2001, approximately 60% of our revenues were derived from the purchase and sale of products in which we acted as principal and dealt directly with DeCA. In such instances, we purchase the product from manufacturers and resell such products to commissaries at the best price attainable. We, rather than the manufacturer, maintain an account with DeCA through the EDI system and receive payments directly from DeCA as if we were the manufacturer of the products. MARKETING AND CUSTOMER SERVICE Our senior management is involved in maintaining relationships with key customers and securing new accounts. We also maintain good relationships with brokers, which have been an effective source of new products. We believe that our ability to consistently provide a high level of service makes us desirable to brokers who want to ensure on-time delivery of the products they represent. We rigorously monitor the quality of our service. Our personnel frequently visit the commissaries that we serve and we are in constant communication with commissaries in order to ensure on-time order fulfillment. OPERATIONS AND DISTRIBUTION Our operations can generally be categorized into two business processes: (i) product replenishment and (ii) order fulfillment. Product replenishment involves the management of logistics from the vendor location through the delivery of products to our distribution center. Order fulfillment involves all activities from order placement through delivery to the commissary location. We determine the quantities in which such products will be ordered from manufacturers. Order quantities for each product are systematically determined by us. Given our experience in managing our product flow, losses due to shrinkage, damage and product obsolescence represented less than 1/3 of 1% of 2000 net sales. We work closely with the commissaries in order to optimize transportation from vendor locations to the distribution center. By utilizing the collective demand of the commissaries for in-bound transportation, our own trucks and our expertise in managing transportation, we can ensure on-time delivery of products on a cost-effective basis. We believe that we realize significant cost savings by the consolidation of products from more than one vendor or for use by more than one commissary. We utilize a number of third party carriers to provide in-bound transportation services. None of these carriers is material to our operations. We currently warehouse approximately 3,325 Stock Keeping Units (SKUs) for distribution to commissaries. Products are inspected at our distribution center upon receipt and stored in racks. Our distribution center includes approximately 28,746 square feet of dry storage space, 2,000 square feet of frozen storage space, and 2,000 square feet of refrigerated storage space, as well as offices for operating, sales and customer service personnel and a management information system. We place a significant emphasis on providing a high service level in order fulfillment. We believe that by providing a high level of service and reliability, we reduce our costs by reducing the number of reorders and redeliveries. Each commissary places product orders based on recent usage, estimated sales and existing inventories. We have developed pre-established routes and pre-arranged delivery times with each customer. Product orders are placed with us six times a week either through our customer service representative or through electronic transmission using the EDI system. Approximately 60% of our orders are received electronically. Orders are generally placed on a designated day in order to coordinate with our pre-established delivery schedules. Processing and dispatch of each order is generally completed within seven hours of receipt and our standards require each order to be delivered to the customer within one hour of a pre-arranged delivery time. 22 Products are picked and labeled at each distribution center. The products are placed on pallets for loading of outbound trailers. Delivery routes are scheduled to both fully utilize the trailers' load capacity and minimize the number of miles driven. We transport approximately 1,950 tons of product annually. Our trucks travel in excess of 139,000 miles annually. THE MILITARY MARKET GENERAL. The United States military market is composed of three main groups: the active members of the four branches of the United States military -- Army, Navy, Air Force and Marines; military retirees; and members of the military reserve. Including disabled veterans, overseas civil service personnel and dependents of all of these groups, and patrons of military commissaries and exchanges number over 13 million. Accordingly to DeCA trade publications, active duty personnel generally are well-educated, well paid and sophisticated. They enjoy a high standard of living with excellent benefits, and, therefore, constitute an excellent market for a variety of goods and services. Military retirees consist of military personnel who retire after 20 years or more of service with full commissary and exchange privileges. Military retirees generally are younger than civilian retirees and tend to engage in second careers after retirement. As a result, they generally are affluent, and like active duty personnel, provide an excellent market for goods and services offered by commissaries and exchanges. Within the last several years, reservists were granted full commissary and exchange benefits while on active duty. Reservists for the most part mirror a cross-section of the general United States population. Generally, they do not shop at commissaries and exchanges as often as members of the other military groups, but tend to buy larger quantities at each trip. The United States has streamlined its Armed Forces in the post-Cold War era. Despite these reductions, the United States military resale market continues to remain strong. In the fiscal year of DeCA ended September 30, 2000, total annual worldwide commissary and exchange sales was approximately $15 billion, with approximately $11.8 billion of these sales in the United States. Since 1945, there has been a major military build-down following each of World War II, the Korean War and the Vietnam war. The military market for consumer goods continued to prosper through each one. The post-Cold War reduction in manpower has not been as severe as previous reductions, and largely has been achieved by early retirement, and the curtailment of inductees. Retirees have earned and retained the privilege to shop in commissaries and exchanges, and Congress has elected to extend the shopping privilege to those forced out prior to retirement. THE COMMISSARY SYSTEM. Military commissaries are the supermarkets of the military. The stated mission of the commissary system is to provide grocery items for sale to authorized patrons at the lowest possible prices in facilities designed and operated like private-sector supermarkets. The assortment of brands of merchandise, however, is limited to those that meet the reasonable demands of commissary patrons, and commissaries currently are prohibited by law from carrying certain merchandise, including beer and wine and automotive supplies. Commissaries primarily stock and generally sell leading name brands and do not offer private label or unknown brands. In the case of many remote military bases, the commissary is the only source of groceries for military personnel. Commissaries sell their products at prices equal to cost plus a five percent surcharge. The only promotional fee that commissaries can accept is a direct reduction in price. Commissaries are prohibited from accepting other promotional items offered to private-sector stores, such as slotting allowances, display allowances or volume rebates. The commissary system receives an annual appropriation from Congress that pays for the salaries of commissary personnel and for the purchase of consumer goods for resale. 23 Store operations otherwise are funded from the five percent surcharge on purchases. Proceeds from the surcharge also pay for new commissary construction, renovation, new equipment and maintenance, shopping bags, shopping carts and various other items. Overseas commissaries also receive Federal funds for transportation and utility costs. Through payment of the surcharge, the patrons of the commissaries essentially have created a worldwide military shoppers' cooperative. The benefit provided by commissaries is an integral part of the military's pay and compensation package. Recent re-enlistment surveys show that commissaries rank second in importance only to the medical/dental benefit. Commissaries are among the only benefits aimed exclusively at the military family. As commissaries are prohibited by law from selling any product below cost, certain items (those used as loss leaders by private-sector stores) may be priced lower at private sector stores. Nevertheless, the annual savings amounts to approximately 25%. It has been estimated that the commissary system results in approximately $2 billion of annual savings for its patrons. As a result, based upon the annual Congressional appropriation of approximately $1 billion available to DeCA, the commissary system provides one of the few government benefits that delivers more than two dollars in direct benefit to the beneficiary for every dollar spent by the taxpayer. As of September 2000, there were a total of 296 commissaries worldwide, of which 182 were located in the continental United States. At such date, the average gross square footage of these commissaries was approximately 57,500, and the average monthly sales per square foot of selling space, a commonly used measure of efficiency of retail operations, was approximately double that of commercial supermarkets. In the fiscal year of DeCA ended September 30, 2000, total annual worldwide commissary sales were approximately $5 billion, with approximately $4.3 billion of these sales in the United States. The table below shows the dollar volume of commissary sales over the three-year period ended September 30, 2000, as reported by the American Logistics Association. Fiscal Year Worldwide Store Sales(000s) ----------- --------------------------- 2000 $5,038,880 1999 $4,945,204 1998 $4,902,746 DeCA recently completed the implementation of a store modernization program that has resulted in the opening or reopening of five to ten new stores a year, each generating between 25% to 30% more business from the same trading area. We believe DeCA's efforts to modernize facilities and merchandising and provide easy access, shorter lines and more convenient hours at commissaries will all contribute to increased sales volume in the commissary system. THE EXCHANGE SYSTEM. The military exchange system consists of nearly two dozen separate "businesses," including main exchange stores (department stores), convenience stores, package stores, food operations, gas stations, movie theaters, and others. The exchange system is a vast, logistically complex worldwide operation. Like the commissary system, the stated purpose of the exchange system is to improve the quality of life of military personnel and their families. The exchange system is a "non-appropriated fund" government activity, and, therefore, does not receive taxpayer subsidies. It is self-sustaining and operates at a profit generated by patron purchases. After expenses, all exchange earnings are returned to patrons in the form of new and improved exchanges and dividends paid to the sponsoring service's morale, welfare and recreation ("MWR") funds. 24 Appropriations by Congress only fund the cost of transporting goods from the United States to overseas military exchanges. All other costs and expenses, including building and operating costs, such as employees' salaries, are paid from exchange revenues. Unlike the commissary system, which is managed by one central governmental authority, each military service manages its own exchange program. These include the Army and Air Force Exchange Service (a joint military command), the Navy Exchange Service Command, the Marine Corps Retail Operations Branch, the Coast Guard and the Department of Veterans Affairs. Military exchanges consistently are ranked by military personnel among the top benefits provided to the military community. As is the case with commissaries, exchanges are prohibited from pricing products below cost; therefore, certain items offered as "loss leaders" in private-sector stores may be priced below prices offered by exchanges. Notwithstanding this constraint, exchanges typically provide their customers with savings ranging from 20% to 25% compared to civilian mass-merchandisers and department stores. At September 30, 2000, there were 548 "main exchanges" worldwide and approximately 20,000 exchange service-operated facilities. In the fiscal year of DeCA ended September 30, 2000, total annual worldwide exchange sales was approximately $9.75 billion, with approximately $7 billion of these sales in the United States. THE DEFENSE COMMISSARY AGENCY. DeCA, which is headquartered in Fort Lee, Virginia, was formed in October 1991 in an effort to consolidate the commissary system of each branch of the military into one efficient unit. Its stated mission is to ensure the commissary system provides United States military personnel and their families with needed groceries at the lowest possible price. DeCA's mission is recognized by many as essential to the military preparedness of the United States by assisting to maintain the morale, readiness and effectiveness of active duty troops, and by encouraging reenlistment of highly trained quality personnel. DeCA is part of the Department of Defense ("DoD") under the Assistant Secretary of Defense for Personnel and Readiness. It manages the total resources of all DoD commissaries worldwide, including personnel, facilities, supplies, equipment and funds. In October 1996, DeCA became a Performance Based Operation ("PBO"). This resulted in DeCA's obtaining special waivers from Federal procurement regulations, thereby allowing it to operate more efficiently and to adopt some characteristics of private-sector companies. As a PBO, DeCA will be striving for progressive market excellence through its "SAVER 2000" initiative - -- providing Service, Access, Value, Efficiency and Response to customers and taxpayers. DeCA commands and centrally manages the commissary system through four commissary regions. Three regions are located in the continental United States and one in Europe. Daily operational support to the agency's regions, zone managers, commissaries and associated facilities is provided by an Operations Support Center located in Fort Lee, Virginia (the "OSC"), which is responsible for acquisitions, financial management, information technology/electronic commerce management, inventory management, food safety, marketing and transportation. All suppliers of goods to the commissary system are required to interface with the Marketing Business Unit (the "MBU") of the OSC, which combines several disciplines, such as operations, acquisition management and information management. The MBU is responsible for DeCA's electronic data interchange system, the preparation and administration of the resale ordering agreement used with suppliers, merchandising and marketing, and maintenance of the catalog master file, the list of products authorized to be carried by commissaries. 25 The great majority of the DeCA buying and merchandising decisions for the seven DeCA regions are handled at DeCA's headquarters in Fort Lee, Virginia. Each region has its own Region Stock List ("RSL"). Within each RSL is a "Key Item List," which is a list of items that each store within that region should carry. Suppliers of brand name products must sell their products to the regional buyers to have their products included on that region's RSL. Once a product is listed on an RSL, it is the responsibility of the individual supplier to ensure that the product gets on the shelf. Many suppliers employ brokers, like us who function as sales representatives and provide a liaison with DeCA. Brokers also serve to promote the suppliers' products and ensure that the products are properly displayed and stocked on the shelf. Suppliers also contract with distributors who warehouse and ship the suppliers' products to the commissaries. Any supplier wishing to sell a product in the commissary system must complete and submit a product application to DeCA. DeCA analyzes each proposed product on the basis of price, quality, anticipated demand and other factors. If the proposed product meets DeCA's requirements, it will be assigned a Local Stock Number, a product identification number ("LSN"), and included on one or more RSLs. If the product is unique to the tastes of a particular region or regions, it will be placed on the RSL for those regions only. Depending on the type of product, it may also be included on the Key Item List of one or more regions. COMPETITION The military resale market is a highly competitive market which is served by several large distributors, most notably SuperValu, Inc., Nash Finch Company and Fleming Companies, Inc., but is otherwise highly fragmented with hundreds of small, privately-held firms operating in the various distribution layers. We face competition from local, regional and national distributors on the basis of price, quality and assortment, schedules and reliability of deliveries and the range and quality of services provided. Because there are relatively low barriers to entry in the military resale market, we expect competition from a variety of established and emerging companies. Many of our competitors have longer operating histories, substantially greater financial, technical, marketing or other resources, or greater name recognition than we have. Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements. In addition, consolidation in the industry, heightened competition among our vendors, new entrants and trends toward vertical integration could create additional competitive pressures that reduce our margins and adversely affect our business. If we fail to successfully respond to these competitive pressures or to implement our strategies effectively, it could have a material adverse effect on our financial condition and prospects. PROPERTIES Our corporate headquarters is located at our distribution center in Colorado Springs, Colorado. The lease for our distribution center and corporate headquarters includes approximately 32,748 square feet, of which approximately 1,000 square feet is used for our corporate headquarters. The lease expires in the year 2006. EMPLOYEES At December 10, 2001, we employed approximately 15 persons on a full-time basis, of which two were management personnel, three were office staff and ten were warehouse and distribution personnel. None of our employees are members of a trade union. All of our employees are employed at our corporate offices and distribution center located in Colorado, Springs, Colorado. 26 LEGAL PROCEEDINGS None 27 MANAGEMENT OFFICERS AND DIRECTORS The following table sets forth certain information with respect to each of our officers or directors as of December 10, 2001:
NAME AGE POSITION ---- --- -------- Edward T. Whelan................. 51 Chairman of the Board and Chief Executive Officer Ethan D. Hokit................... 62 President, Chief Operating Officer and Director Richard H. Tanenbaum............. 54 Director
EDWARD T. WHELAN was a co-founder and the Chairman and Chief Executive Officer of Military Resale Group, Inc. and, in November 2001, became the Chairman and Chief Executive Officer of the company in connection with our merger with Bactrol Technologies, Inc. From April 1998 until the present Mr. Whelan has also served as the President and principal stockholder of Xcel Associates, Inc., a company engaged in providing financial consulting to small and medium-sized companies and to high net worth individuals. Prior to co-founding Military Resale Group, Inc., Mr. Whelan spent the last 20 years starting and operating entrepreneurial businesses. He has founded and operated companies as diverse as Animated Playhouse; a theme restaurant with animated characters, to Physicians' Pharmaceutical Services, Inc., a packaged prescription pharmaceutical manufacturer. From 1968 to 1971, Mr. Whelan attended St. Peters College in Jersey City, New Jersey where he majored in Economics. Currently, Mr. Whelan does not receive a salary for his services as an officer of the company. ETHAN D. HOKIT was a co-founder, a director and the President and Chief Operating Officer of Military Resale Group, Inc. and, in November 2001, became a director and the President and Chief Operating Officer of the company in connection with our merger with Bactrol Technologies, Inc. From 1983 until 1998, Mr. Hokit was the President of Front Range Distributors, Inc. where he successfully operated distributorships serving the five military bases in and around Colorado Springs, Colorado. Mr. Hokit graduated from the University of Oklahoma with a Bachelor of Science degree in Chemistry in 1960 and a Master's Degree in Clinical Chemistry in 1962. RICHARD H. TANENBAUM was the general counsel and a director of Military Resale Group, Inc. and, in November 2001, became the general counsel and a director of the company in connection with its merger with Bactrol Technologies, Inc. Mr. Tanenbaum has practiced law since 1974. Currently, he practices law in Bethesda, Maryland where he specializes in contract negotiations, the purchase and sale of businesses, loan and real estate acquisitions, and related tax matters with an emphasis on commercial acquisitions, sales, leasing and other business considerations. Mr. Tanenbaum's previous professional legal experience includes being a Senior Partner of Lerch, Early, and Brewer, Chartered, a Bethesda, Maryland law firm of thirty-two attorneys, from 1977 until 1984, and an associate at the law firm of Jones, Day, Reavis & Pogue in their Washington, DC offices from 1974 until 1977. Prior to becoming an attorney, Mr. Tanenbaum was an accountant at the public accounting firm of Alexander Grant & Company. In addition to his work as an attorney, Mr. Tanenbaum's experience includes being a founder and President of Air Rights Title Associates and Professional Mortgage Associates, Inc., each a mortgage banking and brokerage company, from 1986 to 1987, when he sold his interests. Mr. Tannenbaum received his legal education at the Columbia Law School of the Catholic University of America. He received a Bachelor of Science degree from Bradley University. 28 EXECUTIVE COMPENSATION The table below sets forth the compensation earned for services rendered in all capacities for the fiscal years ended December 31, 1999 and 2000 by our executive officers in their capacities as officers and directors of Military Resale Group, Inc., a Maryland corporation.
LONG-TERM COMPENSATION AWARDS ------------- ANNUAL COMPENSATION SECURITIES ---------------------- UNDERLYING ALL OTHER NAME OF PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION ----------------------------------- ---- ------- ----- ------------- ------------ Ethan D. Hokit, President and Chief 1999 $24,000 - - - Operating Officer 2000 $60,000 - - - Edward T. Whelan, Chairman and Chief 1999 $0 - - - Executive Officer 2000 $0 - - -
DIRECTORS' COMPENSATION Our directors are reimbursed for expenses incurred in attending meetings of the Board of Directors. Directors generally are not paid any separate fees for serving as directors. STOCK OPTION PLAN In November 2001, we adopted the Military Resale Group, Inc. 2001 Employee Stock Option Plan (the "Option Plan") for the purpose of attracting, retaining and maximizing the performance of executive officers and key employees and consultants. We have reserved 1,500,000 shares of our common stock for issuance under the Option Plan. The Option Plan has a term of ten years and provides for the grant of "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, non-statutory stock options, stock appreciation rights and restricted stock awards. It is contemplated that the Option Plan will eventually be administered by a Compensation Committee of the Board of Directors (the "Compensation Committee"), which Committee has not yet been created. The exercise price for non-statutory stock options may be equal to or more or less than 100 percent of the fair market value of shares of common stock on the date of grant. The exercise price for incentive stock options may not be less than 100 percent of the fair market value of shares of our common stock on the date of grant (110 percent of fair market value in the case of incentive stock options granted to employees who hold more than ten percent of the voting power of our issued and outstanding shares of common stock). Options granted under the Option Plan may not have a term of more than a ten-year period (five years in the case of incentive stock options granted to employees who hold more than ten percent of the voting power of our common stock) and generally vest over a three-year period. Options generally terminate three months after the optionee's termination of employment by us for any reason other than death, disability or retirement, and are not transferable by the optionee other than by will or the laws of descent and distribution. 29 The Option Plan also provides for grants of stock appreciation rights ("SARs"), which entitle a participant to receive a cash payment, equal to the difference between the fair market value of a share of our common stock on the exercise date and the exercise price of SAR. The exercise price of any SAR granted under the Option Plan will be determined by the Board of Directors in its discretion at the time of the grant. SARs granted under the Option Plan may not be exercisable for more than a ten year period. SARs generally terminate one month after the grantee's termination of employment by us for any reason other than death, disability or retirement. Although the Board of Directors has the authority to grant SARs, it does not have any present plans to do so. Restricted stock awards, which are grants of shares of our common stock that are subject to a restricted period during which such shares may not be sold, assigned, transferred, made subject to a gift, or otherwise disposed of, or mortgaged, pledged or otherwise encumbered, may also be made under the Option Plan. At this time, the Board of Directors has not granted, and does not have any plans to grant, restricted shares of common stock. As of December 10, 2001, options to purchase an aggregate of 1,000,000 shares of our common stock have been granted to our employees, officers, directors and/or consultants under the Option Plan. Such options are one-year options to purchase an aggregate of 1,000,000 shares of our common stock at an exercise price of $0.50. 30 PRINCIPAL STOCKHOLDERS The following table sets forth as of December 10, 2001 certain information regarding the beneficial ownership of our common stock by (a) each person who is known to us to be the beneficial owner of more than five percent (5%) of our common stock, (b) each director and executive officer and (c) all directors and executive officers as a group. Except as otherwise indicated, the persons or entities listed below have sole voting and investment power with respect to all shares of common stock beneficially owned by them, except to the extent such power may be shared with a spouse. The percentage of beneficial ownership is based upon 6,630,004 shares of our common stock outstanding as of December 10, 2001.
SHARES OF COMMON STOCK BENEFICIAL OWNERSHIP AFTER OWNED PRIOR TO OFFERING(1) OFFERING(%)(1) ------------------------------- ---------------------------------- NAME AND ADDRESS AMOUNT % 500,000 2,500,000 5,000,000 ----------------------------- -------------- ------------- -------- --------- --------- SHARES SHARES SHARES -------- --------- --------- Edward T. Whelan..................... 3,650,000(2) 55.05% 51.19% 39.98% 31.38% 135 First Street Keyport, New Jersey 07735 Edward Meyer, Jr..................... 2,710,500(3) 40.88 38.01 29.67 23.30 32 Daniel Drive Hazlet, New Jersey 07730 Xcel Associates, Inc. ............... 2,210,050 33.33 31.00 24.21 19.00 224 Middle Road Hazlet, New Jersey 07730 Ronald Steenbergen................... 1,000,000(4) 13.11 12.30 9.87 7.92 4 Cho Yuen Street Wah Shun Industrial Building Yau Tong, Kolwoon Peoples Republic of China Ethan D. Hokit....................... 440,000(5) 6.64 6.17 4.82 3.78 3305 Blodgett Drive Colorado Springs, Colorado 80919 Richard H. Tanenbaum................. 450,000 6.79 6.31 4.93 3.87 7315 Wisconsin Avenue Suite 775N Bethesda, Maryland 20814 Shannon Investments, Inc. .......... 400,000 6.03 5.61 4.38 3.44 224 Middle Road Hazlet, New Jersey 07730 Directors and executive officers as a group (three persons)........... 4,540,000 68.48 63.67 49.73 39.04
- ------------------ 31 (1) For purposes of this table, information as to the beneficial ownership of shares of our common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes general voting power and/or investment power with respect to securities. Except as otherwise indicated, all shares of our common stock are beneficially owned, and sole investment and voting power is held, by the person named. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of our common stock which such person has the right to acquire within 60 days after the date of this Report. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares which such person or persons has the right to acquire within 60 days after the date of this Report is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of such shares listed beneficially owned does not constitute an admission of beneficial ownership. (2) Includes 400,000 shares of our common stock owned of record by Shannon Investments, Inc., of which Mr. Whelan is a principal shareholder, and 2,210,050 shares owned of record by Xcel Associates, Inc., of which Mr. Whelan is a principal shareholder. (3) Includes 2,210,050 shares owned of record by Xcel Associates, of which Mr. Meyer is a principal shareholder. (4) Represents 1,000,000 shares of our common stock issuable upon the exercise of currently exercisable stock options. (5) Includes 400,000 shares of our common stock owned of record by Mary Hokit, the wife of Mr. Hokit. 32 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In October 1997, we borrowed $60,000 from Shannon Investments, Inc., one of our shareholders, and in connection therewith we executed a promissory note in favor of such lender. As of November 30, 2001, that is controlled by Edward T. Whelan, our Chairman of the Board and Chief Executive Officer, the outstanding balance due under the promissory note was approximately $83,000. Mr. Whelan also is the President and a principal shareholder of Xcel Associates, Inc., which is one of our principal shareholders. [In addition, on February 1, 2001, we entered into a Business Consulting Agreement with Mr. Whelan and Edward Meyer, Jr. for the provision of marketing and managerial consulting services. The term of the agreement is 11 months. For their services, Messrs. Whelan and Meyer will receive an aggregate of 290,000 shares of our common stock.] Xcel Associates, Inc. maintains office space in our corporate offices without charge. On August 14, 2001, we borrowed $100,000 from Oncor Partners, Inc., a company of which Edward T. Whelan, our Chairman of the Board and Chief Executive Officer, is President and a shareholder. The loan bears no interest and has a term of one year. As of September 30, 2001, the outstanding balance due under the promissory note was approximately $100,000. In February 2001, we issued 145,000 shares of our common stock to Edward T. Whelan, our Chairman and Chief Executive Officer, for consulting services performed for the company. In February 2001, we issued 50,000 shares of our common stock to Jerry Gruenbaum, Esq., our corporate counsel at the time of issuance, for legal services performed for the company. On March 23, 2001, we placed a stop transfer order on these 50,000 shares. In August 2001, we issued 20,000 shares of our common stock to Alan Finfer, a director and our Secretary and Treasurer at the time of issuance, for consulting services performed for the company. 33 DESCRIPTION OF SECURITIES Our authorized capital stock consists of 50,000,000 shares of common stock, par value $.0001 per share, and 10,000,000 shares of preferred stock, par value $.0001 per share. As of December 10, 2001, 6,630,004 shares of common stock were issued and outstanding and no shares of preferred stock were issued and outstanding. In addition, at such date, 1,000,000 shares of common stock were reserved for issuance upon the exercise of outstanding options and warrants. COMMON STOCK VOTING, DIVIDEND AND OTHER RIGHTS. Each outstanding share of common stock will entitle the holder to one vote on all matters presented to the shareholders for a vote. Holders of shares of common stock will have no preemptive, subscription or conversion rights. All shares of common stock to be outstanding following this offering will be duly authorized, fully paid and non-assessable. Our Board of Directors will determine if and when distributions may be paid out of legally available funds to the holders. We have not declared any cash dividends during the past fiscal year with respect to the common stock. Our declaration of any cash dividends in the future will depend on our Board of Directors' determination as to whether, in light of our earnings, financial position, cash requirements and other relevant factors existing at the time, it appears advisable to do so. In addition, we were a party to a credit facility that prohibits the payment of dividends without the lender's prior consent. RIGHTS UPON LIQUIDATION. Upon liquidation, subject to the right of any holders of the preferred stock to receive preferential distributions, each outstanding share of common stock may participate pro rata in the assets remaining after payment of, or adequate provision for, all our known debts and liabilities. MAJORITY VOTING. The holders of a majority of the outstanding shares of common stock constitute a quorum at any meeting of the shareholders. A plurality of the votes cast at a meeting of shareholders elects our directors. The common stock does not have cumulative voting rights. Therefore, the holders of a majority of the outstanding shares of common stock can elect all of our directors. In general, a majority of the votes cast at a meeting of shareholders must authorize shareholders action other than the election of directors. However, the Business Corporation Law of the State of New York provides that certain extraordinary matters, such as a merger or consolidation in which we are a constituent corporation, a sale or other disposition of all or substantially all of our assets, and our dissolution, require the vote of the holders of two-thirds of all outstanding voting shares. Most amendments to our certificate of incorporation require the vote of the holders of a majority of all outstanding voting shares. TRANSFER AGENT AND REGISTRAR Our Transfer Agent and Registrar for our common stock is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004. 34 PLAN OF DISTRIBUTION We are offering up to 5,000,000 shares of our common stock on a "best efforts, no minimum" basis at a price of $1.00 per share. Under a "best efforts, no minimum" offering, there is no requirement that we sell a specified number of shares before the proceeds of the offering become available to us. We will not escrow any of the proceeds received from our sale of shares before the offering and we are not required to sell a specified number of shares before the offering is terminated. Therefore, upon acceptance of a subscription, the proceeds from that subscription will be immediately available for our use and the investor has no assurance that we will sell all or any part of the remaining shares offered hereby. The offering will commence on the date shown on the front cover of this prospectus and will terminated on May 30, 2002, unless, in our discretion, we terminate the offering before that date. We also reserve the right to extend the offering beyond May 30, 2002, if we have not sold all of the shares prior to that date. We will not extend the offering beyond a date that is more than two years from the effective date of the registration statement of which this prospectus is a part. The first closing will occur at our discretion. Our officers, directors, employees and affiliates may purchase shares in the offering on the same terms and conditions as other purchasers. Subscription for the shares may only be made by completing a written subscription agreement and by submitting the completed agreement with a check payable to "Military Resale Group, Inc." to the company at its principal executive offices to the attention of the Chief Executive Officer. If the subscription is accepted, the check will be deposited by us and, upon notification from our bank that the funds are available, we will cause a stock certificate for the shares purchased to be issued and delivered to the investor. If we reject any subscription, the investor's check will be returned without interest or deduction. To comply with the securities laws of certain jurisdictions, the shares of common stock offered by this prospectus may need to be offered or sold only through registered or licensed brokers or dealers. In addition, in certain jurisdictions, the shares of common stock may not be offered or sold unless they have been registered or qualified for sale or an exemption is available and complied with. We have not engaged the services of an underwriter or selling agent or broker in connection with this offering. We will offer the shares directly and through our officers and directors acting on our behalf. We will not pay any commission or other consideration or compensation to any officer or director in connection with the sale of the shares. LEGAL MATTERS The legality of the issuance of the shares offered will be passed upon for us by the law firm of Pryor Cashman Sherman & Flynn LLP, New York, New York. EXPERTS The consolidated financial statements as of December 31, 1999 and 2000 and for each of the two years in the period ended December 31, 2000 included in this Prospectus have been audited by Michael Johnson & Co. LLC, Denver, Colorado, independent accountants, as stated in its report appearing herein and elsewhere in this Registration Statement, and have been so included in reliance upon the report of this firm given upon their authority as experts in auditing and accounting. 35 WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form SB-2 (including exhibits and schedules) under the Securities Act, with respect to the shares to be sold in this offering. This prospectus does not contain all the information set forth in the registration statement. For further information with respect to our company and the common stock offered in this prospectus, reference is made to the registration statement, including the exhibits filed thereto, and the financial statements and notes filed as a part thereof. With respect to each such document filed with the SEC as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matter involved. We file quarterly and annual reports, proxy statements and other information with the SEC. You may read and copy any document that we file at the public reference facilities of the SEC in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC's website at http//www.sec.gov. 36 MILITARY RESALE GROUP, INC. INDEX TO FINANCIAL STATEMENTS MILITARY RESALE GROUP, INC. CORPORATION CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Certified Public Accountants...................................................... F-2 Consolidated Balance Sheets............................................................................. F-3 Consolidated Statements of Operations................................................................... F-4 Consolidated Statements of Change in Stockholders' Equity............................................... F-5 Consolidated Statements of Cash Flows................................................................... F-6 Notes to Consolidated Financial Statements.............................................................. F-7
F-1 INDEPENDENT AUDITOR'S REPORT Board of Directors Military Resale Group, Inc. Colorado Springs, Colorado We have audited the accompanying balance sheets of Military Resale Group, Inc. as of December 31, 2000 and 1999, and the related statements of operations, stockholders' equity and cash flow for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positions of Military Resale Group, Inc., as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years ended, in conformity with accounting principles generally accepted in the United States. Denver, Colorado March 20, 2001 Except for Note 10, as to which date is December 10, 2001 F-2 MILITARY RESALE GROUP, INC. BALANCE SHEETS
(UNAUDITED) DECEMBER 31, SEPTEMBER 30, ASSETS 1999 2000 2001 -------------- ------------ --------------- CURRENT ASSETS: Cash $ 3,776 -- $ 12,785 Accounts Receivable -trade 299,642 457,574 441,058 Prepaid expenses -- -- 3,388 Inventory 90,734 90,936 173,634 ----------- ----------- ----------- Total Current Assets 394,152 548,510 630,865 ----------- ----------- ----------- FIXED ASSETS: Office Equipment 1,176 1,691 6,829 Warehouse Equipment 72,713 83,110 85,285 Vehicles 64,366 64,366 64,366 Leasehold Improvements 2,440 2,440 2,440 Software 12,006 15,609 15,609 ----------- ----------- ----------- 152,701 167,216 174,529 Less Accumulated Depreciation (32,178) (67,217) (93,497) ----------- ----------- ----------- Net Fixed Assets 120,523 99,999 81,032 ----------- ----------- ----------- OTHER ASSETS: Goodwill 5,000 5,000 5,000 Less Accumulated Amortization (2,166) (3,166) (3,913) Deposits -- -- 19,000 ----------- ----------- ----------- Total Other Assets 2,834 1,834 20,087 ----------- ----------- ----------- TOTAL ASSETS $ 517,509 $ 650,343 $ 731,984 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable - trade $ 409,568 $ 544,698 $ 814,344 Bank Overdraft -- 38,223 -- Accrued Interest Payable 15,782 23,540 28,800 Notes Payable - current portion 49,254 86,073 20,835 ----------- ----------- ----------- Total Current Liabilities 474,604 692,534 863,979 ----------- ----------- ----------- LONG-TERM DEBT: Notes Payable - long-term portion 88,781 17,358 183,540 ----------- ----------- ----------- Total Long-term Debt 88,781 17,358 183,540 ----------- ----------- ----------- TOTAL LIABILITIES 563,385 709,892 1,047,519 ----------- ----------- ----------- STOCKHOLDERS' EQUITY: Common Stock, Par Value $.01, 10,000,000 shares authorized, 5,360,000 shares issued at December 31, 53,600 53,600 65,800 2000 and 1999, and 6,580,004 issued at September 30, 2001 Additional Paid-In Capital 96,600 96,600 162,650 Retained Deficit (196,076) (209,749) (543,985) ----------- ----------- ----------- Total Stockholders' Equity (45,876) (59,549) (315,535) ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 517,509 $ 650,343 $ 731,984 =========== =========== ===========
The accompanying notes are an integral part of the financial statements. F-3 MILITARY RESALE GROUP, INC. Statement of Operations
(Unaudited) Nine Month Year Ended December 31, Period Ended ------------------------------------- September 30, 1999 2000 2001 ----------------- ----------------- ----------------- REVENUES: Sales $ 3,117,010 $ 4,480,305 $ 3,539,734 COST OF GOODS SOLD: (2,872,339) (3,770,094) (3,092,992) ----------------- ----------------- ----------------- NET REVENUES: 244,671 710,211 446,742 ----------------- ----------------- ----------------- OPERATING EXPENSES: Auto & Truck Expense 50,418 78,316 46,039 Amortization/Depreciation 28,412 36,039 27,027 Contributions 610 50 95 Dues & Subscriptions 656 3,160 3,822 Equipment Rental 1,778 6,466 56,940 Insurance Expense 30,812 48,572 48,994 Miscellaneous Expense 761 10,453 7,367 Office Expense 21,090 27,497 44,031 Professional Fees 28,376 50,795 165,633 Rent 31,275 80,805 71,443 Salary & Wages 167,016 332,193 268,907 Supplies 1,126 6,467 4,839 Taxes- Payroll 13,791 29,430 25,919 Travel 953 1,520 3,693 ----------------- ----------------- ----------------- Total Operating Expenses 377,074 711,763 774,749 ----------------- ----------------- ----------------- Net Loss from Operations (132,403) (1,552) (328,007) ----------------- ----------------- ----------------- OTHER INCOME/EXPENSES Interest Expense (13,545) (12,121) (6,229) ----------------- ----------------- ----------------- (13,545) (12,121) (6,229) ----------------- ----------------- ----------------- NET LOSS $ (145,948) $ (13,673) $ (334,236) ================= ================= ================= PER SHARE INFORMATION: Weighted average number of common shares outstanding 2,982,837 5,360,000 6,580,004 ----------------- ----------------- ----------------- NET LOSS PER COMMON SHARE $ (0.05) $ (0.01) $ (0.05) ================= ================= =================
The accompanying notes are an integral part of the financial statements. F-4 MILITARY RESALE GROUP, INC. Statement of Change in Stockholders' Equity
COMMON STOCK ADDITIONAL RETAINED TOTAL ------------------------------ PAID-IN EARNINGS STOCKHOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) EQUITY - --------------------------------------------- -------------- ------------- ------------- --------------- -------------- BALANCE, OCTOBER 6, 1997 -- $ -- $ -- $ -- $ -- Issuance of Common Stock for cash 800,000 8,000 (7,800) -- 200 Net Loss for period ended -- -- -- (6,756) (6,756) -------------- ------------- ------------- --------------- -------------- BALANCE, DECEMBER 31, 1997 800,000 8,000 (7,800) (6,756) (6,556) -------------- ------------- ------------- --------------- -------------- Issuance of Common Stock for Cash 40,000 400 14,600 -- 15,000 Issuance of Common Stock for Services 3,000,000 30,000 (30,000) -- -- Net Loss for year ended -- -- -- (43,372) (43,372) -------------- ------------- ------------- --------------- -------------- BALANCE, DECEMBER 31, 1998 3,840,000 38,400 (23,200) (50,128) (34,928) -------------- ------------- ------------- --------------- -------------- Issuance of Common Stock 1,520,000 15,200 119,800 -- 135,000 Net Loss for year ended -- -- -- (145,948) (145,948) -------------- ------------- ------------- --------------- -------------- BALANCE, DECEMBER 31, 1999 5,360,000 53,600 96,600 (196,076) (45,876) -------------- ------------- ------------- --------------- -------------- Net Loss for year ended -- -- -- (13,673) (13,673) -------------- ------------- ------------- --------------- -------------- BALANCE, DECEMBER 31, 2000 5,360,000 $ 53,600 $ 96,600 $(209,749) $(59,549) -------------- ------------- ------------- --------------- --------------
F-5 MILITARY RESALE GROUP, INC. Statements of Cash Flows (Indirect Method)
(UNAUDITED) YEAR ENDED NINE MONTH DECEMBER 31, PERIOD ENDED ------------------------------- SEPTEMBER 30, 1999 2000 2001 ----------- ---------- ---------- Cash Flows from Operating Activities: Net Loss $(145,948) $ (13,673) $(334,236) Adjustments to reconcile Net Loss to net cash used in operating activities: Depreciation 27,412 35,039 25,280 Amortization 1,000 1,000 747 Stock issued for services -- -- 79,250 Changes in Assets & Liabilities: Decrease (Increase) in Accounts Receivable (176,664) (157,932) 16,516 (Increase) in prepaid expenses/deposits -- -- (22,388) (Increase) in Inventory (20,312) (202) (82,698) Increase in Accounts Payable 239,778 173,353 231,423 Increase in Accrued Expenses 6,032 7,758 5,260 --------- --------- --------- Net Cash Used in Operating Activities (68,702) 45,343 (80,846) --------- --------- --------- Cash Flows From Investing Activities: Purchase of fixed assets (108,597) (14,515) (7,313) --------- --------- --------- Net Cash Used in Investing Activities (108,597) (14,515) (7,313) --------- --------- --------- Cash Flows From Financing Activities: Proceeds from stock issuance 135,000 -- -- Short-term borrowings 40,520 -- 100,944 Note principal payments (14,858) (34,604) -- --------- --------- --------- Net Cash Provided By Financing Activities 160,662 (34,604) 100,944 --------- --------- --------- Net Decrease in Cash and Cash Equivalents (16,637) (3,776) 12,785 Cash and Cash Equivalents - Beginning of period 20,413 3,776 -- --------- --------- --------- Cash and Cash Equivalents - End of period $ 3,776 $ -- $ 12,785 ========= ========= ========= Supplemental Cash Flow Information: Interest Paid $ 7,735 $ 4,365 $ 4,365 ========= ========= ========= Income Taxes Paid $ -- $ -- $ -- ========= ========= =========
The accompanying notes are an integral part of the financial statements. F-6 MILITARY RESALE GROUP , INC Notes to Financial Statements For the Year Ended December 31, 2000 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: NATURE OF BUSINESS On October 6, 1997, Military Resale Group Inc. (the Company) was incorporated under the laws of Maryland. The Company is a Maryland corporation organized for the purpose of distributing/marketing resale grocery products to military commissaries. The Company's fiscal year end is December 31. BASIS OF PRESENTATION The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, The company considers all cash and highly liquid investments with initial maturities of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE The Company's trade accounts primarily represent unsecured receivables. Historically, the Company's bad debt write-offs related to these trade accounts have been insignificant. PROPERTY AND EQUIPMENT The Company Follows the Practice of capitalizing Property and equipment over $250 at cost. The cost of ordinary maintenance and repairs is charged to operations while renewals and replacements are capitalized. Depreciation is computed On the straight-line method over the following estimated useful lives. Office Equipment & Software 3 to 5 years Warehouse Equipment 5 to 7 years Vehicles 5 years ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. F-7 MILITARY RESALE GROUP, INC. Notes to Financial Statements For the Year Ended December 31, 2000 NET LOSS PER SHARE Net loss per share is based on the weighted average number of common shares and common shares equivalent outstanding during the period. REVENUE RECOGNITION Revenue is recognized at the time of sale. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of accounts payable and accrued expenses are considered to be representative of their respective fair values because of the short-term nature of these financial instruments. OTHER COMPREHENSIVE INCOME The company has no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods. FEDERAL INCOME TAXES The Company accounts for income taxes under SFAS No 109, which requires the asset and liability approach to accounting for income taxes. Under this approach, deferred income taxes are determined based upon differences between the financial statement and tax bases of the Company's assets and liabilities and operating loss carryforwards using enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred tax assets are recognized if it is more likely than not that the future tax benefit will be realized. NOTE 2 - NOTES PAYABLE The following is a summary of notes payable as of December 31, 2000 Note payable to an individual , unsecured loan, 12% interest, maturity date - April 2000 $ 14,650 Note payable to a finance company, collateralized by auto, monthly installment payments of $693, maturity date - February 2001 1,372 Note payable to finance company, collateralized by auto, monthly payments of of $1,053, maturity date - June 2003 27,409 Note payable to investment company, unsecured loan, 10% interest, Due on demand 60,000 ------- 103,431 Less: Current Portion (86,073) ------- Total Long-Term Debt $17,358 =======
F-8 MILITARY RESALE GROUP, INC Notes to Financial Statements For the Year Ended December 31, 2000 Maturities of long-term debt at December 31, 2000, are as follows: 2000 $ 86,073 2001 11,244 2002 6,114 -------- $103,431 ======== NOTE 3 INVENTORY Inventories at December 31, by major classification, were comprised of the following: Finished goods $90,936 ------- $90,936 ======= Inventory consists primarily of grocery items and are stated at the lower of costs or market. Cost is determined under the first-in, first-out method (FIFO) valuation method. All items of inventory are finished goods resold to military commissaries and wholesale food chains. NOTE 4 - OPERATING LEASES In November 1999, the Company entered into lease agreements for office and warehouse space in Colorado Springs, Colorado that expires in May 2002. Rental expense for the year was $80,805. Minimum future lease payments under current lease agreement at December 31, 2000 are as follows: 2000 $ 66,509 2001 35,529 ------ $102,038 ======== NOTE 5- CAPITAL STOCK TRANSACTION On May 24, 1999, the Company's Board of Directors and shareholders approved the following capital stock transaction: (i) a 40,000 to 1 split of common stock. All shares and per share amounts n the accompanying financial statements of the Company and notes thereto have been retroactively adjusted to give effect to the stock splits. NOTE 6 -RELATED PARTY TRANSACTION The officers and directors of this company are also officers and directors of other companies. NOTE 7- CONCENTRATION OF RISK The Company's Revenues From military commissary sales provide approximately ninety eight percent of their base of operations. Management believes that concentration of customers with respect to risk is minimal due to the sales being primary through government contracts. F-9 MILITARY RESALE GROUP, INC Notes to Financial Statements For the Year Ended December 31, 2000 NOTE 8 - SEGMENT INFORMATION The Company operates primarily in a single operating segment, distributing and marketing resale grocery products to military commissaries. NOTE 9-INCOME TAXES Significant components of the Company's deferred tax liabilities and assets at December 31, 2000 are as follows: Deferred Tax Assets Net Operating Loss Carryforwards $209,749 Less Valuation Allowance (209,749) --------- Total Deferred Tax Assets $ 0 ========= As of December 31, 2000, the Company had a net operating loss carryforward for federal income tax purposes approximately equal to the accumulated deficit recognized for book purposes, which will be available to reduce future taxable income. The full realization of the tax benefit associated with the carryforward depends predominantly upon the Company's ability to generate taxable income during the carryforward period. Because of the current uncertainty of realizing such tax assets in the future, a valuation allowance has been recorded equal to the amount of the net deferred tax assets, which caused the Company's effective tax rate to differ from the statutory income tax rate. The net operating loss carryforward, if not utilized, will begin to expire in the year 2007. NOTE 10-UNAUDITED INTERIM FINANCIAL INFORMATION The interim financial information as of September 30, 2001 and for the nine months ended is unaudited but includes all adjustments, consisting only of normal recurring adjustments that management considers necessary for a fair presentation of the Company's financial position at that date and its results of operations and cash flows for this period. Operating results for the nine months ended september 30, 2001 are not necessarily indicative of results that may be expected for any future periods. F-10 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Reference is made to Sections 721 through 725 of the Business Corporation Law of the State of New York (the "NYBCL"), which provides for indemnification of directors and officers of New York corporations under certain circumstances. Section 722 of the NYBCL provides that a corporation may indemnify directors and officers as well as other employees and individuals against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, in connection with actions or proceedings, whether civil or criminal (other than an action by or in the right of the corporation, a "derivation action"), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to amounts paid in settlement and reasonable expenses (including attorneys' fees) incurred in connection with the defense or settlement of such actions, and the statute does not apply in respect of a threatened action, or a pending action that is settled or otherwise disposed of, and requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. Section 721 of the NYBCL provides that Article 7 of the BCL is not exclusive of other indemnification that may be granted by a corporation's certificate of incorporation, disinterested director vote, shareholder vote, agreement or otherwise. Article 7 of our Restated Certificate of Incorporation requires us to indemnify our officers and directors to the fullest extent permitted under the NYBCL. Furthermore, Article XII of our Amended and Restated By-laws provides that we may, to the full extent permitted and in the manner required by the laws of the State of New York, indemnify any officer or director (and the heirs and legal representatives of any such person) made, or threatened to be made, a party in an action or proceeding (including, without limitation, one by us or in our right to procure a judgment in our favor), whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which of our directors or officers served in any capacity at our request, by reason of the fact that such director or officer, or such director's or officer's testator or intestate, was a director or officer of ours or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity. Section 402(b) of the NYBCL provides that a corporation's certificate of incorporation may include a provision that eliminates or limits the personal liability of the corporation's directors to the corporation or its shareholders for damages for any breach of a director's duty, provided that such provision does not eliminate or limit (1) the liability of any director if a judgment or other final adjudication adverse to the director establishes that the director's acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that the director personally gained a financial profit or other advantage to which the director was not legally entitled or that the director's acts violated Section 719 of the NYBCL, or (2) the liability of any director for any act or omission prior to the adoption of a provision authorized by Section 402(b) of the NYBCL. Article 7 of our Restated Certificate of Incorporation provides that none of our directors shall be liable to us or our shareholders for any breach of duty in such capacity except for liability in the event a judgment or other final adjudication adverse to a director establishes that his or her acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that the director personally gained, in fact, a financial profit or other advantage II-1 to which he or she was not legally entitled or that such director's acts violated Section 719, or its successor, of the NYBCL. Any amendment to or repeal of our Restated Certificate of Incorporation or by-laws shall not adversely affect any right or protection of any of our directors or officers for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or controlling persons pursuant to the foregoing, we have been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses expected to be incurred by us in connection with the issuance and distribution of the Common Stock registered hereby, all of which expenses, except for the Securities and Exchange Commission registration fee, are estimates: DESCRIPTION AMOUNT ------ Securities and Exchange Commission registration fee............ $1, 195 Accounting fees and expenses................................... * Legal fees and expenses........................................ * Miscellaneous fees and expenses................................ * ------------- * Total...................................................============= - ------------------ * To be filed by amendment. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES In November 2001, we issued an aggregate of 5,410,000 shares of our common stock to the Stockholders of Military Resale Group, Inc., a Maryland corporation, in connection with the Reverse Acquisition. Such shares were issued by us in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. No underwriter fees or commissions were paid by us in connection with such issuances. ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES EXHIBIT NUMBER DESCRIPTION - -------- ----------- 3.1 Restated Certificate of Incorporation of the Company. 3.2 Amended and Restated By-laws of the Company. II-2 5* Opinion of Pryor Cashman Sherman & Flynn LLP. 10.1 Promissory Note dated December 12, 2001 from the Company to Atlantic Investment Trust in the principal amount of $25,000. 10.2 Promissory Note dated December 12, 2001 from the Company to Ethan Hokit, our president and one of our directors, in the principal amount of $25,000. 10.3 2001 Stock Option Plan of the Company adopted in November 2001. 10.4 Promissory Note dated August 14, 2001 from the Company to Oncor Partners, Inc. in the principal amount of $100,000. 10.5 Lease Agreement, dated as of August 2001, between MRS Connection and the Company related to 2180 Executive Circle, Colorado Springs, Colorado 80906. 10.6 Promissory Note dated as of October 1997 from the Company to Shannon Investments, Inc. 10.7* Form of Subscription Agreement. 23.1 Consent of Michael Johnson & Co., LLC. 23.2* Consent of Pryor Cashman Sherman & Flynn LLP (included in their opinion filed as Exhibit 5). 24 Powers of Attorney (included in the Signature Page of the Resignation Statement). - ---------------- * To be filed by amendment. ITEM 28. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to directors, officers and controlling persons of the Company, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant undertakes to provide to the underwriters at the closings specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. The undersigned registrant hereby undertakes that: II-3 (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds, to believe that it met all the requirements of filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in Colorado Springs, Colorado on December 19, 2001. MILITARY RESALE GROUP, INC. By: /s/ Ethan D. Hokit ----------------------------------------- Ethan D. Hokit President and Chief Operating Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Edward T. Whelan as true and lawful attorney-in-fact and agent with full power of substitution and resubstitution and for him/her and in his/her name, place and stead, in any and all capacities to sign any and all amendments (including pre-effective and post-effective amendments) to this Registration Statement, as well as any new registration statement filed to register additional securities pursuant to Rule 462(b) under the Securities Act, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. II-5 In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE /s/ Edward T. Whelan Chairman of the Board, Chief Executive December 19, 2001 -------------------------------------- Officer Edward T. Whelan /s/ Ethan D. Hokit President, Chief Operating Officer, Director December 19, 2001 -------------------------------------- Ethan D. Hokit /s/ Richard H. Tanenbaum Director December 19, 2001 -------------------------------------- Richard H. Tanenbaum
II-6 EX-3.1 3 c22565_exh3-1.txt RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF BACTROL TECHNOLOGIES, INC. UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW OF THE STATE OF NEW YORK The undersigned, being the President and Secretary, respectively, of Bactrol Technologies, Inc., a New York corporation, hereby certify and set forth as follows: FIRST: That the name of the corporation is Bactrol Technologies, Inc. (the "Corporation"). The name under which the Corporation was formed is "Owl Capital Corp." SECOND: That the Certificate of Incorporation of the Corporation was filed with the Department of State of the State of New York August 31, 1983 and was amended on October 5, 1983. A certificate changing the name of the Corporation to Bactrol Technologies, Inc. was filed on June 17, 1988. THIRD: That the Certificate of Incorporation of the Corporation is hereby amended as follows: A. To change the Corporation's name. B. To increase the number of shares of capital stock from 50,000,000 shares to 60,000,000 shares by authorizing 10,000,000 shares of Preferred Stock, par value $0.0001 per share and to vest in the Board of Directors of the Corporation the authority to designate the rights, designations and preferences of the Preferred Stock. C. To permit shareholder actions to be taken without a meeting by written consent, so long as the written consent is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. D. To limit the personal liability of directors to the extent permitted by Section 402(b) of the Business Corporation Law of the State of New York. E. To indemnify directors and officers to the fullest extent permitted by Article 7 of the Business Corporation Law of the State of New York. F. To change the address to which the Secretary of State shall mail a copy of any process served on the Company Accordingly, the Certificate of Incorporation of the Corporation is hereby restated to read as herein set forth in full: 1. The name of the Corporation is Military Resale Group, Inc. 2. The Corporation is formed to engage in any lawful act or activity for which corporations may be organized under the Business Corporation Law of the State of New York, provided that it is not formed to engage in any act or activity which requires the consent or approval of any state official, department, board, agency or other body, without such approval or consent first being obtained. 3. The office of the Corporation is to be located in the county of Suffolk, State of New York. 4. The aggregate number of shares of capital stock of the Corporation is 60,000,000, of which 50,000,000 shall be Common Stock, par value $.0001 per share (the "Common Stock") and 10,000,000 shall be Preferred Stock, par value $.0001 per share (the "Preferred Stock"). The Preferred Stock may be issued, from time to time, in one or more series with such designations, preferences and relative participating options or other special rights and qualifications, limitations or restrictions thereof, as shall be stated in the resolutions adopted by the Board of Directors providing for the issuance of such Preferred Stock or series thereof; and the Board of Directors is hereby expressly vested with authority to fix such designations, preferences and relative participating options or other special rights or qualifications, limitations or restrictions for each series, including, but not by way of limitation, the power to determine the redemption and liquidation preferences, the rate of dividends payable and the time for and the priority of payment thereof and to determine whether such dividends shall be cumulative or not and to provide for and determine the terms of conversion of such Preferred Stock or any series thereof into Common Stock of the Corporation and fix the voting power, if any, of Preferred Stock or any series thereof. 5. The Secretary of State of the State of New York is designated as agent of the Corporation upon whom process against the Corporation may be served. The address to which the Secretary of State shall mail a copy of any such process so served is: Ethan D. Hokit Military Resale Group 2 2180 Executive Circle Colorado Springs, CO. 80906 6. Whenever shareholders are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken, signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 7. The Corporation shall, to the fullest extent possible permitted by Article 7 of the New York Business Corporation Law, as the same may be amended and supplemented from time to time, indemnify any and all persons whom it shall have power to indemnify under such Article 7 from and against any and all of expenses, liabilities or other matters referred to in or covered by such Article 7, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which any person may be entitled under any by-law, resolution of shareholders or directors, agreement or otherwise, as permitted by such Article 7, as to action in any capacity in which such person served at the request of the Corporation. 8. The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by Section 402(b) of the New York Business Corporation Law, as the same may be amended and supplemented. FOURTH: This restatement of the Certificate of Incorporation of the Corporation was authorized by the unanimous approval of the Board of Directors of the Corporation on November 15, 2001 and by the vote of a majority of all outstanding shares of the Corporation entitled to vote thereon at the Special Meeting of the Shareholders of the Corporation held on December 18, 2001. 3 IN WITNESS WHEREOF, the undersigned, President and Secretary of the Corporation, have each executed this Restated Certificate of Incorporation on December 18, 2001 and each hereby affirms, under penalties of perjury, that the statements contained herein are true. /s/ ETHAN D. HOKIT ------------------------ Name: Ethan D. Hockit Title: President /s/ EDWARD T.WHELAN ------------------------ Name: Edward T. Whelan Title: Secretary 4 EX-3.2 4 c22565_exh3-2.txt AMENDED AND RESTATED BY-LAWS Exhibit 3.2 AMENDED AND RESTATED BY-LAWS OF MILITARY RESALE GROUP, INC. A New York Corporation ARTICLE I SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholder for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at the office of the Corporation in the State of New York or at such other place within or without the State of New York as may be determined by the Directors and as shall be designated in the notice of said meeting, on such date and at such time as may be determined by the Directors. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholder for the transaction of such business as may properly come before the meeting shall be held at the office of the Corporation in the State of New York, or at such other place within or without the State of New York as may be designated from time to time by the Directors. Whenever the Directors shall fail to fix such place, or whenever shareholders entitled to call a special meeting shall call the same, the meeting shall be held at the office of the Corporation in the State of New York or at the principal executive offices of the Corporation. Special meetings of the shareholders shall be held upon call of the Directors or of the President or any Vice-President or the Secretary or any director, at such time as may be fixed by the Directors or the President or such Vice-President or the Secretary or such director, as the case may be, and as shall be stated in the notice of said meeting, except when the New York Business Corporation Law (the "Business Corporation Law") confers upon the shareholder the right to demand the call of such meeting and fix the date thereof. At any special meeting of the shareholder, duly called as provided in these By-laws, any director or directors may be removed from office by the shareholder, either with or without cause, and such director's successor or directors' successors may be elected at such meeting. SECTION 3. NOTICE OF MEETINGS. The notice of all meetings shall be in writing, shall state the place, date and hour of the meeting and, unless it is the annual meeting, shall indicate that it is being issued by or at the direction of the person or persons calling the meeting. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of such other business as may properly come before the meeting and shall state the purpose or purposes of the meeting if any other action is to be taken at such annual meeting which could be taken at a special meeting. The notice of a special meeting shall, in all instances, state the purpose or purposes for which the meeting is called. If the Directors shall adopt, amend or repeal a By-law regulating an impending election of directors, the notice of the next meeting for the election of directors shall contain the By-law so adopted, amended or repealed, together with a concise statement of the changes made. If any action is proposed to be taken which would, if taken, entitle the shareholder to receive payment for their shares, the notice shall include a statement of that purpose and to that effect and shall be accompanied by a copy of Section 623 of the Business Corporation Law or an outline of its material terms. A copy of the notice of any meeting shall be served either personally or by first class mail, not less than 10 nor more than 50 days before the date of the meeting, to each shareholder at such shareholder's record address or at such other address as such shareholder may have furnished by request in writing to the Secretary of the Corporation. If a meeting is adjourned to another time or place and if any announcement of the adjourned time or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the Directors, after adjournment, fix a new record date for the adjourned meeting. Notice of a meeting need not be given to any shareholder who submits a signed waiver of notice before or after the meeting. The attendance of a shareholder at a meeting without protesting prior to the conclusion of the meeting the lack of notice of such meeting shall constitute a waiver of notice by such shareholder. SECTION 4. SHAREHOLDER LISTS. A list of the sole shareholder as of the record date, certified by the corporate officer responsible for its preparation, or by the transfer agent, if any, shall be produced at any meeting of the shareholder upon the request thereat or prior thereto of the shareholder. If the right to vote at any meeting is challenged, the inspectors of election, if any, or the person presiding thereat, shall require such list of the shareholder to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote thereat may vote at such meeting. SECTION 5. QUORUM. Except as otherwise provided by law or the Corporation's Certificate of Incorporation, a quorum for the transaction of business at any meeting of the shareholder shall consist of the holders of record of a majority of the issued and outstanding shares of the capital stock of the Corporation entitled to vote at the meeting, present in person or by proxy. At all meetings of the shareholder at which a quorum is present, all matters, except as otherwise provided by law or in the Certificate of Incorporation, shall be decided by the vote of the holder of a majority of the shares entitled to vote thereat, present in person or by proxy. If there be no such quorum, the holder of a majority of such shares so present or represented may adjourn the meeting from time to time, without further notice, until a quorum shall have been obtained. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of the shareholder. SECTION 6. ORGANIZATION. Meetings of shareholders shall be presided over by the Chairman, if any, or if none or in the Chairman's absence the President, or if none or in the President's absence a Vice-President, or, if none of the foregoing is present, by a Chairman to be chosen by the shareholders entitled to vote who are present in person or by proxy at the meeting. The Secretary of the Corporation, or in the Secretary's absence an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the presiding officer of the meeting shall choose any person present to act as secretary of the meeting. SECTION 7. VOTING; PROXIES; REQUIRED VOTE; BALLOTS. At each meeting of shareholders, every shareholder shall be entitled to vote in person or by proxy appointed by instrument in writing, subscribed by such shareholder or by such shareholder's duly authorized attorney-in-fact, and shall have one vote for each share entitled to vote and registered in such shareholder's name on the books of the Corporation on the applicable record date fixed pursuant to these By-laws. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except as otherwise provided by the Business Corporation Law. At all elections of directors the voting may but need not be by ballot and a plurality of the votes cast thereat shall elect. Except as otherwise required by law or the Certificate of Incorporation, any other action shall be authorized by a majority of the votes cast. SECTION 8. INSPECTORS. The Board of Directors, in advance of any meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If an inspector or inspectors are not so appointed, the person presiding at the meeting may, and on the request of any shareholder shall, appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of such inspector's duties, shall take and sign an oath to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of such inspector's ability. The inspectors, if any, shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate as to any fact found by them. SECTION 9. ACTIONS WITHOUT MEETINGS. Whenever shareholders are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken, signed by the holders of all outstanding shares entitled to vote thereon. This section shall not be construed to alter or modify any provision of law or of the Certificate of Incorporation under which the written consent of the holders of less than all outstanding shares is sufficient for corporate action. SECTION 10. MEANING OF CERTAIN TERMS. As used herein in respect of the right to notice of a meeting of shareholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the terms "share" and "shareholder" or "shareholders" refer to an outstanding share or shares and to a holder or holders of record of outstanding shares, respectively, when the Corporation is authorized to issue only one class of shares, and said references are also intended to include any outstanding share or shares and any holder or holders of record of outstanding shares of any class upon which or upon whom the Certificate of Incorporation confers such rights, where there are two or more classes or series of shares, or upon which or upon whom the Business Corporation Law confers such rights; notwithstanding that the Certificate of Incorporation may provide for more than one class or series of shares, one or more of which are limited in or denied such rights thereunder. ARTICLE II BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The business, property and affairs of the Corporation shall be managed by or under the direction of its Board of Directors. SECTION 2. QUALIFICATION; NUMBER; TERM. (a) Each director shall be at least 18 years of age. A director need not be a shareholder, a citizen of the United States, or a resident of the State of New York. The number of directors constituting the entire Board of Directors shall be at least two and at most seven, except that where all the shares are owned beneficially and of record by fewer than three shareholders, the number of directors may be less than three but not less than the number of shareholders. Subject to the foregoing limitation and except for the first Board of Directors, such number may be fixed from time to time by action of the Board of Directors or of the shareholders, or, if the number of directors is not so fixed, the number shall be three. The number of directors may be increased or decreased by action of the Board of Directors or shareholders, provided that any action of the Board of Directors to effect such increase or decrease shall require the vote of a majority of the entire Board of Directors. The use of the phrase "entire Board of Directors" herein refers to the total number of directors which the Corporation would have if there were no vacancies. (b) The first Board of Directors shall be elected by the incorporator or incorporators of the Corporation and shall hold office until the first annual meeting of shareholders or until their respective successors have been elected and qualified. Thereafter, directors who are elected at an annual meeting of shareholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of shareholders or until their respective successors have been elected and qualified. In the interim between annual meetings of shareholders or special meetings of shareholders called for the election of directors, newly created directorships and any vacancies in the Board of Directors, including vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the directors then in office, although less than a quorum exists. SECTION 3. QUORUM AND MANNER OF VOTE. A majority of the entire Board of Directors shall constitute a quorum for the transaction of business. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place without notice. Except as herein otherwise provided, the vote of a majority of the directors present at the time of the vote, at a meeting duly assembled, a quorum being present at such time, shall be the act of the Board of Directors. SECTION 4. PLACES OF MEETINGS. Meetings of the Board of Directors shall be held at such place within or without the State of New York as may from time to time be fixed by resolution of the Board of Directors, or as may be specified in the notice of the meeting. Regular meetings of the Board of Directors shall be held at such times and places as may from time to time be fixed by resolution of the Board of Directors, and special meetings may be held at any time and place upon the call of the Chairman of the Board, if any, or of the President or any Vice-President or the Secretary or any director by oral, telegraphic or notice duly served as set forth in these By-laws. SECTION 5. ANNUAL MEETING. Following the annual meeting of shareholders, the newly elected Board of Directors shall meet for the purpose of the election of officers and the transaction of such other business as may properly come before the meeting. Such meeting may be held without notice immediately after the annual meeting of shareholders at the same place at which such shareholders meeting is held. SECTION 6. NOTICE OF MEETINGS. A notice of the place, date, time and purpose or purposes of each meeting of the Board of Directors shall be given to each director by mailing the same at least two days before the meeting, or by telegraphing or telephoning the same or by delivering the same personally not later than the day before the day of the meeting. Notice need not be given of regular meetings of the Board of Directors held at times and places fixed by resolution of the Board of Directors. Any requirements of furnishing a notice shall be waived by any director who signs a waiver of notice before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. The notice of any meeting need not specify the purpose of the meeting, and any and all business may be transacted at such meeting. SECTION 7. ORGANIZATION. At all meetings of the Board of Directors, the Chairman, if any, or if none or in the Chairman's absence or inability to act the President, or in the President's absence or inability to act any Vice-President who is a member of the Board of Directors, or in such Vice-President's absence or inability to act a chairman chosen by the directors, shall preside. The Secretary of the Corporation shall act as secretary at all meetings of the Board of Directors when present, and in the Secretary's absence, the presiding officer may appoint any person to act as secretary. SECTION 8. RESIGNATION. Any director may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Except as otherwise provided by law or by the Certificate of Incorporation, any or all of the directors may be removed, with or without cause, by the holders of a majority of the shares of stock outstanding and entitled to vote for the election of directors. SECTION 9. VACANCIES. Unless otherwise provided in these By-laws, vacancies among the directors, whether caused by resignation, death, disqualification, removal, an increase in the authorized number of directors or otherwise, may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum, or by a sole remaining director, or, at a special meeting of the shareholders, by the holders of shares entitled to vote for the election of directors. SECTION 10. ACTIONS BY WRITTEN CONSENT. Any action required or permitted to be taken by the Board of Directors or by any committee thereof may be taken without a meeting if all members of the Board of Directors or of any such committee consent in writing to the adoption of a resolution authorizing the action and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or of any such committee. SECTION 11. ELECTRONIC COMMUNICATION. Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or any such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. ARTICLE III COMMITTEES SECTION 1. APPOINTMENT. From time to time the Board of Directors by a resolution adopted by a majority of the whole Board may appoint any committee or committees for any purpose or purposes, to the extent lawful, which shall have powers as shall be determined and specified by the Board of Directors in the resolution of appointment. The Board of Directors shall have full power, at any time, to fill vacancies in, to change membership of, to designate alternate members of, or to discharge any such committee. SECTION 2. PROCEDURES, QUORUM AND MANNER OF ACTING. Each committee shall fix its own rules of procedure, and shall meet where and as provided by such rules or by resolution of the Board of Directors. Except as otherwise provided by law, the presence of a majority of the then appointed members of a committee shall constitute a quorum for the transaction of business by that committee and in every case where a quorum is present the affirmative vote of a majority of the members of the committee present shall be the act of the committee. Each committee shall keep minutes of its proceedings, and actions taken by a committee shall be reported to the Board of Directors. SECTION 3. ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken at any Meeting of any committee of the Board may be taken without a meeting if all the members of the committee consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the committee. SECTION 4. TERM; TERMINATION. In the event any person shall cease to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board of Directors. ARTICLE IV OFFICERS SECTION 1. ELECTION AND QUALIFICATION. The Board of Directors shall elect the officers of the Corporation, which shall include a President and a Secretary, and may include, by election or appointment, one or more Vice Presidents (any one or more of whom may be given an additional designation of rank or function), a Treasurer and such other officers as the Board may from time to time deem proper. Each officer shall have such powers and duties as may be prescribed by these By-laws and as may be assigned by the Board of Directors or the President. Any two or more offices may be held by the same person except the offices of President and Secretary. When all of the issued and outstanding stock of the Corporation is owned by one person, such person may hold all or any combination of offices. SECTION 2. TERM OF OFFICE AND REMUNERATION. The term of office of all officers shall be one year and until their respective successors have been elected and qualified, but any officer may be removed from office, either with or without cause, at any time by the Board of Directors. Any vacancy in any office arising from any cause may be filled for the unexpired portion of the term by the Board of Directors. SECTION 3. RESIGNATION; REMOVAL. Any officer may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any officer shall be subject to removal, with or without cause, at any time by vote of a majority of the whole Board. SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors. SECTION 5. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President shall be the chief executive officer of the Corporation and shall have general management and supervision of the property, business and affairs of the Corporation and over its other officers. The President shall preside at all meetings of the shareholders and, in the absence or disability of the Chairman of the Board of Directors, or if there be no Chairman, shall preside at all meetings of the Board of Directors. The President may appoint and remove assistant officers and other agents and employees, other than officers referred to in Section 1 hereof. The President may execute and deliver in the name of the Corporation powers of attorney, contracts, bonds and other obligations and instruments. SECTION 6. VICE PRESIDENT. A Vice President may execute and deliver in the name of the Corporation contracts and other obligations and instruments pertaining to the regular course of such Vice President's duties, and shall have such other authority as from time to time may be assigned by the Board of Directors or the President. SECTION 7. TREASURER. The Treasurer shall in general have all duties incident to the position of Treasurer and such other duties as may be assigned by the Board of Directors or the President. SECTION 8. SECRETARY. The Secretary shall in general have all the duties incident to the office of Secretary and such other duties as may be assigned by the Board of Directors or the President. SECTION 9. ASSISTANT OFFICERS. Any assistant officer shall have such powers and duties of the officer such assistant officer assists as such officer or the Board of Directors shall from time to time prescribe. ARTICLE V BOOKS AND RECORDS SECTION 1. LOCATION. The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of the shareholders, of the Board of Directors, and/or of any committee which the Board of Directors may appoint, and shall keep at the office of the Corporation in the State of New York or at the office of the transfer agent or registrar, if any, in said state a record containing the names and addresses of all shareholders, the number and class of shares held by each, and the dates when such shareholders respectively became the owners of record thereof. Any of the foregoing books, minutes or records may be in written form or in any other form capable of being converted into written form within a reasonable time. SECTION 2. ADDRESSES OF SHAREHOLDERS. Notices of meetings and all other corporate notices may be delivered personally or mailed to each shareholder at said shareholders address as it appears on the records of the Corporation. SECTION 3. FIXING DATE FOR DETERMINATION OF SHAREHOLDERS OF RECORD. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express to consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix, in advance, a record date, which shall be not more than 50 nor less than 10 days before the date of such meeting, nor more than 50 days prior to any other action. If no record date is fixed, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. The record date for determining shareholders for any purpose other than that specified in the preceding sentence shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VI CERTIFICATES REPRESENTING SHARES SECTION 1. CERTIFICATES; SIGNATURES. (a) The shares of the Corporation shall be represented by certificates representing shares, in such form not inconsistent with the Certificate of Incorporation as the Board of Directors may from time to time prescribe. Certificates representing shares shall have set forth thereon the statements prescribed by law and shall be signed by the Chairman of the Board or the President or a Vice President and by the Secretary or an Assistant Secretary or a Treasurer or an Assistant Treasurer and may be sealed with the corporate seal or a facsimile thereof. Any and all signatures on any such certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee, or the shares are listed on a registered national securities exchange. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if such officer were an officer at the date of its issue. (b) Each certificate representing shares issued by the Corporation, if the Corporation is authorized to issue shares of more than one class, shall set forth upon the face or back of the certificate, or shall state that the Corporation will furnish to any shareholder upon request and without charge, a full statement of the designation, relative rights, preferences and limitations of the shares of each class authorized to be issued and, if the Corporation is authorized to issue any class of preferred shares in series, the designation, relative rights, preferences and limitations of each such series so far as the same have been fixed and the authority of the Board of Directors to designate and fix the relative rights, preferences and limitations of other series. (c) Each certificate representing shares shall state upon the face thereof: (1) That the Corporation is formed under the laws of the State of New York; (2) The name of the person or persons to whom issued; and (3) The number and class of shares, and the designation of the series, if any, which such certificate represents. (d) The name of the holder of record of the shares represented thereby, with the number of shares and the date of issue, shall be entered on the books of the corporation. SECTION 2. TRANSFER OF SHARES. Upon compliance with provisions restricting the transferability of shares, if any, transfers of shares of the Corporation shall be made only on the share record of the Corporation by the registered holder thereof, or by such holder's attorney-in-fact thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation or with a transfer agent or a registrar, if any, and upon the surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes due thereon. A certificate representing shares shall not be issued until the full amount of consideration therefor has been paid, except as the Business Corporation Law may otherwise permit. SECTION 3. FRACTIONAL SHARES. The Corporation may, but shall not be required to, issue certificates for fractions of a share where necessary to effect transactions authorized by the Business Corporation Law, which shall entitle the holder, in proportion to such holder's fractional holdings, to exercise voting rights, receive dividends and participate in liquidating distributions; or the Corporation may pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined; or it may issue scrip in registered or bearer form over the manual or facsimile signature of an officer of the Corporation or of its agent, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a shareholder except as therein provided. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the Corporation. SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a new certificate of stock in place of any certificate, theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of any lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. ARTICLE VII DIVIDENDS Subject always to the provisions of law and the Certificate of Incorporation, the Board of Directors shall have full power to determine whether any, and, if any, what part of any, funds legally available for the payment of dividends shall be declared as dividends and paid to shareholders; the division of the whole or any part of such funds of the Corporation shall rest wholly within the lawful discretion of the Board of Directors, and it shall not be required at any time, against such discretion, to divide or pay any part of such funds among or to the shareholders as dividends or otherwise; and before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VIII RATIFICATION Any transaction, questioned in any law suit on the ground of lack of authority, defective or irregular execution, adverse interest of director, officer or shareholder, non-disclosure, miscomputation, or the application of improper principles or practices of accounting, may be ratified, before or after judgment, by the Board of Directors or by the shareholders and if so ratified shall have the same force and effect as if the questioned transaction had been originally duly authorized. Such ratification shall be binding upon the Corporation and its shareholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction. ARTICLE IX CORPORATE SEAL The corporate seal shall have inscribed thereon the name of the Corporation and the year of its incorporation, and shall be in such form and contain such other words and/or figures as the Board of Directors shall determine. The corporate seal may be used by printing, engraving, lithographing, stamping or otherwise making, placing or affixing, or causing to be printed, engraved, lithographed, stamped or otherwise made, placed or affixed, upon any paper or document, by any process whatsoever, an impression, facsimile or other reproduction of said corporate seal. ARTICLE X FISCAL YEAR The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors. Unless otherwise fixed by the Board of Directors, the fiscal year of the Corporation shall be the calendar year. ARTICLE XI WAIVER OF NOTICE Whenever notice is required to be given by these By-laws or by the Certificate of Incorporation or by law, a written waiver thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE XII INDEMNIFICATION The Corporation, to the full extent permitted and in the manner required by the laws of the State of New York as in effect at the time of the adoption of this Article XII or as the law may be amended from time to time, may (i) indemnify any person (and the heirs and legal representatives of such person) made, or threatened to be made, a party in an action or proceeding (including, without limitation, one by or in the right of the Corporation to procure a judgment in its favor), whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any director or officer of the Corporation served in any capacity at the request of the Corporation, by reason of the fact that such director or officer, or such director's or officer's testator or intestate, was a director or officer of the Corporation or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, and (ii) provide to any such person (and the heirs and legal representatives of such person) advances for expenses incurred in pursuing such action or proceeding, upon receipt of an undertaking by or on behalf of such director or officer to repay such amount as, and to the extent, required by Section 725(a) of the Business Corporation Law. ARTICLE XIII BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC, SECTION 1. BANK ACCOUNTS AND DRAFTS. In addition to such bank accounts as may be authorized by the Board of Directors, the Treasurer or any person designated by the Treasurer, whether or not an employee of the Corporation, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as such person may deem necessary or appropriate, and may authorize payments from such bank accounts to be made upon and according to the check of the Corporation in accordance with the written instructions of the Treasurer, or other person so designated by the Treasurer. SECTION 2. CONTRACTS. The Board of Directors may authorize any person or persons, in the name and on behalf of the Corporation, to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 3. PROXIES; POWERS OF ATTORNEY; OTHER INSTRUMENTS. The Chairman, the President or any other person designated by either of them shall have the power and authority to execute and deliver proxies, powers of attorney and other instruments on behalf of the Corporation in connection with the rights and powers incident to that ownership of stock by the Corporation. The Chairman, the President or any other person authorized by proxy or power of attorney executed and delivered by either of them on behalf of the Corporation may attend and vote at any meeting of shareholders of any company in which the Corporation may hold stock, and may exercise on behalf of the Corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, or otherwise as specified in the proxy or power of attorney so authorizing any such person. The Board of Directors, from time to time, may confer like powers upon any other person. SECTION 4. FINANCIAL REPORTS. The directors may appoint the Treasurer or other fiscal officer and/or the Secretary or any other officer to cause to be prepared and furnished to shareholders entitled thereto any special financial notice and/or financial statement, as the case may be, which may be required by any provision of law. ARTICLE XIV AMENDMENTS The shareholders entitled to vote in the election of directors may amend or repeal the By-laws and may adopt new By-laws. Except as otherwise required by law or by the provisions of these By-laws, the Board of Directors may also amend or repeal the By-laws and adopt new By-laws, but By-laws adopted by the Board of Directors may be amended or repealed by the said shareholders. EX-10.1 5 c22565_exh10-1.txt PROMISSORY NOTE Exhibit 10.1 CONFESSED JUDGMENT DEMAND PROMISSORY NOTE $ 25,000.00 DECEMBER 12, 2001 ---------- ----------------- THE UNDERSIGNED (IF THERE BE MORE THAN ONE UNDERSIGNED, THEIR LIABILITY SHALL BE JOINT AND SEVERAL) PROMISES TO PAY TO THE ORDER OF ATLANTIC INVESTMENT TRUST, RICHARD H. TANENBAUM, TRUSTEE (HEREINAFTER CALLED HOLDER) UPON THE EARLIER OF DEMAND OR ON OR BEFORE FEBRUARY 12, 2002, THE SUM OF TWENTY FIVE THOUSAND AND NO/100 DOLLARS ($ 25,000.00), TOGETHER WITH INTEREST THEREON AT THE RATE OF FIFTEEN PERCENT (15%) PER ANNUM FROM THE DATE OF DEFAULT UNTIL THE DATE ACTUALLY PAID; PROVIDED HOWEVER, IN LIEU OF INTEREST THE UNDERSIGNED HEREBY AGREE TO PROVIDE HOLDER WITH TWENTY FIVE THOUSAND (25,000) RESTRICTED SHARES OF ITS COMMON STOCK AND UPON RECEIPT THEREOF HOLDER AGREES THAT THIS NOTE SHALL BE A NON-INTEREST BEARING NOTE. PROVIDED, THAT UPON THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS OF DEFAULT, IF THE HOLDER SO ELECTS, ALL OF THE UNPAID BALANCE HEREUNDER, INCLUDING INTEREST, SHALL IMMEDIATELY BE DUE AND PAYABLE: (A) IF ANY OBLIGOR SHALL MAKE AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS OR IF ANY VOLUNTARY OR INVOLUNTARY PROCEEDINGS BE INSTITUTED BY OR AGAINST ANY OBLIGOR UNDER ANY PROVISION OF THE BANKRUPTCY ACT OF ANY OTHER FEDERAL OR STATE STATUTE OR RULE PROVIDING FOR THE RELIEF OF DEBTORS, COMPOSITION OF CREDITORS, ARRANGEMENTS, REORGANIZATIONS, ORDINARY BANKRUPTCY, OR RECEIVERSHIP OR THE LIKE; (B) THE FAILURE OF ANY OBLIGOR TO PAY DEBTS AS THEY MATURE IN THE ORDINARY COURSE OF BUSINESS, OR IF THE FAIR MARKET VALUE OF THE ASSETS OF ANY OBLIGOR SHALL BE LESS THAN THE LIABILITIES OF SUCH OBLIGOR; (C) THE ENTRY OF ANY JUDGMENT AGAINST ANY OBLIGOR OR THE ISSUING OF AN ATTACHMENT OR GARNISHMENT AGAINST ANY PROPERTY OF ANY OBLIGOR; (D) THE OCCURRENCE OF ANY ADVERSE CHANGE IN THE FINANCIAL CONDITION OF ANY OBLIGOR IN WHICH CASE THE HOLDER DEEMS ITS POSITION TO HAVE BECOME IMPAIRED; (E) THE DISSOLUTION, MERGER, CONSOLIDATION OR REORGANIZATION OF ANY OBLIGOR WHICH IS A CORPORATION, PARTNER- SHIP, JOINT VENTURE, BUSINESS TRUST OR OTHER ASSOCIATION; (F) THE ASSESSMENT, IMPOSITION OR EXISTENCE, OF ANY GENERAL OR SPECIFIC LIEN FOR ANY FEDERAL, STATE OR LOCAL TAXES OR CHARGES AGAINST ANY PROPERTY FOR ANY OBLIGOR; AND (G) THE DEATH OF ANY OBLIGOR WHO IS A NATURAL PERSON. THE TERM "OBLIGOR" INCLUDES ALL UNDERSIGNED MAKERS AND ALL ENDORSERS, GUARANTORS AND SURETIES. EACH AND EVERY OBLIGOR HEREBY AUTHORIZES RICHARD H. TANENBAUM, ESQUIRE OR ANY ATTORNEY OR CLERK OR ANY MEMBER OF ANY COURT WITHIN THE UNITED STATES OR ELSEWHERE TO ENTER AN APPEARANCE ON THEIR BEHALF AND TO CONFESS JUDGMENT AGAINST OBLIGERS, EITHER JOINTLY OR SEVERALLY, TO BE ENTERED BY THE PROPER OFFICIAL, AT ANY TIME AFTER THIS NOTE IS DUE (WHETHER UPON NORMAL MATURITY OR ACCELERATION HEREUNDER), HEREBY WAIVING ALL EXEMPTIONS, FOR THE PRINCIPAL AMOUNT OF THIS NOTE AND INTEREST AND 15% ATTORNEYS' FEES AND COURT COSTS. IF THIS NOTE IS REFERRED TO AN ATTORNEY FOR COLLECTION, AND PAYMENT IS OBTAINED WITHOUT THE ENTRY OF A JUDGMENT, THEN OBLIGERS SHALL PAY TO HOLDER ATTORNEYS' FEES IN THE AMOUNT AFORESAID. EXECUTED UNDER SEAL ON THE DAY AND YEAR FIRST ABOVE WRITTEN. WITNESS: MILITARY RESALE GROUP, INC. -------------------------- BY [SEAL] -------------------------- ETHAN HOKIT, PRESIDENT EX-10.2 6 c22565_exh10-2.txt PROMISSORY NOTE Exhibit 10.2 CONFESSED JUDGMENT DEMAND PROMISSORY NOTE $ 25,000.00 DECEMBER 12, 2001 ---------- ----------------- THE UNDERSIGNED (IF THERE BE MORE THAN ONE UNDERSIGNED, THEIR LIABILITY SHALL BE JOINT AND SEVERAL) PROMISES TO PAY TO THE ORDER OF ETHAN HOKIT (HEREINAFTER CALLED HOLDER) UPON THE EARLIER OF DEMAND OR ON OR BEFORE FEBRUARY 12, 2002, THE SUM OF TWENTY FIVE THOUSAND AND NO/100 DOLLARS ($ 25,000.00), TOGETHER WITH INTEREST THEREON AT THE RATE OF FIFTEEN PERCENT (15%) PER ANNUM FROM THE DATE OF DEFAULT UNTIL THE DATE ACTUALLY PAID; PROVIDED HOWEVER, IN LIEU OF INTEREST THE UNDERSIGNED HEREBY AGREE TO PROVIDE HOLDER WITH TWENTY FIVE THOUSAND (25,000) RESTRICTED SHARES OF ITS COMMON STOCK AND UPON RECEIPT THEREOF HOLDER AGREES THAT THIS NOTE SHALL BE A NON-INTEREST BEARING NOTE. PROVIDED, THAT UPON THE OCCURRENCE OF ANY OF THE FOLLOWING EVENTS OF DEFAULT, IF THE HOLDER SO ELECTS, ALL OF THE UNPAID BALANCE HEREUNDER, INCLUDING INTEREST, SHALL IMMEDIATELY BE DUE AND PAYABLE: (A) IF ANY OBLIGOR SHALL MAKE AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS OR IF ANY VOLUNTARY OR INVOLUNTARY PROCEEDINGS BE INSTITUTED BY OR AGAINST ANY OBLIGOR UNDER ANY PROVISION OF THE BANKRUPTCY ACT OF ANY OTHER FEDERAL OR STATE STATUTE OR RULE PROVIDING FOR THE RELIEF OF DEBTORS, COMPOSITION OF CREDITORS, ARRANGEMENTS, REORGANIZATIONS, ORDINARY BANKRUPTCY, OR RECEIVERSHIP OR THE LIKE; (B) THE FAILURE OF ANY OBLIGOR TO PAY DEBTS AS THEY MATURE IN THE ORDINARY COURSE OF BUSINESS, OR IF THE FAIR MARKET VALUE OF THE ASSETS OF ANY OBLIGOR SHALL BE LESS THAN THE LIABILITIES OF SUCH OBLIGOR; (C) THE ENTRY OF ANY JUDGMENT AGAINST ANY OBLIGOR OR THE ISSUING OF AN ATTACHMENT OR GARNISHMENT AGAINST ANY PROPERTY OF ANY OBLIGOR; (D) THE OCCURRENCE OF ANY ADVERSE CHANGE IN THE FINANCIAL CONDITION OF ANY OBLIGOR IN WHICH CASE THE HOLDER DEEMS ITS POSITION TO HAVE BECOME IMPAIRED; (E) THE DISSOLUTION, MERGER, CONSOLIDATION OR REORGANIZATION OF ANY OBLIGOR WHICH IS A CORPORATION, PARTNER- SHIP, JOINT VENTURE, BUSINESS TRUST OR OTHER ASSOCIATION; (F) THE ASSESSMENT, IMPOSITION OR EXISTENCE, OF ANY GENERAL OR SPECIFIC LIEN FOR ANY FEDERAL, STATE OR LOCAL TAXES OR CHARGES AGAINST ANY PROPERTY FOR ANY OBLIGOR; AND (G) THE DEATH OF ANY OBLIGOR WHO IS A NATURAL PERSON. THE TERM "OBLIGOR" INCLUDES ALL UNDERSIGNED MAKERS AND ALL ENDORSERS, GUARANTORS AND SURETIES. EACH AND EVERY OBLIGOR HEREBY AUTHORIZES RICHARD H. TANENBAUM, ESQUIRE OR ANY ATTORNEY OR CLERK OR ANY MEMBER OF ANY COURT WITHIN THE UNITED STATES OR ELSEWHERE TO ENTER AN APPEARANCE ON THEIR BEHALF AND TO CONFESS JUDGMENT AGAINST OBLIGERS, EITHER JOINTLY OR SEVERALLY, TO BE ENTERED BY THE PROPER OFFICIAL, AT ANY TIME AFTER THIS NOTE IS DUE (WHETHER UPON NORMAL MATURITY OR ACCELERATION HEREUNDER), HEREBY WAIVING ALL EXEMPTIONS, FOR THE PRINCIPAL AMOUNT OF THIS NOTE AND INTEREST AND 15% ATTORNEYS' FEES AND COURT COSTS. IF THIS NOTE IS REFERRED TO AN ATTORNEY FOR COLLECTION, AND PAYMENT IS OBTAINED WITHOUT THE ENTRY OF A JUDGMENT, THEN OBLIGERS SHALL PAY TO HOLDER ATTORNEYS' FEES IN THE AMOUNT AFORESAID. EXECUTED UNDER SEAL ON THE DAY AND YEAR FIRST ABOVE WRITTEN. WITNESS: MILITARY RESALE GROUP, INC. --------------------------- BY [SEAL] --------------------------- EDWARD T. WHELAN, CHAIRMAN EX-10.3 7 c22565_exh10-3.txt PROMISSORY NOTE Exhibit 10.3 MILITARY RESALE GROUP, INC. 2001 STOCK OPTION PLAN Adopted and Effective as of November 15, 2001 MILITARY RESALE GROUP, INC. 2001 STOCK OPTION PLAN 1. PURPOSE OF THE PLAN. This Military Resale Group, Inc. 2001 Stock Option Plan is intended to promote the interests of the Company and its shareholders by providing the Company's officers, directors, key employees and consultants, on whose judgment, initiative and efforts the successful conduct of the business of the Company depends, and who are responsible for the management, growth and protection of the business, with appropriate incentives and rewards to encourage them to continue in the employ of the Company and to maximize their performance. 2. DEFINITIONS. As used in the Plan, the following definitions apply to the terms indicated below: (a) "Board of Directors" shall mean the Board of Directors of the Company. (b) "Cause" shall mean, when used in connection with the termination of a Participant's employment, the termination of the Participant's employment on account of: (i) the willful and continued failure by the Participant substantially to perform his or her duties and obligations to the Company (other than any such failure resulting from incapacity due to physical or mental illness), (ii) the willful violation by the Participant of (A) any federal or state law or (B) any rule of the Company, which violation would materially reflect on the Participant's character, competence or integrity, (iii) a breach by a Participant of the Participant's duty of loyalty to the Company such as Participant's solicitation of customers or employees of the Company on behalf of any other Person, (iv) the Participant's unauthorized removal from the Company's premises of any document (in any medium or form) relating to the Company, its business or its customers, provided, however, that no such removal shall be deemed "unauthorized" if it is in furtherance of an individual's duties and obligations to the Company and such removal is a common practice at the Company, (v) the Participant's unauthorized disclosure to any Person of any confidential information regarding the Company, (vi) the willful engaging by the Participant in any other misconduct which is materially injurious to the Company or (vii) any event that constitutes "cause" (or any similar term that constitutes the basis on which the Company may terminate the employee's employment with the Company) for purposes of an employment agreement between the Participant and the Company. For purposes of this Section 2(b), no act, or failure to act, on a Participant's part shall be considered "willful" unless done, or omitted to be done, by the Participant in bad faith and without reasonable belief that the action or omission was in the best interests of the Company. Any rights the Company may have hereunder in respect of the events giving rise to Cause shall be in addition to the rights the Company may have under any other agreement with the Participant or at law or in equity. If, subsequent to the termination of a Participant's employment without Cause, it is determined by the Board of Directors that the Participant's employment could have been terminated for Cause, such Participant's employment shall, at the election of the Committee in its sole discretion, be deemed to have been terminated for Cause. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Committee" shall mean the Compensation Committee of the Board; PROVIDED, HOWEVER, the Compensation Committee shall not take any action under the Plan unless it is at all times composed solely of not less than two "Non-Employee Directors" within the meaning of Rule 16b-3, as promulgated under the Securities Exchange Act of 1934, as amended. In the event the Compensation Committee is not composed of at least two Non-Employee Directors when the Company is subject to the Securities Act, or, in the event the Committee is unable to act, the Board shall take any and all actions required or permitted to be taken by the Committee under the Plan and shall serve as the Committee. (e) "Company" shall mean Military Resale Group, Inc., a New York corporation. (f) "Company Stock" shall mean the common stock, par value $.001 per share, of the Company. (g) "Disability" shall mean any physical or mental condition as a result of which a Participant is disabled within the meaning of Section 422(c)(6) of the Code. (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (i) "Fair Market Value" with respect to a share of Company Stock on any relevant date shall be determined in accordance with the following provisions: (1) If, at the time an Option is granted under the Plan, the Company is publicly traded, "Fair Market Value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such Option is granted and shall mean (i) the closing selling price per share on that date of the Company Stock on the principal national securities exchange on which the Company Stock is traded, if the Company Stock is then traded on a national securities exchange; or (ii) the closing selling price per share on that date of the Company Stock on the NASDAQ National Market List, if the Company Stock is not then traded on a national securities exchange; or (iii) the closing bid price per share last quoted on that date by an established quotation service for over-the-counter securities, if the Company Stock is not reported on the NASDAQ National Market List. (2) If the Company Stock is not publicly traded at the time an Option is granted under the Plan, "Fair Market Value" shall be deemed to be the fair value of the Company Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Company Stock in private transactions negotiated at arm's length. 2 (j) "Incentive Award" shall mean an Option, a SAR, a Restricted Stock, or a Stock Bonus Award granted pursuant to the terms of the Plan. (k) "Incentive Stock Option" shall mean an Option that is an "incentive stock option" within the meaning of Section 422 of the Code and that is identified as an Incentive Stock Option in the agreement by which it is evidenced. (l) "Issue Date" shall mean the date established by the Committee on which certificates representing shares of Restricted Stock shall be issued by the Company pursuant to the terms of Section 8(d) hereof. (m) "Non-Qualified Stock Option" shall mean an Option that is not an Incentive Stock Option. (n) "Option" shall mean an option to purchase shares of Company Stock granted pursuant to Section 6 hereof. Each Option, or portion thereof, shall be identified as either an Incentive Stock Option or a Non-Qualified Stock Option in the agreement by which such Option is evidenced. (o) "Participant" shall mean an employee, officer or director of the Company or any subsidiary of the Company or a consultant to the Company or any subsidiary of the Company selected to participate in the Plan and to whom an Incentive Award is granted pursuant to the Plan, and, upon his or her death, that Person's successors, heirs, executors and administrators, as the case may be. (p) "Person" shall mean a "person," such as term is used in Sections 13(d) and 14(d) of the Exchange Act. (q) "Plan" shall mean this Interactive Marketing Technology, Inc. 2000 Stock Option Plan, as it may be amended from time to time. (r) "Restricted Stock" shall mean a share of Company Stock that is granted pursuant to the terms of Section 8 hereof and that is subject to the restrictions set forth in Section 8(c) hereof for as long as such restrictions continue to apply to such share. (s) "Retirement" shall mean a Participant's termination of employment (other than by reason of death or Disability and other than a termination that is (or is deemed to have been) for Cause) on or after the later of (i) the date the Participant attains age 65 and (ii) the date the Participant has completed five years of service with the Company. (t) "Securities Act" shall mean the Securities Act of 1933, as amended. (u) "SAR" shall mean a stock appreciation right granted pursuant to Section 7 hereof. 3 (v) "Stock Bonus" shall mean a grant of a bonus payable in shares of Company Stock pursuant to Section 9 hereof. (w) "Vesting Date" shall mean the date and/or dates established by the Committee on which an Incentive Award may vest. In the absence of provisions in an individual grant agreement to the contrary, Options shall vest ratably over a three (3) year period, at thirty-three and one-third (33-1/3%) percent per year. 3. STOCK SUBJECT TO THE PLAN. (a) PLAN AWARDS. ----------- Under the Plan, the Committee may, in its sole and absolute discretion, grant any or all of the following types of Incentive Awards to a Participant: an Option, a SAR, a Restricted Stock, or a Stock Bonus Award. (b) INDIVIDUAL AWARDS. ----------------- Incentive Awards granted under the Plan may be made up entirely of one type of Incentive Award or any combination of types of Incentive Awards available under the Plan, in the Committee's sole discretion. (c) AGGREGATE PLAN SHARE RESERVE. ---------------------------- The total number of shares of Company Stock available for grants of Incentive Awards under the Plan shall be 1,500,000, subject to adjustment in accordance with Section 10 of the Plan. These shares may be either authorized but unissued shares, newly-issued shares or reacquired shares of Company Stock. If an Incentive Award or portion thereof shall expire or terminate for any reason without having been exercised in full, the unexercised shares covered by such Incentive Award shall be available for future grants of Incentive Awards under the Plan. 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee. The Committee shall from time to time designate the employees, officers and directors of the Company or any subsidiary of the Company or consultants to the Company or any subsidiary of the Company who shall be granted Incentive Awards and the amount and type of such Incentive Awards. The Committee shall have the full authority and discretion to administer the Plan, including authority to interpret and construe any provision of the Plan and the terms of any Incentive Award issued under the Plan. The Committee may also adopt any rules and regulations for administering the Plan as it may deem necessary or appropriate. Decisions of the Committee shall be final and binding on all parties. 4 The Committee may, in its absolute discretion, without amendment to the Plan, (i) accelerate the date on which any Option or SAR granted under the Plan becomes exercisable or otherwise adjust any of the terms of such Option or SAR (except that no such adjustment shall, without the consent of a Participant, reduce the Participant's rights under any previously granted and outstanding Incentive Award), (ii) accelerate the Vesting Date or Issue Date of any share of Restricted Stock issued under the Plan, or waive any condition imposed thereunder, and (iii) otherwise adjust or waive any condition imposed on any Incentive Award made hereunder. In addition, the Committee may, in its absolute discretion and without amendment to the Plan, grant Incentive Awards of any type to Participants on the condition that such Participants surrender to the Committee for cancellation such other Incentive Awards of the same or any other type (including, without limitation, Incentive Awards with higher exercise prices or values) as the Committee specifies. Notwithstanding Section 3(c) herein, prior to the surrender of such other Incentive Awards, Incentive Awards granted pursuant to the preceding sentence of this Section 4 shall not count against the limit set forth in such Section 3(c). Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Committee, subject to applicable laws. No member of the Committee shall be liable for any action, omission or determination relating to the Plan, and the Company (and any affiliate that may adopt the Plan), jointly and severally, shall indemnify and hold harmless each member of the Committee and each other director or employee of the Company (or affiliate) to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any action, omission or determination unless such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company and its affiliates, as the case may be. 5. ELIGIBILITY. The Persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be those employees, officers and directors of the Company or any subsidiary of the Company or consultants to the Company or any subsidiary of the Company who are responsible for the management, growth and protection of the business of the Company; PROVIDED, HOWEVER, that only employees of the Company or any subsidiary of the Company shall be eligible to receive Incentive Awards consisting of Incentive Stock Options. 5 6. STOCK OPTION AWARDS. The Committee may grant Options pursuant to the Plan. Such Options shall be evidenced by agreements in such form as the Committee shall from time to time approve. Options shall comply with and be subject to the following terms and conditions: (a) IDENTIFICATION OF OPTIONS. All Options granted under the Plan shall be clearly identified in the agreement evidencing such Options as either Incentive Stock Options or as Non-Qualified Stock Options or a combination of both. (b) EXERCISE PRICE. The exercise price of any Non-Qualified Stock Option granted under the Plan shall be such price as the Committee shall determine, which may be greater than, equal to or less than the Fair Market Value of a share of Company Stock on the date such Non-Qualified Stock Option is granted; PROVIDED, that such price may not be less than the minimum price required by law. The exercise price of any Incentive Stock Option granted under the Plan shall be not less than 100% of the Fair Market Value of a share of Company Stock on the date on which such Incentive Stock Option is granted. (c) TERM AND EXERCISE OF OPTIONS. (i) Each Option shall be exercisable on such date or dates, during such period, and for such number of shares of Company Stock as shall be determined by the Committee on the day on which such Option is granted and set forth in the Option agreement with respect to such Option; PROVIDED, HOWEVER that no Option shall be exercisable after the expiration of ten years from the date such Option was granted; AND, PROVIDED, FURTHER, that each Option shall be subject to earlier termination, expiration or cancellation as provided in the Plan. (ii) Each Option shall be exercisable in whole or in part. The partial exercise of an Option shall not cause the expiration, termination or cancellation of the remaining portion thereof. Upon the partial exercise of an Option, the agreement evidencing such Option, marked with such notations as the Committee may deem appropriate to evidence such partial exercise, shall be returned to the Participant exercising such Option together with the delivery of the certificates described in Section 6(e) hereof. (iii) An Option shall be exercised by delivering a written notice to the Company's principal office to the attention of its Secretary. Such notice shall specify the number of shares of Company Stock with respect to which the Option is being exercised, shall be signed by the Participant, and shall be accompanied by the agreement (or agreements) evidencing the Option and payment in full of the applicable exercise price for shares of Company Stock purchased in any combination of the forms specified below: 6 (A) in cash, by certified check, bank cashier's check or wire transfer, (B) subject to the approval of the Committee, in shares of Company Stock owned by the Participant and valued at their Fair Market Value on the date of such exercise, (C) subject to the approval of the Committee, pursuant to a "cashless exercise" pursuant to procedures adopted by the Committee whereby the Participant, by a properly written notice, directs (a) an immediate market sale or margin loan respecting all or a part of the shares of Company Stock to which the Participant is entitled upon exercise pursuant to an extension of credit by the Company to the Participant of the exercise price, (b) the delivery of the shares of the Company Stock from the Company directly to the brokerage firm, and (c) the delivery of the exercise price from the sale or margin loan proceeds from the brokerage firm directly to the Company, or (D) such other methods as the Committee may approve, from time to time. Any payments in shares of Company Stock shall be effected by the delivery of such shares to the Secretary of the Company, duly endorsed in blank or accompanied by stock powers duly executed in blank, together with any other documents and evidences as the Secretary of the Company shall require from time to time (d) NONASSIGNABILITY. During the lifetime of a Participant, each Option granted to him or her shall be exercisable only by him or her. No Option shall be assignable or transferable otherwise than by will or by the laws of descent and distribution. (e) ISSUANCE OF CERTIFICATES. Certificates for shares of Company Stock purchased upon the exercise of an Option shall be issued in the name of the Participant or his or her beneficiary, as the case may be, and delivered to the Participant or his or her beneficiary, as the case may be, as soon as practicable following the date on which the Option is exercised. (f) LIMITATIONS ON GRANT OF INCENTIVE STOCK OPTIONS. (i) The aggregate Fair Market Value of shares of Company Stock with respect to which Incentive Stock Options granted hereunder are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company (or any "subsidiary corporation" of the Company within the meaning of Section 424 of the Code) shall not exceed $100,000. Such Fair Market Value shall be determined as of the date on which each such Incentive Stock Option is granted. In the event that the aggregate Fair Market Value of shares of Company Stock with respect to such Incentive Stock Options exceeds 7 $100,000, then Incentive Stock Options granted hereunder to such Participant shall, to the extent and in the order in which they were granted, automatically be deemed to be Non-Qualified Stock Options, but all other terms and provisions of such Incentive Stock Options shall remain unchanged. (ii) No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its "subsidiary corporations" (within the meaning of Section 424 of the Code), unless (I) the exercise price of such Incentive Stock Option is at least 110% of the Fair Market Value of a share of Company Stock at the time such Incentive Stock Option is granted and (II) such Incentive Stock Option is not exercisable after the expiration of five years from the date such Incentive Stock Option is granted. (iii) No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual is not an employee of the Company. (g) EFFECT OF TERMINATION OF EMPLOYMENT. (i) In the event the employment of a Participant with the Company shall terminate (as determined by the Committee in its sole discretion) for any reason other than Retirement, Disability, death or for Cause, (A) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until 90 days after the date of such termination, on which date they shall expire, and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; PROVIDED, HOWEVER, that no Option shall be exercisable after the expiration of its term. (ii) In the event that the employment of a Participant with the Company shall terminate on account of the Retirement, Disability or death of the Participant, (A) Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the expiration of their term and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The effect of exercising any Incentive Stock Option on a day that is more than 90 days after the date of such termination (or, in the case of a termination of employment on account of Disability, on a day that is more than one year after the date of such termination) will be to cause such Incentive Stock Option to be treated as a Non-Qualified Stock Option. (iii) In the event of the termination of a Participant's employment for Cause, all outstanding Options granted to such Participant shall automatically expire at the commencement of business as of the date of such termination. 8 7. SARS. The Committee may grant SARs pursuant to the Plan, which SARs shall be evidenced by agreements in such form as the Committee shall from time to time approve. SARs shall comply with and be subject to the following terms and conditions: (a) EXERCISE PRICE. The exercise price of any SAR granted under the Plan shall be determined by the Committee in its discretion at the time of the grant of such SAR. (b) BENEFIT UPON EXERCISE. (i) The exercise of a SAR with respect to any number of shares of Company Stock shall entitle a Participant to a cash payment, for each such share, equal to the excess of (A) the Fair Market Value of a share of Company Stock on the exercise date over (B) the exercise price of the SAR (subject to applicable withholding payment requirements). (ii) All payments under this Section 7(b) shall be made as soon as practicable, but in no event later than five business days, after the date of the exercise. (c) TERM AND EXERCISE OF SARS. (i) Each SAR shall be exercisable on such date or dates, during such period, and for such number of shares of Company Stock as shall be determined by the Committee and set forth in the SAR agreement with respect to such SAR; PROVIDED, HOWEVER, that no SAR shall be exercisable after the expiration of ten years from the date such SAR was granted; AND PROVIDED, FURTHER, HOWEVER, that each SAR shall be subject to earlier termination, expiration or cancellation as provided in the Plan. (ii) Each SAR may be exercised in whole or in part. The partial exercise of a SAR shall not cause the expiration, termination or cancellation of the remaining portion thereof. Upon the partial exercise of a SAR, the agreement evidencing such SAR, marked with such notations as the Committee may deem appropriate to evidence such partial exercise, shall be returned to the Participant exercising such SAR together with the payment described in Section 7(b) or 7(b)(ii) hereof. (iii) A SAR shall be exercised by delivering written notice to the Company's principal office, to the attention of its Secretary. Such notice shall be accompanied by the applicable agreement (or agreements) evidencing the SAR, shall specify the number of shares of Company Stock with respect to which the SAR is being exercised, and shall be signed by the Participant. The date upon which such written notice is received by the Company shall be the exercise date for the SAR. 9 (iv) During the lifetime of a Participant, each SAR granted to him or her shall be exercisable only by him or her. No SAR shall be assignable or transferable otherwise than by will or by the laws of descent and distribution. (d) TERMINATION OF EMPLOYMENT. (i) In the event that the employment of a Participant with the Company shall terminate (as determined by the Committee in its sole discretion) for any reason other than Retirement, Disability, death or for Cause, (A) SARs granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the 30th day after such termination, on which date they shall expire and (B) SARs granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; PROVIDED, HOWEVER, that no SAR shall be exercisable after the expiration of its term. (ii) In the event that the employment of a Participant with the Company shall terminate on account of the Retirement, Disability or death of the Participant, (A) SARs granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the expiration of their term and (B) SARs granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. (iii) In the event of the termination of the Participant's employment for Cause, all outstanding SARs granted to such Participant shall automatically expire at the commencement of business as of the date of such termination. (e) TANDEM SARS. SARs may be granted in tandem with Options (or on a stand-alone basis). To the extent SARs are granted in tandem with Options and SARs are exercised, the related Options shall be cancelled. Similarly, if the Options are exercised, the related SARs shall be cancelled. 8. RESTRICTED STOCK. The Committee may grant shares of Restricted Stock pursuant to the Plan. Each grant of shares of Restricted Stock shall be evidenced by an agreement in such form as the Committee shall from time to time approve. Each grant of shares of Restricted Stock shall comply with and be subject to the following terms and conditions: (a) ISSUE DATE AND VESTING DATE. At the time of the grant of shares of Restricted Stock, the Committee shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with respect to such shares. The Committee may divide such shares into classes and assign a different Issue Date 10 and/or Vesting Date for each class. Except as provided in Sections 8(c) and 8(f) hereof, upon the occurrence of the Issue Date with respect to a share of Restricted Stock, a share of Restricted Stock shall be issued in accordance with the provisions of Section 8(d) hereof. Provided that all conditions to the vesting of a share of Restricted Stock imposed pursuant to Section 8(b) hereof are satisfied, and except as provided in Sections 8(c) and 8(f) hereof, upon the occurrence of the Vesting Date with respect to a share of Restricted Stock, such share shall vest and the restrictions of Section 8(c) hereof shall cease to apply to such share. (b) CONDITIONS TO VESTING. At the time of the grant of shares of Restricted Stock, the Committee may impose such restrictions or conditions, not inconsistent with the provisions hereof, to the vesting of such shares as it, in its absolute discretion, deems appropriate. By way of example and not by way of limitation, the Committee may require, as a condition to the vesting of any shares of Restricted Stock, that the Participant or the Company achieve such performance criteria as the Committee may specify at the time of the grant of such shares. (c) RESTRICTIONS ON TRANSFER PRIOR TO VESTING. Prior to the vesting of a share of Restricted Stock, no transfer of a Participant's rights to such share, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest, or right in, or with respect to, such share, but immediately upon any attempt to transfer such rights, such share, and all the rights related thereto, shall be forfeited by the Participant and the transfer shall be of no force or effect. (d) ISSUANCE OF CERTIFICATES. (i) Except as provided in Sections 8(c) or 8(f) hereof, reasonably promptly after the Issue Date with respect to shares of Restricted Stock, the Company shall cause to be issued a stock certificate, registered in the name of the Participant to whom such shares were granted, evidencing such shares, PROVIDED, that the Company shall not cause to be issued such stock certificate unless it has received a stock power duly endorsed in blank with respect to such shares. Each such stock certificate shall bear the following legend: THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS, AND CONDITIONS (INCLUDING FORFEITURE PROVISIONS AND RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE MILITARY RESALE GROUP, INC.TECHNOLOGIES INC. 2001 STOCK OPTION PLAN AND INCENTIVE AWARD AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER OF SUCH SHARES AND MILITARY RESALE GROUP, INC. A COPY OF THE PLAN AND AGREEMENT IS ON FILE IN THE OFFICE OF THE SECRETARY OF MILITARY RESALE GROUP, INC., 2180 EXECUTIVE CIRCLE, COLORADO SPRINGS, COLORADO. 11 Such legend shall not be removed from the certificate evidencing such shares until such shares vest pursuant to the terms hereof. (ii) Each certificate issued pursuant to Section 8(d)(i) hereof, together with the stock powers relating to the shares of Restricted Stock evidenced by such certificate, shall be deposited by the Company with a custodian designed by the Company. The Company shall cause such custodian to issue to the Participant a receipt evidencing the certificates held by it which are registered in the name of the Participant. (e) CONSEQUENCES UPON VESTING. Upon the vesting of a share of Restricted Stock pursuant to the terms hereof, the restrictions of Section 8(c) hereof shall cease to apply to such share. Reasonably promptly after a share of Restricted Stock vests pursuant to the terms hereof, the Company shall cause to be issued and delivered to the Participant to whom such share was granted, a certificate evidencing such share, free of the legend set forth in Section 8(d)(i) hereof, together with any other property of the Participant held by the custodian pursuant to Section 8(d)(ii) hereof. (f) EFFECT OF TERMINATION OF EMPLOYMENT. (i) In the event that the employment of a Participant with the Company shall terminate for any reason other than Cause prior to the vesting of shares of Restricted Stock granted to such Participant, shall be forfeited on the date of such termination; provided, however, that the Committee may, in its sole and absolute discretion, vest the Participant in all or any portion of shares of Restricted Stock which would otherwise be forfeited pursuant to the provisions of this Section. (ii) In the event of the termination of a Participant's employment for Cause, all shares of Restricted Stock granted to such Participant which have not vested as of the date of such termination shall immediately be forfeited. 9. STOCK BONUSES. The Committee may grant Stock Bonuses in such amounts as it shall determine from time to time. A Stock Bonus shall be paid at such time and subject to such conditions as the Committee shall determine at the time of the grant of such Stock Bonus. Certificates for shares of Company Stock granted as a Stock Bonus shall be issued in the name of the Participant to whom such grant was made and delivered to such Participant as soon as practicable after the date on which such Stock Bonus is required to be paid. 10. ADJUSTMENT UPON CHANGES IN COMPANY STOCK. (a) SHARES AVAILABLE FOR GRANTS. In the event of any change in the number of shares of Company Stock outstanding by reason of any stock dividend or split, reverse stock split, recapitalization, merger, 12 consolidation, combination or exchange of shares or similar corporate change, the maximum number of shares of Company Stock with respect to which the Committee may grant Options, SARs, shares of Restricted Stock, and Stock Bonuses under Section 3 hereof shall be appropriately adjusted by the Committee. In the event of any change in the number of shares of Company Stock outstanding by reason of any other event or transaction, the Committee may, but need not, make such adjustments in the number of shares of Company Stock with respect to which Options, SARs, shares of Restricted Stock, and Stock Bonuses may be granted under Section 3 hereof as the Committee may deem appropriate. (b) OUTSTANDING RESTRICTED STOCK. Unless the Committee in its absolute discretion otherwise determines, any securities or other property (including dividends paid in cash) received by a Participant with respect to a share of Restricted Stock, the Issue Date with respect to which occurs prior to such event, but which has not vested as of the date of such event, as a result of any dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination, exchange of shares or similar corporate exchange will not vest until such share of Restricted Stock vests and shall be promptly deposited with the custodian designated pursuant to Section 8(d)(ii) hereof. The Committee may, in its absolute discretion, adjust any grant of shares of Restricted Stock, the Issue Date with respect to which has not occurred as of the date of the occurrence of any of the following events, to reflect any dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination, exchange of shares or similar corporate change as the Committee may deem appropriate to prevent the enlargement or dilution of rights of Participants under the grant. (c) Outstanding Options and SARs - Increase OR DECREASE IN ISSUED SHARES WITHOUT CONSIDERATION. Subject to any required action by the shareholders of the Company, in the event of any increase or decrease in the number of issued shares of Company Stock resulting from a subdivision or consolidations of shares of Company Stock or the payment of a stock dividend on the shares of Company Stock, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company, the Company shall proportionally adjust the number of shares of Company Stock subject to each outstanding Option and SAR, and the exercise price per share of Company Stock of each such Option and SAR. (d) OUTSTANDING OPTIONS AND SARS - CERTAIN MERGERS. Subject to any required action by the shareholders of the Company, in the event that the Company shall be the surviving corporation in any merger or consolidation (except a merger or consolidation as a result of which the holders of shares of Company Stock receive securities of another corporation), each Option and SAR outstanding on the date of such merger or consolidation shall pertain to and apply to the securities which a holder of the number of 13 shares of Company Stock subject to such Option or SAR would have received in such merger or consolidation. (e) OUTSTANDING OPTIONS, SARS - CERTAIN OTHER TRANSACTIONS. In the event of a dissolution or liquidation of the Company; a sale of substantially all of the Company's assets; a merger or consolidation involving the Company in which the Company is not the surviving corporation; or a merger or consolidation involving the Company in which the Company is the surviving corporation but the holders of shares of Company Stock receive securities of another corporation and/or other property, including cash, the Committee shall, in its absolute discretion, have the power to: (i) cancel, effective immediately prior to the occurrence of such event, each Option and SAR outstanding immediately prior to such event (whether or not then exercisable), and, in full consideration of such cancellation, pay to the Participant to whom such Option or SAR was granted an amount in cash, for each share of Company Stock subject to such Option or SAR, respectively, equal to the excess of (A) the value, as determined by the Committee in its absolute discretion, of the property (including cash) received by the holder of a share of Company Stock as a result of such event over (B) the exercise price of such Option or SAR (subject to applicable withholding payment requirements); or (ii) provide for the exchange of each Option and SAR outstanding immediately prior to such event (whether or not then exercisable) for an option on or stock appreciation right with respect to, as appropriate, some or all of the property for which such Option or SAR is exchanged and, incident thereto, make an equitable adjustment as determined by the Committee in its absolute discretion in the exercise price of the option or stock appreciation right, or, if appropriate, provide for a cash payment to the Participant to whom such Option or SAR was granted in partial consideration for the exchange of the Option or SAR. (f) OUTSTANDING OPTIONS AND SARS - OTHER CHANGES. In the event of any change in the capitalization of the Company or a corporate change other than those specifically referred to in Section 10(c),(d) or (e) hereof, the Committee may in its absolute discretion, make such adjustments in the number of shares subject to Options or SARs outstanding on the date on which such change occurs and in the per share exercise price of each such Option and SAR as the Committee may consider appropriate to prevent dilution or enlargement or rights. (g) NO OTHER RIGHTS. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of Company Stock, the payment of any dividend, any increase or decrease in the number of shares of Company Stock or any dissolution, liquidation, 14 merger or consolidation of the Company or any other corporation. Except as expressly provided in the Plan, no issuance by the Company of Company Stock, or securities convertible into shares of Company Stock, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Company Stock subject to an Incentive Award or the exercise price of any Option or SAR. 11. RIGHTS AS A STOCKHOLDER. (a) NO RIGHTS AS A STOCKHOLDER. No Person shall have any rights as a stockholder with respect to any shares of Company Stock covered by or relating to any Incentive Award granted pursuant to the Plan until the date the Person becomes the owner of record with respect to such shares. Except as otherwise expressly provided in Section 10 hereof, no adjustment to any Incentive Award shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. (b) ACCRUAL OF DIVIDENDS. Whenever Restricted Shares are paid to a Participant or beneficiary under the Plan, such Participant or beneficiary shall also be entitled to receive, with respect to each Restricted Share paid, an amount equal to any cash dividends, and number of shares of Company Stock equal to any stock dividends, declared and paid with respect to a share of Company Stock between the date the relevant Restricted Share award was granted and the date the Restricted Shares are being distributed. At the discretion of the Committee, interest may be paid on the amount of cash dividends withheld, including cash dividends on stock dividends, at a rate and subject to such terms as determined by the Committee. 12. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHTS TO INCENTIVE AWARD. (a) NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan or any Incentive Award shall confer upon any Participant any right with respect to the continuation of his or her employment by or service with the Company or any subsidiary of the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment or consulting agreement to the contrary, at any time to terminate such employment or service or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Incentive Award. 15 (b) NO RIGHTS TO INCENTIVE AWARDS. No Person shall have any claim or right to receive an Incentive Award hereunder. The Committee's granting of an Incentive Award to a Participant at any time shall neither require the Committee to grant an Incentive Award to such Participant or any other Participant or other Person at any time nor preclude the Committee from making subsequent grants to such Participant or any other Participant or other Person. 13. SECURITIES MATTERS. (a) The Company shall be under no obligation to effect the registration pursuant to the Securities Act of any interests in the Plan or any shares of Company Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or delivered any certificates evidencing shares of Company Stock pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority, and the requirements of NASDAQ and any other securities exchange on which shares of Company Stock are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing shares of Company Stock pursuant to the terms hereof, that the recipient of such shares make such covenants, agreements and representations, and that such certificates bear such legends, as the Committee, in its sole discretion, deems necessary or desirable. (b) The exercise of any Option granted hereunder shall be effective only at such time as counsel to the Company shall have determined that the issuance and delivery of shares of Company Stock pursuant to such exercise is in compliance with all applicable laws, regulations of governmental authority, and the requirements of NASDAQ and any other securities exchange on which shares of Company Stock are traded. The Committee may, in its sole discretion, defer the effectiveness of any exercise of an Option granted hereunder in order to allow the issuance of shares of Company Stock pursuant thereto to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. The Committee shall inform the Participant in writing of its decision to defer the effectiveness of the exercise of an Option granted hereunder. During the period that the effectiveness of the exercise of an Option has been deferred, the Participant may, by written notice, withdraw such exercise and obtain a refund of any amount paid with respect thereto. (c) All Company Stock issued pursuant to the terms of the Plan shall constitute "restricted securities," as that term is defined in Rule 144 promulgated pursuant to the Securities Act, and may not be transferred except in compliance with the registration requirements of the Securities Act or an exemption therefrom. (d) Certificates for shares of Company Stock, when issued, may have substantially the following legend, or statements of other applicable restrictions, endorsed thereon, and may not be immediately transferable: 16 THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH OFFER SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE LAWS. This legend shall not be required for shares of Company Stock issued pursuant to an effective registration statement under the Securities Act and in accordance with applicable state securities laws. 14. WITHHOLDING TAXES. (a) CASH REMITTANCE. Whenever shares of Company Stock are to be issued upon the exercise of an Option, the occurrence of the Issue Date or Vesting Date with respect to a share of Restricted Stock or the payment of a Stock Bonus, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy federal, state, and local withholding tax requirements, if any, attributable to such exercise, occurrence or payment prior to the delivery of any certificate or certificates for such shares. In addition, upon the exercise of an SAR, the Company shall have the right to withhold from any cash payment required to be made pursuant thereto an amount sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise or grant. (b) STOCK REMITTANCE. Subject to Section 14(c) hereof, at the election of the Participant, subject to the approval of the Committee, when shares of Company Stock are to be issued upon the exercise of an Option, the occurrence of the Issue Date or the Vesting Date with respect to a share of Restricted Stock, or the grant of a Stock Bonus, in lieu of the remittance required by Section 14(a) hereof, the Participant may tender to the Company a number of shares of Company Stock determined by such Participant, the Fair Market Value of which at the tender date the Committee determines to be sufficient to satisfy the minimum federal, state and local withholding tax requirements, if any, attributable to such exercise, occurrence or grant and not greater than the Participant's estimated total federal, state and local tax obligations associated with such exercise, occurrence or grant. (c) STOCK WITHHOLDING. 17 The Company shall have the right, when shares of Company Stock are to be issued upon the exercise of an Option, the occurrence of the Issue Date or the Vesting Date with respect to a share of Restricted Stock or the grant of a Stock Bonus, in lieu of requiring the remittance required by Section 14(a) hereof, to withhold a number of such shares, the Fair Market Value of which at the exercise date the Committee determines to be sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise, occurrence or grant and is not greater than the Participant's estimated total, federal, state and local tax obligations associated with such exercise, occurrence or grant. 15. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part, or amend it in such respects as the Board may deem appropriate. No amendment, suspension or termination of the Plan shall, without the Participant's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Participant under the Plan. The Board may amend the Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Incentive Awards meeting the requirements of future amendments or issued regulations, if any, to the Code or to the Exchange Act. 18 16. NO OBLIGATION TO EXERCISE. The grant to a Participant of an Option or a SAR shall impose no obligation upon such Participant to exercise such Option or SAR. 17. TRANSFERS UPON DEATH. Upon the death of a Participant, outstanding Incentive Awards granted to such Participant may be exercised only by the executors or administrators of the Participant's estate or by any Person or Persons who shall have acquired such right to exercise by will or by the laws of descent and distribution. No transfer by will or the laws of descent and distribution of any Incentive Award, or the right to exercise any Incentive Award, shall be effective to bind the Company unless the Committee shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Incentive Award that are or would have been applicable to the Participant and to be bound by the acknowledgments made by the Participant in connection with the grant of the Incentive Award. Except as provided in this Section 17, no Incentive Award shall be transferable, and shall be exercisable only by a Participant during the Participant's lifetime. 18. EXPENSES AND RECEIPTS. The expenses of the Plan shall be paid by the Company. Any proceeds received by the Company in connection with any Incentive Award will be used for general purposes. 19. FAILURE TO COMPLY. In addition to the remedies of the Company elsewhere provided for herein, a failure by a Participant (or beneficiary) to comply with any of the terms and conditions of the Plan or the agreement executed by such Participant (or beneficiary) evidencing an Incentive Award, unless such failure is remedied by such Participant (or beneficiary) within ten days after having been notified of such failure by the Committee, shall be grounds for the cancellation and forfeiture of such Incentive Award, in whole or in part, as the Committee, in its absolute discretion may determine. 20. ADOPTION AND EFFECTIVE DATE OF PLAN. The Plan was adopted by unanimous written consent of the Board of Directors of the Company, in lieu of a meeting of the Board, effective as of March 28, 2000. If determined by the Board, the Plan may subsequently be ratified and approved by the shareholders of the Company. 19 21. TERM OF THE PLAN. The right to grant Incentive Awards under the Plan will terminate upon the expiration of ten years from the date the Plan was initially adopted. 22. APPLICABLE LAW. Except to the extent preempted by an applicable federal law, the Plan will be construed and administered in accordance with the laws of the State of New York, without reference to the principles of conflicts of law. 20 EX-10.4 8 c22565_exh10-4.txt STOCK OPTION PLAN Exhibit 10.4 CONFESSED JUDGMENT DEMAND PROMISSORY NOTE $ 100,000.00 AUGUST 14, 2001 ----------- ------------------- The undersigned (if there be more than one undersigned, their liability shall be joint and several) promises to pay to the order of ONCOR PARTNERS, INC., (hereinafter called Holder) upon the earlier of either (1) Military Resale Group, Inc.'s ("MRG") receipt of $500,000.00 or more in equity capital; or (2) on or before AUGUST 14, 2002, the sum of ONE HUNDRED THOUSAND AND No/100 Dollars ($100,000.00),or such lessor amount as may have been loaned to MRG by Holder, without interest thereon; provided however if the aforesaid is not paid in full on or before August 14, 2002, time being of the essence, then the undersigned shall be in default hereunder and the sum of $100,000.00 or such lessor amount as may have been loaned to MRG by Holder, shall be due and owing and be paid together with interest thereon at the rate of eighteen percent (18%) per annum from the date of default until the date actually paid. Provided, that upon the occurrence of any of the following events of default, if the Holder so elects, all of the unpaid balance hereunder, including interest, shall immediately be due and payable: (a) if any obligor shall make an assignment for the benefit of creditors or if any voluntary or involuntary proceedings be instituted by or against any obligor under any provision of the Bankruptcy Act of any other federal or state statute or rule providing for the relief of debtors, composition of creditors, arrangements, reorganizations, ordinary bankruptcy, or receivership or the like; (b) the failure of any obligor to pay debts as they mature in the ordinary course of business, or if the fair market value of the assets of any obligor shall be less than the liabilities of such obligor; (c) the entry of any judgment against any obligor or the issuing of an attachment or garnishment against any property of any obligor; (d) the occurrence of any adverse change in the financial condition of any obligor in which case the Holder deems its position to have become impaired; (e) the dissolution, merger, consolidation or reorganization of any obligor which is a corporation, partner- ship, joint venture, business trust or other association; (f) the assessment, imposition or existence, of any general or specific lien for any federal, state or local taxes or charges against any property for any obligor; and (g) the death of any obligor who is a natural person. The term "obligor" includes all undersigned makers and all endorsers, guarantors and sureties. Each and every obligor hereby authorizes Richard H. Tanenbaum, Esquire or any attorney or clerk or any member of any court within the United States or elsewhere to enter an appearance on their behalf and to confess judgment against obligors, either jointly or severally, to be entered by the proper official, at any time after this note is due (whether upon normal maturity or acceleration hereunder), hereby waiving all exemptions, for the principal amount of this note and interest and 15% attorneys' fees and court costs. If this note is referred to an attorney for collection, and payment is obtained without the entry of a judgment, then obligors shall pay to Holder attorneys' fees in the amount aforesaid. Executed under seal on the day and year first above written. WITNESS: Military Resale Group, Inc. BY: [SEAL] ---------------------------- Ethan Hokit, President EX-10.5 9 c22565_exh10-5.txt PROMISSORY NOTE Exhibit 10.5 1 MILITARY RESALE GROUP, INC. COMMERCIAL NET/NET/NET WAREHOUSE LEASE STATE OF COLORADO COUNTY OF EL PASO 1. LEASED PREMISES AND TERM: This Lease Agreement, made and entered into by and between MRS Connection, a Colorado general partnership hereinafter referred to as "Landlord", does hereby demise and lease unto Military Resale Group, Inc. a Maryland Corporation hereinafter referred to as "Tenant, thirty two thousand seven hundred forty eight (32,748) rentable square feet of the building located at 2180 Executive Circle, Colorado Springs, Colorado 80906 for the term of five (5) years (the "Primary Lease Term") beginning on the first day of September, 2001, and ending on the thirty first day of August, 2006, unless the Primary Lease Term hereof shall be sooner terminated as hereinafter provided. 2. RENT AND SECURITY DEPOSIT: (a) In consideration of said Lease, the Tenant, without prior notice or demand, agrees to pay to the Landlord as the base rent for said premises; (1) for the first year of the term of this Lease, monthly payments in the amount of Fifteen Thousand Nine Dollars and fifty Cents ($15,009.50); (2) for the second year of the term of this Lease, monthly payments in the amount of Fifteen Thousand Six Hundred Ninety-One Dollars and Seventy-Five Cents ($15,691.75); (3) for the third year of the term of this Lease, monthly payments in the amount of Sixteen Thousand Three Hundred Seventy-Four Dollars ($16,374.00); (4) for the fourth year of the term of this Lease, monthly payments in the amount of Seventeen Thousand Fifty-Six Dollars and Twenty-Five Cents ($17,056.25); (5) for the fifth year of the term of this Lease, monthly payments in the amount of Seventeen Thousand Seven Hundred Thirty-Eight Dollars and Fifty Cents ($17,738.50); which said payments shall be due and payable in advance on the first day of each and every calendar month thereafter during the Primary Lease Term at the office of the Landlord, or such other place as the Landlord from time to time, in writing, may designate, With the execution of this Lease, Tenant has deposited with the Landlord the sum of Nineteen Thousand Dollars ($19,000.00) which shall be held by Landlord in a segregated interest bearing account as Security for the full and faithful performance of every provision of this Lease to be performed by Tenant. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of Rent, Landlord may use, apply, or retain all or any part of this Security Deposit for the payment of any Rent and any other sum in default, or for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of such deposit is to be used or applied, Tenant shall, within five (5) days after written demand therefore, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its, original amount, and Tenant's failure to do so shall be a material breach of this Lease. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or 1 any balance thereof shall be returned to Tenant, together with accrued interest within fifteen (15) days after the expiration of this Lease Term and upon Tenant's vacation of the Premises. (b) Tenant acknowledges that Landlord has the right to transfer its interest in the Property and this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall have the right to transfer such Security Deposit to the transferee. Upon Landlord's delivery to Tenant of such transferee's written acknowledgment of it receipt of such Security Deposit, Landlord shall thereby be released by Tenant from all liability or obligation for the return of such deposit, and Tenant agrees to look solely to such transferee for the return of the Security Deposit. (c) No dispute between Landlord and Tenant as to Landlord or Tenant obligations under this Lease shall excuse the payment of rent or the faithful performance of the other conditions of said Lease by either party. 3. POSSESSION: (a) If Landlord, for any reason whatsoever, cannot deliver possession of the said premises to the Tenant at the commencement of the term hereof, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, but in that event the term of the Lease shall be amended to commence on the date when Landlord can deliver possession, which date shall be no later than thirty (30) days after the scheduled commencement date, the expiration date shall be extended accordingly. If permission is given to Tenant to occupy the premises prior to the commencement date, such occupancy shall be subject to all provisions of this Lease and, if the term hereof commences on a date later than the commencement date pursuant to the provisions set forth above, the Parties hereto agree to execute and acknowledge a written statement setting forth the actual date of commencement of this Lease and the termination date. This Lease shall be in full force and effect even though either Party may fail or refuse to execute such statement. (b) The taking of possession of said premises by the Tenant shall be conclusive evidence as against the Tenant that said premises were in good and satisfactory condition when possession of same was taken. 4. LATE CHARGE: Tenant acknowledges that late payment of Tenant to Landlord for rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which would be extremely difficult and impractical to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges that may be imposed on Landlord by the terms of any mortgage or trust deed covering the premises. Therefore, in the event Tenant should fail to pay any installment of rent or any sum due hereunder after such amount is due, Tenant shall, upon being billed, pay to Landlord as additional rent, a late charge equal to 5% of each such installment. Said late charge shall be assessed on the 5th day of each month. A $10.00 charge will be paid by the Tenant to the Landlord for each returned check. 5. CHARACTER OF OCCUPANCY: The demised premises shall be used only for an office and warehouse and for such other lawful purposes as may be incidental thereto. Tenant shall at 2 its own cost and expense obtain any and all licenses and permits necessary for such use. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the demised premises. Tenant shall promptly comply with all Landlord or government orders and directives for the correction, prevention, and abatement of nuisances in or upon, or connected with the demised premises, all at Tenant's sole expense. Tenant shall not permit the leased premises to be used in any way which would, in the opinion of the Landlord, be extra hazardous or which would in any way increase or render void the fire insurance on the leased premises. 6. ADDITIONAL RENT - TRIPLE NET EXPENSES: As additional rent, Tenant shall pay to Landlord along with the monthly base rent, fixed common area maintenance ("CAM") costs for the first three years of the Primary Lease Term of $1.25 per square foot per year in monthly payments, (along with the base rent) of Three Thousand Four Hundred Eleven and Twenty-Five Cents ($3,411.25). In the fourth and fifth year the CAM costs shall be the Landlords actual costs but such costs shall not exceed a five per-cent increase of the tenants CAM cost from the preceding year. The CAM costs shall include the Tenant's prorata share of the real property taxes, insurance premiums, repairs and maintenance and such other CAM costs that are appropriate and are agreed upon by the Landlord and Tenant. As used in this paragraph, "real property tax" shall mean any form of assessment (both general and special), levy, penalty or tax (other than estate or inheritance tax) imposed by any authority having direct or indirect power to tax any legal or equitable interest of Landlord in the leased premises, including any tax on rent (other than income tax) in lieu of or in addition to normal real property taxes or assessments. Tenant may, at its sole cost and expense (in its name or in the name of Landlord, or in the name of both as it may deem appropriate) dispute and contest the real property tax, and in such case, said disputed tax must be paid prior to being contested. Tenant acknowledges the right to contest solely for a refund. Should the real property tax contested be held valid, Tenant shall pay all items, court costs, attorney's fees, interest and penalties relating thereto. 7. PRORATION: Whenever the term "pro rate" shall appear in this Lease, it shall refer to the Tenant's gross square footage (32,748), as that figure compares to the total gross square footage (54,061) included in any billing for taxes, insurance or other services being provided for the leased premises. 8. REPAIRS AND MAINTENANCE: Tenant shall, at its sole expense keep the leased premises in good repair and tenantable condition during the term of this lease. If Tenant fails to perform any duty described above, Landlord may give notice of such failure. If the duty is not performed by the Tenant within thirty days (or such longer period of time if necessitated by the nature of the repairs), after written notice (or within a reasonable shorter period in the case of emergency), the Landlord may perform the repair or maintenance work and charge the Tenant for any expense incurred. The Tenant shall pay the expense incurred within thirty (30) days. Landlord and Landlord's, agents and representatives shall have the right to enter and inspect the demised premises at any time during reasonable business hours, upon reasonable advanced notice to Tenant, (provided the same will not interrupt Tenant's normal business operations) for the purpose of ascertaining the condition of the demised premises or in order to make such repairs, additions or alterations as may be required to be made by Tenant under the terms of this 3 Lease. At the termination of this Lease, Tenant shall deliver up the leased premises with all improvements located thereon, except as provided in Paragraph 9 hereof, in good repair and condition, and will deliver all keys thereto at the office of the Landlord. 9. ALTERATIONS: Tenant shall not make any major alterations, additions, or improvements to the demised premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant may without the consent of Landlord, but at its own cost and expense and in a good workmanlike manner, make such minor alterations, additions, or improvements, or erect, remove, or alter such partitions, or erect such shelves, bins, machinery, and trade fixtures as it may deem advisable, (including, but not limited to installation of freezers and refrigeration units) without altering the basic character of the building or improvements, and in each case complying with all applicable governmental laws, ordinances, regulations, and other requirements. Tenant shall promptly pay the costs of all work performed and shall indemnify and hold harmless the Landlord against liens, costs, damages and expenses incurred in connection therewith; including any attorneys' fees incurred by Landlord, if Landlord shall be joined in any action or proceeding involving such work. Under no circumstances shall Tenant commence any such work until Landlord has been provided with certificates evidencing that all contractors and subcontractors performing the work have in full force and effect adequate workmen's compensation insurance as required by the Laws of the State, as well as public liability and builders risk insurance in such amounts, and according to terms satisfactory to Landlord. At the termination of this Lease, Tenant shall, if Landlord so elects, remove all alterations, additions, improvements, and partitions erected by Tenant and restore the premises to their original conditions, otherwise such improvements shall be delivered up to Landlord with the premises. All shelves, bins, machinery, and trade fixtures installed by Tenant may be removed if required by Landlord. All such removals and restorations; shall be accomplished in a good workmanlike manner so as not to damage the primary structure or structural qualities of the building and other improvements situated on the demised premises. 10. MECHANICS LIENS: Tenant agrees that it will promptly pay for any work done in or about the demised premises, and will not permit or suffer any mechanics liens to attach to the demised premises, and shall promptly cause any claim for such lien to be released, or bonded against, or provide security to the Landlord's satisfaction, in the event Tenant desires to contest any such claim. 11. SIGNS: No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by Tenant on any part of the outside of the demised premises or the buildings of which they form a part, without the prior written consent of Landlord. No awning or other projections shall be attached to the outside walls of the demised premises without the prior written consent of the Landlord. Landlord consents to the Tenant moving it's sign it has on it's current space to the Premises; however, the Tenant shall obtain the Landlord's consent to the location of the sign and the method of installation. Tenant shall remove all such signs, advertisements, notices or lettering at the termination of this Lease. Such installation and removals shall be made in such manner as to avoid injury, defacement, or overloading of the building and other improvements. Drawings for all Tenant identifying signs shall be approved by Landlord before manufacture and installation. 4 12. UTILITIES: Tenant's utilities shall be separately metered and placed in Tenant's name, including the Tenant's electricity, gas, and water. - Tenant shall also obtain it's own dumpster and make arrangements for the removal is it's Trash. Tenant shall pay all charges incurred for any utility services metered in its name to his demised premises. 13. LEASE ASSIGNMENT OR SUBLETTING: Tenant shall not have the right to assign this Lease or to sublet the whole or any part of the demised premises without first obtaining prior written consent of Landlord. The Tenant shall not change the ownership of the business in order to avoid this provision, and will, at the request of the Landlord, provide whatever documentation is necessary to establish that the Tenant is in compliance with this provision. If the Landlord, upon the request of the Tenant allows Tenant to assign or sublet the premises, then, in the "event of default" as herein defined, Landlord, in addition to any other remedies herein provided or provide by law, may at its option, collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment, or sublease and apply such rent against any sums due to it by Tenant hereunder, and no such collection shall be construed to constitute a novation or a release of Tenant from the further performance of its obligations hereunder. Assignor or Sublessor may not collect rent in excess of the existing Lease rates and any such sums received by Assignor or Sublessor must be immediately paid to the Landlord. The Landlord shall also have the right to assign any of its rights under this Lease. 14. INSURANCE, LIABILITY AND INDEMNITY: (a) Tenant shall throughout the demised term, at its sole cost and expense, provide and keep in force with responsible insurance companies satisfactory to Landlord and to any mortgagee under a mortgage constituting a lien upon the demised premises, public liability and property damage insurance. The liability limits of all said insurance shall be a minimum of $1,000,000 Bodily Injury, $1,000,000 Property Damage or a combined single limit of $1,000,000, protecting Landlord and any such mortgagee, as well as Tenant against liability to any employees or servants of Tenant or to any other person whomsoever arising out of or in connection with Tenant's use of the leased premises of the condition or of the leased premises. Tenant is to furnish Landlord with a Certificate of Insurance within 30 days after commencement of this Lease, or Landlord may provide same and charge Tenant on its normal monthly billing. (b) Landlord shall procure and maintain at all times during the term of this Lease a policy or policies of insurance covering loss or damage to the premises (exclusive of Tenant's trade fixtures, equipment, and personal property), providing protection against all perils included within the classification of "All Risk". (c) Tenant shall indemnify and hold harmless Landlord from all loss, damage, liability or expense, including attorneys fees, resulting from any injury to any person or any loss of or damage to any property caused by or resulting from any act, omission or negligence of Tenant or any officer, employee, agent, contractor, invitee or visitor of Tenant in or about the premises or the building. 5 The foregoing provision shall not be construed to make Tenant responsible for loss, damage, liability or expense resulting from injuries to third parties caused by any act, omission or negligence of Landlord or of any officer, employee, agent, contractor, invitee or visitor of Landlord. Landlord shall not be liable for any loss or damage to person or property sustained by Tenant, or other persons, which may be caused by the building or the premises, or any appurtenances thereto, being out of repair; or by the bursting or leakage of any water, gas, sewer or steam pipe, or by theft of by any act of neglect of any Tenant or occupant of the building, or of any other person, or by any other cause whatsoever, unless caused by any act, omission or negligence of the Landlord. (d) All personal property of any kind or description whatsoever in the demised premises shall be at the Tenant's sole risk, and the Landlord shall not be held liable for any damage done to or loss of such personal property or to the business of the Tenant. 15. DAMAGE OR DESTRUCTION: (a) In the event improvements on the premises are damaged and rendered uninhabitable in whole or in part by any casualty which is covered under an insurance policy required to be maintained pursuant to Paragraph 14 or otherwise, the Landlord may, at Landlord's option, either (1) repair such damage as soon as reasonably possible, but no later than thirty (30) days after the damage occurs, at Landlord's expense, in which event this Lease shall continue in full force and effect, or (2) give written notice to Tenant within seven (7) days after the date of occurrence of such damage of Landlord's inability to correct the damages within thirty (30) days, stating the length of time estimated for Landlord to make such repairs and therefore its intention to cancel and terminate this lease, as of the date of the occurrence of the damage. In the event Landlord elects to terminate this Lease, because of its inability to correct the problem within thirty (30) days, as aforesaid, Tenant shall have the right within ten (10) days after receipt of the required notice, to notify Landlord in writing of either (1) Tenant's intention to repair such damage at Tenant's expense, without reimbursement from Landlord, in which event this Lease shall continue in full and effect, and Tenant shall proceed to make such repairs as soon as reasonably possible; or (2) Tenant's election to allow Landlord the time estimated by Landlord to correct the problem, whereby this Lease shall continue in full force and effect and Landlord shall proceed to make such repairs as soon as reasonably possible. If Tenant does not give such notice within the ten ( I 0) day period this Lease shall be canceled and terminated as of the date of the occurrence of such damage. If the premises are totally destroyed during the term of this lease from any cause whether or not covered by the insurance required under Paragraph 14 (including any destruction by any authorized public authority), this Lease may automatically terminate as of the date of such total destruction, at the option of the Landlord or Tenant. (b) If the premises are totally or partially destroyed or damaged and Landlord or Tenant make repairs pursuant to this Lease, the rent payable hereunder for the period during which such damage and repair continues shall be abated in proportion to the extent which Tenant's use of the premises is impaired. Except for abatement of rent, if any, Tenant shall have no claim against Landlord for any damage suffered by reason of such damage, destruction, repair or restoration. 6 16. EMINENT DOMAIN: If the leased premises shall be taken by right of eminent domain, in whole or substantially in part, for public purposes, then this Lease, at the option of the Landlord, shall forthwith cease and terminate, and the current rent shall be properly apportioned to the date of such taking and in such event Landlord shall receive the entire award for the lands and improvements so taken, and Tenant shall make no claim against Landlord for compensation in connection with the taking referred to above; however, nothing shall prevent the Tenant's ability to file its own claim against the condemning authority. 17. SUBORDINATION: The Lease and all of the rights of Tenant hereunder are and shall be subject and subordinate to any sales and/or lien of any mortgage now or hereafter placed on the demised premises or any part thereof, and to any and all renewals, modifications, consolidations, replacements, extensions or substitutions of said sale and/or mortgage. Such subordination shall not interfere with the Tenant's right of quiet enjoyment as herein provided. Tenant agrees to execute any documents required to effectuate such subordination or to make this Lease subordinate to the lien of any mortgage, deed of trust or ground lease, as the case may be. 18. ATTORNMENT: If the Landlord under the sale or the holder of the mortgage shall succeed to the rights of the Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, Tenant, upon the request of such successor Landlord, shall attorn to and recognize such successor Landlord as Tenant's Landlord under this Lease, and shall promptly execute and deliver any instrument that such successor Landlord may request to further evidence such attornment. Tenant hereby irrevocably appoints Landlord or the successor Landlord the attorney-in-fact of Tenant to execute and deliver such instrument on behalf of Tenant, should Tenant refuse or fail to do so promptly after request. Upon such attornment this Lease shall continue in full force and effect as, or as if it were, a direct lease between the successor Landlord and Tenant upon all of the terms conditions and covenants as are set forth in the Lease. 19. HOLDING OVER: Should Tenant, or any of its successors in interest, hold over the leased premises, or any part thereof, after the expiration of the term of this Lease, unless otherwise agreed in writing, such holding over shall constitute and be construed as tenancy from month to month only, at a rental equal to double the monthly base rental paid the last month of the term of this Lease. 20. TENANT DEFAULT: (a) The following events shall be deemed to be events of default by Tenant under this Lease: (1) Tenant shall fail to pay any installment of the rent or other charges hereby reserved and such failure shall continue a period of ten (10) days. (2) Tenant shall fail to comply with any term, provision or covenant of the Lease, other than the payment of rent or other charges and shall not cure such failure within thirty (30) days after written notice thereof to Tenant, or as otherwise prescribed in this Lease. 7 (3) Tenant shall become insolvent, or shall make transfer in fraud of creditors, or shall make an assignment for the benefit of creditors. (4) Tenant shall file a petition under any section or chapter of the National Bankruptcy Act, as amended, or under any similar law or statute of the United States of any State thereof; or Tenant shall be adjudged bankrupt or insolvent in proceedings filed against Tenant thereunder. (5) A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant. (6) Tenant shall supply false or misleading information to the Landlord or its agents or representatives in the form of personal or business data so as to obtain Landlord's consent to lease or other unfair preference. (7) Tenant shall fail to take occupancy, desert or vacate any substantial portion of the premises. (8) Tenant's failure to comply with the provisions or reporting requirements of either the Subordination Clause or the Attornment Clause contained within this Lease and such failure to comply continues for a period of ten (10) days after written notice of such failure. (b) Upon the occurrence of any of such events of default, Landlord shall have, in addition to the normal remedies provided by law, the option to pursue any one or more of the following remedies without any notice or demand whatsoever; (1) Terminate this Lease, in which event Tenant shall immediately surrender the premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the leased premises, with or without process of law, and expel or remove Tenant and any other person who may be occupying said premises or any part thereof, by force if necessary, without being liable for prosecution or any claim of damages therefore; and Tenant agrees to pay to Landlord on demand the amount of all loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the premises on satisfactory terms or otherwise, including any damages Landlord may -incur because of special sums expended for fixing up premises for Tenant. Such damages shall not exceed the rent due hereunder. (2) Enter upon and take possession of the leased premises and expel or remove Tenant and any other person who may be occupying said premises or any part thereof, by force if necessary, without being liable for prosecution or any claim for damages therefore, and relet the premises and receive the rent therefore; and Tenant agrees to pay to Landlord on demand any deficiency that may arise by reason of such reletting as pertains to the unexpired portion of this Lease. (3) Enter upon the leased premises, by force, if necessary, without being liable for prosecution or any claim for damages therefore and do whatever Tenant is obligated to do under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease, and tenant further agrees that Landlord shall not be liable for any damages resulting to the Tenant from such action, unless caused by the negligence or willful misconduct of Landlord. 8 (4) It is agreed that, in case the demised premises are left vacant and the rent be in default then Landlord may, without being obligated to do so, and without terminating this Lease, retake possession of the demised premises and rent the same for such teams as Landlord may deem best, making such changes and repairs as may be required, all on behalf of and for the account of Tenant, giving credit for the amount of rent so received, less all expense of such changes and repairs, including lease commissions, and said Tenant shall, at Landlord's option, be liable for the balance of the rent herein reserved until the expiration of the term of this Lease. (c) Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. No waiver by Landlord of any violation or breach of any of the terms, provision and covenants herein contained, shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants herein contained. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default. . (d) The Tenant acknowledges and agrees that should it become necessary for the Landlord to serve a "Demand for Payment of Rents or Possession" Notice, in accordance with State statutes, that said demand, when unpaid, shall not automatically terminate Tenant's obligations to pay future rents and this Lease may continue in full force and effect, at the option of the Landlord. (e) The laws of the State in which the property is located shall govern this Lease and any interpretations or constructions thereof. Further, the place of performance and transaction of business shall be deemed to be in the County of El Paso, State of Colorado, and in the event of litigation, the exclusive venue and place of jurisdiction shall be as heretofore prescribed. 21. ESTOPPEL CERTIFICATES: Upon the request of either party, at any time, and from time to time, Landlord and Tenant agree to execute and deliver to the other, within ten (10) days after such request, a written instrument, duly executed (a) Certifying that this Lease has not been modified and is in full force and effect or if there has been a modification of the Lease, that this Lease is in full force and effect as modified, stating such modifications (b) specifying the dates to which the rent and other payments due under this Lease have been paid (c) stating whether or not, to the knowledge of the party executing such instrument, the other party is in default and, if such party is in default, stating the nature of the default (d) stating the commencement date and the expiration date of the terms of this Lease and 9 (e) stating which options to renew the term have been exercised, if any. 22. LANDLORD'S LIEN AND UNIFORM COMMERCIAL CODE: As security for Tenant's payment of rent, damages and all other payments required to be made by this Lease, Tenant hereby grants to Landlord a lien upon all goods, wares, equipment, fixtures, furniture owned by the Tenant now or subsequently which is located upon the leased premises. If Tenant abandons or vacates any substantial portion of the leased premises or is in default of the payment of any rentals, damage or other payments required to be made by this Lease, Landlord may enter upon the leased premises, by force if necessary, and take possession of all or part of the aforesaid items, and may sell all or any part of the same at a public or private sale, in one or successive sales, with or without notice, to the highest bidder for cash and on behalf of Tenant, sell and convey all or part to the bidder, delivering to the bidder all of the Tenant's title and interest in the items sold to him. The proceeds of the sale shall be applied by the Landlord toward the cost of the sale and then toward the payment of all sums then due by Tenant to Landlord under the terms of this Lease. The statutory lien for rent is not hereby waived, the express contractual lien herein granted being in addition and supplementary thereto. To the extent, if any, this Lease grants Landlord, or recognized in Landlord, any lien or lien rights greater than provided by the laws of the state in which the leased premises are located pertaining to Landlord's liens. This Lease is intended as, and constitutes a security agreement within the meaning of the Uniform Commercial Code and, Landlord, in addition to the rights prescribed in this Lease, shall have all of the rights, titles, liens and interest in and to Tenant's property now or hereafter located upon the leased premises which are granted a secured party, as that term is defined, under the Uniform Commercial Code to secure the payment to Landlord of the various amounts provided in this Lease and in compliance with same. 23. COST AND ATTORNEY'S FEES: If by reason of any default on the part of the Landlord or the Tenant it becomes necessary for the Landlord or Tenant to employ an attorney or in case Landlord shall bring suit to recover any rent due hereunder, or if the Landlord or Tenant shall breach any provision of this Lease or if the Landlord must employ an attorney to recover possession of the leased premises, or if Tenant shall bring any action, then and in any such events the prevailing party shall pay a reasonable attorney's fee and all costs and expenses expended or incurred by the prevailing party in connection with such default or action. 24. QUIET ENJOYMENT: Landlord warrants that it has full right to execute and to perform this Lease and to grant the estate leases, and, that Tenant, upon payment of the required rents and performing the terms, conditions, covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the leased premises during the full term of this Lease as well as any extension or renewal. However, Tenant accepts this Lease subject and subordinate to any underlying Lease, mortgage, deed of trust or other lien presently existing upon the leased premises; provided however, Tenant's right of quiet enjoyment shall not be affected absent the Tenant's default. Landlord hereby is irrevocably vested with full power and authority to subordinate Tenant's interest under this agreement to any underlying lease, mortgage, deed of trust or other lien hereafter placed on the leased premises, and Tenant agrees upon demand to execute additional instruments subordinating this Lease as Landlord may require. If the interest of Landlord under this Lease shall be transferred by reason of foreclosure or other proceedings for enforcement of any lien, deed of trust or mortgage on the leased premises, Tenant shall be 10 bound to the transferee (sometimes called the "purchaser") under the terms covenants and conditions of this Lease for the balance of the term remaining, and any extensions or renewals, with the same force and effect as if the Purchaser were the landlord under this Lease. Tenant agrees to attorn to the Purchaser, as its Landlord, the attornment to be effective and self-operative without the execution of any further instruments upon the Purchaser succeeding to the interest of the Landlord under this Lease. The respective rights and obligations of Tenant and the Purchaser upon the attornment, to the extent of the then remaining balance of the term of this Lease, and any extensions and renewals, shall be and are the same as those set forth in this Lease. 25. BUILDING RULES AND REGULATIONS: (a) Tenant shall not bring or keep within the building any animal or motorcycle. (b) Canvassing, soliciting and peddling in the building are prohibited, and Tenant shall cooperate to prevent such activities. (c) No Tenant shall install any radio or television antenna, loudspeaker or other device on the roof or exterior walls of the building without the written consent of Landlord. No television or radio or recorder shall be played in such a manner as to cause a nuisance to any other Tenant. 26. FINANCIAL STATEMENT: Tenant shall furnish Landlord, upon request, a current financial statement. 27. SEVERABILITY CLAUSE: If any clause or provision of this Lease is illegal, invalid, or unenforceable under present or future laves effective during the term of this Lease, then and in that event, it is the intention of the Parties hereto that the remainder of this Lease shall not be affected thereby. The caption of each paragraph hereof is added as a matter of convenience only and shall be considered to be of no effect in the construction of any provision or provisions of this Lease. 28. SURRENDER OF POSSESSION: The Tenant agrees to deliver up and surrender to the Landlord possession of said premises along with all keys thereto, at the expiration or termination of this Lease, by lapse of time or otherwise, in as good repair as when the Tenant obtained the same at the commencement of said term, except reasonable wear and tear and except damage by the elements (occurring without the fault of the Tenant or other persons permitted by the Tenant to occupy or enter the demised premises or any part thereof or) by act of God, or by insurrection, riot, invasion, or commotion, or of military or usurped power. 29. REMOVAL OF TENANT'S PROPERTY: If the Tenant shall fail to remove all effects from said premises upon the abandonment thereof or upon the termination of this Lease for any cause whatsoever, the Landlord, at its option, may remove the same in any manner that it shall choose, and store the said effects without liability to the Tenant for loss thereof, and the Tenant agrees to pay the Landlord on demand any and all expenses incurred in such removal, including court costs and attorney's fees and storage charges on such effects; or, sell any of the same, at 11 private sale and without legal process, for such prices as the Landlord may obtain, and apply the proceeds of such sale upon any amounts due under this Lease from the Tenant to the Landlord and upon the expense incident to the removal and sale of said effects, rendering the surplus, if any, to the Tenant. 30. CONSENT NOT UNREASONABLY WITHHELD: Unless otherwise specifically provided, whenever consent or approval of Landlord or Tenant is required under the terms of this Lease, such consent shall not be unreasonably withheld or delayed. Landlord's or Tenant's sole remedy, if Landlord or Tenant unreasonably withholds or delays consent or approval, shall be an action for specific performance and Landlord or Tenant (as the case may be) shall not be liable for damages. 31. IMPLIED SURRENDER: (a) No act or thing done by Landlord or Landlord's agents during the term hereof or any extension thereof, shall be deemed an acceptance of a surrender of the demised premises, and no agreement to accept such surrender shall be valid unless in writing signed by the Landlord or his designated representative. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of the demised premises prior to the termination of this Lease. (b) The delivery of keys to any employee of the Landlord, or of Landlord's agents, shall not operate as a termination of this Lease or a surrender of the demised premises. No payment by Tenant, or receipt by Landlord, of a lesser amount than the minimum monthly rent herein stipulated, shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check, or payment as rent, be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy available to Landlord. 32. FORCE MAJEURE: In the event that either Party hereto shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lockouts, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of alike nature not the fault of the Party delayed in performing work or doing acts required under the terms of this Lease, then performance of any such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. The provisions of this section shall not operate to excuse Tenant from prompt payment of the base rental or any other payments required by the terms of this Lease. 33. NOTICE ADDRESS: (a) Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivery of any notice or the making of any payment by Landlord to Tenant or with reference to the 12 sending, mailing, or delivery of any notice or the making of any payment by Tenant to Landlord shall be deemed to be complied with when and if the following steps are taken: (1) All rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord in El Paso County, Colorado, at the address herein below set forth or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. (2) All payments required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address herein below set forth, or at such other address within the continental United States as Tenant may specify from time to time by written notice delivered in accordance herewith. (3) Any notice or document required or permitted to be delivered hereunder shall be deemed to be delivered whether actually received or not when deposited in the United States Mail, postage prepaid, Certified Mail, Return Receipt Requested, addressed to the Parties hereto at the respective addresses set out opposite their names below, or at such other addresses as they have theretofore specified by written notice delivered in accordance herewith. Landlord's notice to Tenant advising same of breach or default will further have been accomplished when personal delivery is made by Landlord or its agent and/or representative to Tenant or Tenant's chief official. Landlord: MRS Connection, Tenant: Military Resale Group, Inc c/o Charles Murphy 2180 Executive Circle 2245 Broadway Street Colorado Springs, CO 80906 Colorado Springs, Co 80904 Attention: Ethan Hokit and Edward Whelan
(b) If and when, including within the term "Landlord" as used in this instrument, there is more than one person, firm, or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address in El Paso County, Colorado, or any other locations, for the receipt of notices and payments to Landlord; it and when; included within the term "Tenant" as used in this instrument, there is more than one person, firm, or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address within the continental United States for receipt of notices and payments to Tenant. All Parties included within the terms "Landlord" and "Tenant", respectively, shall be bound by notices given in accordance with the provisions of this paragraph to the same effect as if each had received such notice. 34. SUCCESSORS: The terms, provisions and covenants and conditions contained in this Lease shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective successors in interest and legal representatives except as otherwise herein expressly provided. 13 35. GENDER: Words of any gender used in this Lease shall be held and construed to include any other gender, and word in the singular number shall be held to include the plural, unless the context otherwise requires. 36. BROKERAGE COMMISSIONS: Landlord and Tenant warrant that neither has had any dealings with any broker or agent in connection with the negotiation or execution of this Lease other than Highland Commercial Group, LLC, and Landlord and Tenant each agree to indemnify and hold the other harmless from any and all costs, expenses or liability for commissions or other compensation or charges claimed by or awarded to any broker or agent with respect to this Lease. The Landlord shall pay the brokerage commission of Highland Commercial Group, LLC. 37. CORPORATE AUTHORITY: If Tenant is a corporation, Tenant warrants that it has legal authority to operate and is authorized to do business in the state in which the premises are situated. Tenant also warrants that the person or persons executing this Lease on behalf of Tenant has authority to do so and fully obligate Tenant to all terms and provisions of this Lease. Tenant shall, upon request from Landlord, furnish Landlord with a certified copy of resolutions of the Board of Directors authorizing this Lease and granting authority to execute it to the person or persons who have executed it on Tenant's behalf. 38. AMENDMENT, ADDENDUM, MODIFICATION: Any Amendments, Addendum's, Modifications, and/or other Supplements, if any be hereto attached, are made a part hereof, and shall be binding upon the Parties hereto, and if any provision of said Amendments, Addendum's, Modifications, or Supplements shall conflict in any manner with any other provision of this Lease, the provision of the Amendment, Addendum, Modification or Supplement shall prevail. 39. MISCELLANEOUS: (a) Notwithstanding anything in this Lease to the contrary, the Landlord agrees to give the Tenant a credit of Seven Thousand Dollars ($7,000.00) toward the payment of the first installment of Tenants base rent to assist the Tenant in the payment of it's rent under it's existing Lease. (b) Landlord shall provide the Tenant with twenty (20) parking spaces reserved for the Tenant use. In addition, the rear of the building shall remain accessible to all tenants of the building, without hindering each others use thereof and the loading and unloading of trucks by the loading docks (c) Provided the Tenant is not in default, the Tenant shall have the right to renew this lease for two (2) additional five-year terms. The first renewal term shall be at a rental rate of $6.75 per square foot for the first year thereof, increasing by $0.25 per square foot per year thereafter. The CAM costs shall be the actual fixed common area maintenance costs. The second renewal term shall be at the fair market rental value, as agreed by the Landlord and the Tenant, or absent such agreement, by appraisal. The CAM costs for the second renewal term shall also be the Landlord's actual CAM costs. Tenant shall provide the Landlord with six months written notice prior to the end of the then existing lease term if the Tenant 14 ] wishes to exercise the renewal of the Lease. Tenant's written notice as to the second renewal term may be subject to the agreement of the parties as to the fair rental value. (d) Landlord agrees that after execution of this Lease, the Tenant may have access to the Premises prior to commencement of the term of the Lease (September l, 2001) in order to start it's installation of it's coolers, refrigeration and other equipment. (e) If any contiguous space become available to the space occupied by the Tenant at any time or times after the first year of the Lease, Tenant shall have the right to add the space available to it's current Lease under the same terms of it's Lease. Landlord shall notify the Tenant, in writing, of the availability of such space and the Tenant shall within ten days notify the Landlord of it's desire to exercise it's right of first refusal. (f) Landlord agrees the Tenant shall have the right to terminate this Lease at the end of the third year of the Lease upon giving the Landlord one hundred and twenty (120) days written notice prior to the end of the third year of the Lease. If the Tenant exercises it's right to terminate the Lease, the Tenant agrees to pay a "termination fee" equal to forty percent (40%) of the costs paid by the Landlord to Tenant finish of the Premises and forty percent (40%) to the leasing commissions related to the Lease with the Tenant, plus nine percent (9%) simple interest. The Landlord and the Tenant agree that such costs are as follows: a. Tenant finish. $20,000.00 b. Leasing commissions. $48,772.00 (g) Landlord agrees, at it's cost, to perform the tenant finish as shown on the attached letterhead of Murphy & Co. dated July 30, 2001, marked Exhibit A, in accordance with the attached drawing marked Exhibit B IN WITNESS WHEREOF, the Landlord and Tenant have entered into this Lease Agreement this _____ day of August 2001. MILITARY RESALE GROUP, INC. By: ------------------------------------------- President MRS CONNECTION a Colorado general partnership By: ------------------------------------------- Partner 15 EX-10.6 10 c22565_exh10-6.txt LEASE AGREEMENT Exhibit 10.6 PROMISSORY NOTE Principal Amount: $60,000.00 Date: October 30, 1997 FOR VALUE RECEIVED, MILITARY RESALE GROUP, INC., hereinafter referred to as ("Maker"), does hereby promise to pay to the order of Shannon Investments, Inc. ("Noteholder"), as follows: 1. PAYMENTS. Maker does hereby promise to pay to the order of Noteholder, the aggregate sum of Sixty Thousand Dollars ($60,000.00), with annual interest of Six Thousand Dollars ($6,000.00) payable in one installment of interest and principal on or before November 1, 1998. 2. PREPAYMENT. Maker may prepay to Noteholder at any time, without premium or penalty, of any or all payments due pursuant to the terms of this Note. 3. OFFSET. Noteholder acknowledges and agrees that the payments hereunder shall not be subject to offset. 4. EVENT OF DEFAULT. An "Event of Default" is defined for purposes of this Note as the following: (a) The failure of Maker to pay any of the aforesaid payments within fifteen (15) days as the same shall become due and payable or the failure of any check or draft to be accepted for payment by the institution on which it is drawn. (b) The liquidation, dissolution or cessation of business activities in the State of Maryland of Maker; or (c) The transfer of all or substantially all of Maker's assets other than in the ordinary course of business. 5. REMEDIES. In the Event of Default on any of the foregoing obligations, Noteholder agrees to provide written notice to Maker of any default and allow Maker fifteen (15) days to cure said default, and absent cure of said default, Maker agrees as follows: (a) The entire unpaid principal sum of this Note shall, at the option of the Noteholder, be accelerated and shall at once be due and payable. Noteholder may exercise its option to accelerate during any default of the Maker, regardless of any prior forbearance. (b) Maker agrees to transfer to Noteholder all assets then owned by MRG which it acquired from Pittock Distributing, Inc. in full satisfaction of the principal, the interest and all amounts due hereunder. (c) If Noteholder shall be required to enforce the terms of this Note in any court proceedings, Maker shall pay to Noteholder, in addition to the full amount due under the Note, the reasonable costs and expenses of collection, including reasonable attorneys' fees incurred by Noteholder in successfully enforcing the Note. (d) Maker expressly waives summons or other process, consents to the immediate execution of said judgment, and expressly waives all error and all rights of appeal and stay of execution, and benefit of all exemption laws and presentment, demand, protest and notice of maturity, non-payment and/or protest, and also waive the benefit of any other requirements necessary to hold Maker liable as Maker. 6. WAIVER. Maker expressly waives the benefit of all exemption laws and presentment, demand, protest, notice of protest, notice of maturity, notice of dishonor and nonpayment of this Note. Maker also waives the benefit of any other requirements necessary to hold any Maker liable for payment, as set forth herein. Noteholder may, without notice and without releasing the liability of any Maker (a) grant extensions or renewals hereof from time to time and for any term or terms, (b) release, surrender, waive, add, substitute, settle, exchange, compromise, modify, extend or grant indulgences with respect to this Note or the Agreement, any part of any collateral or security for this Note, and/or any Maker. 7. NOTEHOLDER'S RIGHTS. The rights and remedies of Noteholder hereunder and under the Agreement shall be cumulative and may be pursued singularly, successively or concurrently at the sole discretion of Noteholder and may be exercised as often as occasion therefor shall occur. The failure and delay of Noteholder to exercise any such right or remedy on any one or more occurrence shall in no event be construed a waiver or release of the same or any other right or remedy. 8. NOTICE. Any notice to Maker or Noteholder provided for in the Note shall be deemed given when sent by certified mail, -2- return receipt requested, postage prepaid, or via facsimile, addressed to the Maker or Noteholder at such address as the parties may designate by notice to the other. 9. PAYMENT RECEIPT. A payment made by Maker shall be deemed to have been properly given when received by Noteholder at C/o Richard H. Tanenbaum, Esquire, 4550 Montgomery Avenue, Suite 775 North, Bethesda, MD 20814, [facsimlie number (301) 951-0427] or at such other place as Noteholder may designate in writing. 10. ASSIGNMENT. Neither Maker nor his successors or assigns may assign any payment obligations to any person or entity without Noteholder's prior consent. 11. BENEFIT. This Note shall inure to the benefit of the Noteholder, and its legal representatives, successors and assigns, and shall bind the Maker and his legal representatives, successors and assigns, provided that this provision shall in no way indicate Noteholder's consent to any assignment by Maker as provided in Paragraph 10 above. 12. SEVERABILITY. If any or more of the words or terms of this Note shall be held to be indefinite, invalid, illegal or otherwise enforceable, in whole or in part, for any reason, by any court of competent jurisdiction, the remainder of this Note shall continue in full force and effect and shall be construed as if such indefinite, invalid, illegal or unenforceable words or terms had not been contained herein. 13. CONSTRUCTION. In the construction of this Note, words used in the singular shall include the plural, and the plural the singular, and words used in the masculine gender shall include the feminine and the neuter, and vice versa, in all cases where such meaning would be appropriate. 14. GOVERNING LAW. The terms of this Note shall be governed by and construed and enforced in accordance with the laws of the State of Maryland. IN WITNESS WHEREOF, this Promissory Note has been executed on the date hereinabove written. WITNESS: MAKER: MILITARY RESALE GROUP, INC. BY: - ------------------- ------------------------------------ -3- EX-23.1 11 c22565_exh23-1.txt CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 MICHAEL JOHNSON & CO., LLC CERTIFIED PUBLIC ACCOUNTANTS 9175 E. KENYON AVE., SUITE 100 DENVER, COLORADO 80237 CONSENT OF INDEPENDENT AUDITOR As independent certified public accountants, we hereby consent to the incorporation by reference in this Registration Statement on Form SB-2 of our report dated March 20, 2001, in Military Resale Group, Inc.'s Form SB-2 for the fiscal year ended December 31, 2000, and to all references to our firm included in this Registration Statement. /s/ Michael Johnson & Co., LLC Denver, Colorado December 18, 2001 -----END PRIVACY-ENHANCED MESSAGE-----