Document:

EXHIBIT 10.12

THIS  CONVERTIBLE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS  AMENDED,  OR ANY STATE  SECURITIES  OR BLUE SKY  LAWS,  AND MAY NOT BE SOLD,
OFFERED  FOR  SALE,  TRANSFERRED,  PLEDGED,  OR  HYPOTHECATED  UNLESS  IT  IS SO
REGISTERED OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

                           MILITARY RESALE GROUP, INC.
                                CONVERTIBLE NOTE

Principal Amount: $_______                                        ________, 2002

         MILITARY RESALE GROUP,  INC., a New York  corporation  (the "Company"),
for  value  received,  hereby  promises  to pay to  ______________,  or  assigns
("Holder"),    on    December    31,    2002,    the    principal    amount   of
_____________________________  Dollars ($_____) (or so much thereof as shall not
have been prepaid or surrendered for conversion) in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private  debts,  together with  interest  (computed on the
basis of 360-day  year of twelve  30-day  months)  on the unpaid  portion of the
principal  amount  hereof at the annual rate of eight percent (8%) from the date
hereof until June 30, 2002 and,  thereafter,  at the annual rate of nine percent
(9%) until the unpaid portion of such principal amount shall have become due and
payable.

         Section 1.  DEFINITIONS.

                  Section 1.01. TERMS DEFINED. The terms defined in this Section
1.01  (except as herein  otherwise  expressly  provided  or unless  the  context
otherwise  requires)  for all purposes of this  Convertible  Note shall have the
respective meanings specified in this Section 1.01.

                  COMMON  STOCK.  The term  "Common  Stock"  means shares of the
Company's Common Stock, par value $.0001 per share.

                  COMPANY. The term "Company" means MILITARY RESALE GROUP, INC.,
a New York corporation,  and any successor corporation to the Company (including
the corporation surviving any subsequent merger).

                  CURRENT CONVERSION PRICE. The term "Current  Conversion Price"
means the Conversion Price as most recently adjusted pursuant to Section 3.06.

                  EVENT OF DEFAULT.  The term "Event of Default" means any event
specified in Section  2.01,  continued for the period of time, if any, and after
the giving of notice, if any, therein designated.

<PAGE>

                  MATURITY.  The term  "Maturity" when used with respect to this
Convertible Note means the date on which the principal (and premium,  if any) of
this Convertible Note becomes due and payable as herein provided, whether at (a)
December 31, 2002, (b) declaration of acceleration or (c) otherwise.

                  REGISTRATION  STATEMENT.  The  term  "Registration  Statement"
means a  Registration  Statement  on Form  SB-2  filed by the  Company  with the
Securities and Exchange  Commission pursuant to which the shares of Common Stock
issuable  upon  conversion of this  Convertible  Note are  registered  under the
Securities Act.

                  SECURITIES ACT. The term "Securities Act" means the Securities
Act of 1933, as amended.

         Section 2.  REMEDIES.

                  Section 2.01. EVENTS OF DEFAULT.  An "Event of Default" occurs
if one or more of the  following  shall  happen (for any reason  whatsoever  and
whether such  happening  shall be voluntary or  involuntary  or come about or be
effected by operation of law or pursuant to or in compliance  with any judgment,
decree  or  order  of  any  court  or  any  order,  rule  or  regulation  of any
administrative or governmental body):

                           (a)     if default be made in the punctual payment of
the principal of (or premium,  if any) or interest on this Convertible Note when
and as the same shall become due and payable; or

                           (b)     the  Registration  Statement is  not declared
effective by the  Securities and Exchange  Commission on or before  December 31,
2002, or such  Registration  Statement does not remain effective for at least 90
days; or

                           (c)     the  Company   pursuant  to   or  within  the
meaning of any Bankruptcy  Law: (i) commences a voluntary case, (ii) consents to
the entry of an order for relief against it in an involuntary case, (iii) to the
appointment  of a Custodian of it or for any  substantial  part of its property,
(iv) makes a general assignment for the benefit of its creditors; or

                           (d)     a court  of   competent  jurisdiction  enters
an order or decree under any  Bankruptcy Law that: (i) is for relief against the
Company in an involuntary  case, (ii) appoints a Custodian of the Company or for
any  substantial  part of its  property,  (iii)  orders the  liquidation  of the
Company; and the order or decree remains unstayed and in effect for 30 days.

                  The term  "Bankruptcy  Law" means Title 11,  U.S.  Code or any
similar  federal or state law for the relief of  debtors.  The term  "Custodian"
means any  receiver,  trustee,  assignee,  liquidator,  sequestrator  or similar
official under any Bankruptcy Law.

                  Section 2.02. REMEDIES.  In case any one or more of the Events
of Default specified in Section 2.01 shall have occurred and be continuing,  the
Holder of this Convertible Note may proceed to protect and enforce its rights by
suit in  equity,  action  at law or by other  appropriate

                                       2
<PAGE>

proceedings  or both,  whether for the specific  performance  of any covenant or
agreement  contained in this  Convertible  Note or in aid of the exercise of any
power granted in this Convertible Note, or may proceed to enforce the payment of
this  Convertible  Note or to enforce any other legal or equitable  right of the
Holder of this Convertible Note.

                  Section 2.03. REMEDIES CUMULATIVE.  No remedy herein conferred
upon the Holder of this  Convertible  Note is  intended to be  exclusive  of any
other remedy and each and every such remedy shall be cumulative  and shall be in
addition to every other remedy given  hereunder or now or hereafter  existing at
law or in equity or by statute or otherwise.

                  Section  2.04.  ENFORCEMENT.  If there  shall be any  Event of
Default under this Convertible Note and this Convertible Note shall be placed in
the hands of an  attorney  for  collection,  or shall be  collected  through any
court,  including any bankruptcy court, the Company promises to pay to the order
of the Holder  hereof the Holder's  reasonable  attorneys'  fees and court costs
incurred in  collecting  or  attempting  to collect or securing or attempting to
secure this  Convertible  Note or enforcing the holder's  rights with respect to
any collateral securing this Convertible Note, to the extent allowed by the laws
of the  State of New York or any  state in which  any  collateral  for this Note
shall be situated.

         Section 3.  CONVERSION.

                  Section 3.01.    RIGHT OF CONVERSION, CONVERSION PRICE.

                            (a)    Subject  to  and  upon  compliance  with  the
provisions of this Section 3, following the date the  Registration  Statement is
declared effective by the Securities and Exchange  Commission,  the Holder shall
have the right,  at his  option,  at any time  during  usual  business  hours to
convert the principal and accrued interest of this Convertible Note owned by the
Holder into fully paid and  nonassessable  shares of Common Stock that have been
registered under the Securities Act pursuant to the Registration  Statement,  at
the rate of $0.50 of principal  for each share of Common Stock  (provided,  that
the closing  price per share of Common  Stock,  as reported on the OTC  Bulletin
Board,  on the date of  conversion,  is at least  $0.75  per  share,  or if such
closing  price is less than $0.75 per share,  a  proportionate  reduction to the
$0.50 price,  but in no event to a conversion  price that is less than $0.10 per
share,  so that the Holder will be able to  immediately  sell such shares on the
OTC Bulletin  Board and receive a 50% rate of return on the principal  amount of
this Note) (the "Conversion  Price"),  which price per share shall be payable by
surrender of this Convertible Note.

                            (b)    In the event  that the shares of Common Stock
issuable  upon  conversion  of this  Note  have not been  registered  under  the
Securities Act, on or prior to December 31, 2002, until such time as such shares
are so  registered,  at the  option  of the  Holder  and in lieu of  taking  any
remedial  action in  respect of the Event of Default  resulting  therefrom,  the
Holder may convert this Note into a number of shares of Common Stock as is equal
to twice the number of shares of Common  Stock as would have been  issuable  had
such shares been registered under the Securities Act on the date of conversion.

                                       3
<PAGE>

                  Section 3.02.    MANNER OF EXERCISE.

                            (a)    In  order to exercise the  conversion  right,
the Holder of this Convertible Note shall surrender this Convertible Note at the
office of the Company,  accompanied by written notice to the Company stating (i)
that the Holder  elects to convert  this  Convertible  Note or, if less than the
entire principal amount of this Convertible Note is to be converted, the portion
thereof (a multiple of $1,000) to be converted, and (ii) the name or names (with
addresses) in which the certificate or  certificates  for shares of Common Stock
issuable on such conversion shall be issued.  Convertible  Notes surrendered for
conversion shall be accompanied by proper  assignment  thereof to the Company or
in blank for  transfer  if the shares are to be issued in a name other than that
of the Holder.

                            (b)    In the event this  Convertible  Note which is
converted  in part only,  upon such  conversion  the Company  shall  execute and
deliver to the Holder, at the expense of the Company,  a new Convertible Note of
authorized denominations in principal amount equal to the unconverted portion of
this Convertible Note.

                 Section 3.03. ISSUANCE OF SHARES OF COMMON STOCK ON CONVERSION.

                            (a)    As promptly as  practicable after the receipt
of such notice and the  surrender of this  Convertible  Note as  aforesaid,  the
Company shall issue, at its expense,  and shall deliver to the Holder, or on his
written  order,  at the  aforesaid  office of the Company (i) a  certificate  or
certificates  for the number of full shares of Common  Stock  issuable  upon the
conversion of this Convertible Note (or specified portion  thereof),  and (ii) a
certificate or certificates  for any fractional  shares of Common Stock issuable
upon conversion of this Convertible  Note (or specified  portion thereof) or, at
the Company's option, cash in lieu of scrip for any fraction of a share to which
the Holder is entitled upon conversion as provided in Section 3.05.

                            (b)    Such conversion shall be deemed  to have been
effected  immediately  prior to the close of business  on the date  ("Conversion
Date") on which the  Company  shall  have  received  both  such  notice  and the
surrendered  Convertible  Note as aforesaid,  and at such time the rights of the
Holder of this  Convertible  Note shall cease and the Person or Persons in whose
name or names any certificate or  certificates  for shares of Common Stock shall
be issuable  upon such  conversion  shall be deemed to have become the holder or
the Holder of record of the shares represented thereby.

                            (c)    In  the   event   this  Convertible  Note  is
converted  in whole or in part into shares of Common  Stock  pursuant to Section
3.01(b)  hereof,  the  certificates  representing  such shares shall  contain an
appropriate   legend  indicating  that  the  shares   represented   thereby  are
"restricted securities" within the meaning of the Securities Act, and may not be
transferred  unless registered under the Securities Act or transferred  pursuant
to an exemption therefrom.

                  Section 3.04.  NO  ADJUSTMENTS  FOR INTEREST OR DIVIDENDS.  No
payment or adjustment shall be made by or on behalf of the Company on account of
any interest  accrued on this  Convertible Note surrendered for conversion or on
account of any cash  dividends  on the shares of Common  Stock  issued upon such
conversion  which were  declared  for  payment to the Holder of

                                       4
<PAGE>

shares of Common Stock of record as of a date prior to the Conversion  Date. All
payments of accrued  interest on this  Convertible Note shall be made in cash or
additional stock at the Conversion Price, at the Holder's option.

                  Section 3.05.  FRACTIONAL SHARES. The Company,  at its option,
may  issue  fractional  shares  of  Common  Stock  upon any  conversion  of this
Convertible Note or, in lieu of any fraction of a share of Common Stock to which
any Holder would otherwise be entitled upon conversion of this  Convertible Note
(or specified portions thereof),  the Company may pay a cash adjustment for such
fraction in an amount equal to same fraction of the Conversion Price per share.

                  Section 3.06.  ADJUSTMENT OF CONVERSION PRICE.  The Conversion
Price shall be adjusted as set forth in this section.

                            (a)    In the event that the Company  shall make any
distribution  of its assets upon or with respect to its shares of Common  Stock,
as a liquidating or partial  liquidating  dividend,  or other than as a dividend
payable out of earnings or any surplus legally available for dividends under the
laws  of the  state  of  incorporation  of  the  Company,  the  Holder  of  this
Convertible  Note,  upon the  exercise of his right to convert  after the record
date for such  distribution  or, in the absence of a record date, after the date
of such  distribution,  receive,  in addition to the shares  subscribed for, the
amount of such  assets  (or,  at the option of the  Company,  a sum equal to the
value  thereof  at the  time of  distribution  as  determined  by the  Board  of
Directors  in its sole  discretion)  which  would have been  distributed  to the
Holder if he had exercised his right to convert  immediately prior to the record
date for such  distribution  or, in the  absence of a record  date,  immediately
prior to the date of such distribution.

                            (b)    In  case  at  any   time  the  Company  shall
subdivide  its  outstanding  shares of  Common  Stock  into a greater  number of
shares,  the  Current  Conversion  Price  in  effect  immediately  prior to such
subdivision  shall  be  proportionately  reduced  and  conversely,  in case  the
outstanding  shares of Common  Stock of the  Company  shall be  combined  into a
smaller number of shares,  the Current  Conversion  Price in effect  immediately
prior to such combination shall be proportionately increased.

                            (c)    If   any      capital     reorganization   or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with another  corporation,  or the sale, transfer or lease of all
or substantially all of its assets to another corporation,  shall be effected in
such a way that the  holder  of  shares of Common  Stock  shall be  entitled  to
receive  shares,  securities or assets with respect to or in exchange for shares
of Common Stock, then, as a condition of such reorganization,  reclassification,
consolidation,  merger or sale,  the  Company or such  successor  or  purchasing
corporation,  as the case may be, shall execute an amendment to this Convertible
Note  providing  that the Holder of this  Convertible  Note shall have the right
thereafter and until the expiration of the period of  convertibility  to convert
this Convertible  Note into the kind and amount of shares,  securities or assets
receivable upon such reorganization, reclassification,  consolidation, merger or
sale by a holder  of the  number  of shares of  Common  Stock  into  which  this
Convertible   Note  might  have  been  converted   immediately   prior  to  such
reorganization,  reclassification,  consolidation,  merger or sale,  subject  to
adjustments  which shall be as nearly  equivalent as may be  practicable  to the
adjustments provided for in this Section 3.

                                       5
<PAGE>

                            (d)    Upon such adjustment of the Conversion  Price
pursuant to the provisions of this Section 3.06,  the number of shares  issuable
upon conversion of this  Convertible  Note shall be adjusted to the nearest full
amount  by  multiplying  a  number  equal  to the  Conversion  Price  in  effect
immediately  prior to such  adjustment  by the number of shares of Common  Stock
issuable  upon  exercise  of this  Convertible  Note  immediately  prior to such
adjustment  and  dividing  the product so obtained  by the  adjusted  Conversion
Price.

                  Section 3.07.    COVENANT TO RESERVE SHARES FOR CONVERSION.

                            The  Company  covenants  that  it  will at all times
reserve and keep  available out of its authorized  shares of Common Stock,  such
number  of  shares  of  Common  Stock  as  shall  then be  deliverable  upon the
conversion of this  Convertible  Note. All shares of Common Stock which shall be
deliverable shall be duly and validly issued and fully paid and nonassessable.

                  Section 3.08. NOTICE OF CHANGE OF CONVERSION  PRICE.  Whenever
the Conversion Price is adjusted, as herein provided, the Company shall promptly
send to the Holder a certificate  of a firm of  independent  public  accountants
(who may be the accountants  regularly  employed by the Company) selected by the
Board of Directors  setting forth the Conversion Price after such adjustment and
setting forth a brief  statement of the facts  requiring such  adjustment.  Such
certificate shall be conclusive evidence of the correctness of such adjustment.

         Section 4.  MISCELLANEOUS.

                  Section 4.01. OPTIONAL PREPAYMENTS. The Company shall have the
privilege, at any time and from time to time prior to Maturity, upon at least 90
days prior written  notice to the Holder,  of prepaying this  Convertible  Note,
either  in  whole  or in  part,  by  payment  of the  principal  amount  of this
Convertible Note, or portion thereof to be prepaid, and accrued interest thereon
to the date of such prepayment,  without premium or penalty; provided,  however,
that nothing in this Section 4.01 shall prohibit the Holder from converting this
Convertible  Note in accordance  with Section 3 hereof after the date of receipt
of notice of prepayment  and prior to the date of receipt in cash of all amounts
to be prepaid.

                  Section 4.02.    GOVERNING  LAW.  This  Convertible Note shall
be construed in accordance  with the laws of the State of New York applicable to
contracts entered into and to be performed wholly within said State.

                  Section  4.03.   SUCCESSORS AND  ASSIGNS.  All the  covenants,
stipulations,  promises and agreements in this  Convertible Note contained by or
on behalf of the  Company  shall bind its  successors  and  assigns,  whether so
expressed or not.

                  Section  4.04.  COURSE OF  DEALING;  NO  WAIVER.  No course of
dealing  between  the Company  and the Holder  shall  operate as a waiver of any
right of the  Holder and no delay on the part of the  Holder in  exercising  any
right hereunder shall so operate.

                                       6
<PAGE>

                  Section  4.05.  WAIVER  OF  COMPLIANCE.  Any  term,  covenant,
agreement or condition  hereof may be amended,  or  compliance  therewith may be
waived (either generally or in a particular instance and either retroactively or
prospectively),  if the Company  shall have obtained the agreement or consent in
writing of the Holder.

                  Section 4.06.    OTHER PROVISIONS.  The Company waives demand,
presentment,  protest, notice of dishonor and any other form of notice, that may
be required to hold the Company liable on this Note.

         IN WITNESS WHEREOF, the undersigned has caused this Convertible Note to
be  signed  in  its  corporate  name  by  one of  its  officers  thereunto  duly
authorized, and to be dated as of the date first written above.

                                           MILITARY RESALE GROUP, INC.

                                           By:
                                               ---------------------------------
                                                  Edward T. Whelan
                                                  Chief Executive Officer

                                       7Prepared by R.R. Donnelley Financial -- Common Stock Certificate

 EXHIBIT 4.1 
  
  
 
	
	 	 	
	

	 NUMBER
 	 	 [GRAPHIC]
 	 	 SHARES
 
	
	 	 	
	

	  	 	  	 	  
	
	 	 	
	

 
  
  
 VCG HOLDING CORP.

  
 AUTHORIZED CAPITALIZATION: FIFTY-ONE MILLION (51,000,000) SHARES, $.0001 PAR VALUE PER SHARE, CONSISTING OF FIFTY
MILLION (50,000,000) SHARES OF COMMON STOCK AND ONE MILLION (1,000,000) SHARES OF PREFERRED STOCK. 
  
  
 THIS CERTIFIES THAT
                                        
                                        
                                        
                                        
 is the 
 registered holder of
                                        
                                        
                                        
                                        
     Shares 
 of Common Stock, $.0001 par value per share, of VCG Holding Corp., fully paid and nonassessable, transferable only on the
books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed. 
  
 IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers and its Corporate Seal to be hereunto affixed
this ________________ day of _____________________ A.D. __________ 
  
  
 
	 
	 	 [SEAL]
 	 	 

	 Mary E. Bowles-Cook, Secretary
 	 	  	 	 Micheal L. Ocello, President

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