THIS CONVERTIBLE PROMISSORY NOTE, AND THE UNDERLYING
SECURITIES INTO WHICH
IT
MAY BE CONVERTED,
HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, TRANSFERRED ASSIGNED OR HYPOTHECATED UNLESS
(i)
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES OR (ii) THE MAKER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER
REASONABLY SATISFACTORY TO THE MAKER STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH
ACT.
CONVERTIBLE PROMISSORY NOTE
$117,000.00
February 28, 2005
FOR VALUE
RECEIVED, the undersigned, Cyber Defense Systems, Inc.
(the
"Maker"), promises to pay to
the order of Joseph Theismann (the "Holder"), at
the address set forth herein,
or at such other place as the Holder may from time
to time designate by written
notice to the Maker, the principal sum of
$117,000.00 paying the
existing note herein attached as Exhibit A, together
with
interest at the rate of 18%
per annum, in accordance with the terms set forth
below.
The Maker
and the Holder further agree as follows:
1.
Payment.
It is the
intention of the Parties that this Note may be paid, and
the
debt it evidences satisfied
by, the payment of cash, or by the delivery of
shares of the Maker's Class A
Common Stock, Par Value $0.001 per share (the
"Class A Common" or the
"Payment Shares").
Accordingly, the Parties agree as follows:
(a)
Beginning on April 30, 2005, and on the last day of each month for
the
next succeeding 6 moths, the
Maker shall reduce the principal balance of this
Note by an amount equal to
1/6 of the principal; provided, however, that the
last payment of principal,
which shall be due on September 30, 2005, shall
include accrued and unpaid
interest at the rate of 18% per annum.
(b) The
Maker may reduce the principal balance of this Note by the
payment
(i) in cash, in which case
<PAGE>
(A) that payment in cash which reduces the principal
balance
of this Note to Zero, shall include accrued and unpaid interest
at
the rate of 18% per annum; or, at the option of the Maker, and
at
any time during the term of this Note
(ii) by the issuance and delivery by the Maker to the Holder of
the
Payment
Shares, as that number of those shares may be adjusted for
splits,
reclassifications, etc., so as to enable the Maker to deliver the
Payment
Shares on
a fully-diluted basis, in which case, and at that time,
(A) the Maker shall inform the Holder of the Maker's intent
to
reduce principal by the issuance of Payment Shares, so that
the
Holder may serve a Notice of Conversion upon the Maker as
provided
in this Note;
(B) the entire unpaid principal balance shall be due and
payable;
(C) no accrued interest shall be due and owing;
(D) when Payment Shares evidencing the then entire
unpaid
principal balance of this Note are delivered to the Holder, the
debt
evidenced by this Note shall be satisfied; and
(E) the Holder shall not thereafter be entitled to demand
and
receive cash in payment of the principal and accrued
interest
evidenced by this Note
2.
Representations, Warranties and Undertakings of the
Maker.
In
connection with this Note, the Maker represents to the Holder
as
follows:
(a) The
Maker
(i) is a corporation duly organized and validly existing under
the
laws of
the State of Florida and is in good standing under such laws
with
its
principal executive office located in the State of Florida;
and
(ii) the Maker has full power and legal capacity to enter into
this
Note.
(b) The
Payment Shares, when issued, shall be duly and validly
issued,
authorized, fully paid, and
non-assessable.
(c) This
Note constitutes valid and legally binding obligations of
the
Maker, enforceable in
accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency,
reorganization,
moratorium, fraudulent conveyance, and any other laws of
general
application affecting enforcement of creditors' rights generally,
and
2
<PAGE>
(ii) as limited by laws relating to the availability of
specific
performance, injunctive relief, or other equitable
remedies.
(d) The
execution, delivery and performance of this Note will not
result
in any material violation of,
be in conflict with, or constitute a default
under, with or without the
passage of time or the giving of notice
(i) any provision of any judgment, decree or order to which
the
Maker is a
party or by which it is bound; or
(ii) any material contract, obligation or commitment to which
the
Maker is a
party.
(e) From
shares of its authorized, but un-issued Class A Common, the
Maker
shall reserve a sufficient
number of shares thereof, adjusted for splits,
reclassifications, etc. to
enable the Maker to deliver the Payment Shares on a
fully-diluted
basis.
(f) There
is no action, suit or proceeding pending, or to the knowledge
of
the Maker, threatened against
the Maker, before any court or arbitrator or any
government body, agency or
official, which would have a material adverse affect
on Maker's operations or
financial condition.
(g) There
is no fact known to the Maker that has not been publicly
disclosed by the Maker or
disclosed in writing to the Holder which could
reasonably be expected to
have a material adverse effect on the condition
(financial or otherwise) or
in the earnings, business affairs, properties or
assets of the Maker, or could
reasonably be expected to materially and adversely
affect the ability of the
Maker to perform its obligations pursuant to this
Note.
(h) The
information furnished by the Maker to Holder for purposes of or
in
connection with this
Agreement or any transaction contemplated hereby, does
not
contain any untrue statement
of material fact or omit to state a material fact
necessary in order to make
the statements contained therein, in light of the
circumstances under which
they are made, not misleading.
(i) The
Maker is a publicly-held corporation whose shares of Class
A
Common Stock are publicly
traded and quoted on the OTC Electronic Bulletin Board
(the "OTC-BB"), under the
symbol "CYDF", and the Maker is required to, and does
file, periodic reports with
the United States Securities and Exchange
Commission.
(j)
William C. Robinson, the CEO of the Maker, is also the CEO
and
Chairman of the Board of
Directors of Proxity. Proxity specializes in the
deployment and integration of
security protection technology and government
contract fulfillment. Trading
in the Common Stock of Proxity is reported in the
inter-dealer quotation system
maintained by the National Quotation Bureau, Inc.
and the Pink Sheets under the
symbol "PRXT." Mr. Robinson is also the General
Partner of Cherokee Raiders,
L.P., a family limited partnership ("Cherokee").
Both
Proxity and Cherokee are Affiliates of the Maker.
3
<PAGE>
(k) As at
February 1, 2005, the Capitalization of the Maker consisted
of
(i) 200,000,000 shares of Class A Common Stock, Par Value $0.001
per
share,
each share having one vote on matters brought before the
stockholders of which 25,921,562 shares are issued and outstanding
and
owned by
the following persons or groups:
Name
Number
of
of Shares of
Shareholder
Class A Owned
Cherokee
6,750,000
Proxity
18,750,000
Others (Including
Members of the Public)
421,562
TOTAL
25,921,562
(ii) 200,000,000 shares of Class B Common Stock, Par Value
$0.001
per share,
each share having 1,000 votes on matters brought before
the
stockholders, of which 150,000 shares are issued and outstanding
and owned
by the
following persons:
Name
Number
of
of Shares of
Shareholder
Class B Owned
Cherokee
150,000
(iii) 2 shares of Class C Common Stock, Par Value $0.001 per
share,
each share
having one vote on matters brought before the stockholders,
of
which 2
shares are issued and outstanding and owned by the
following
persons:
Name
Number
of
of Shares of
Shareholder
Class C Owned
Cherokee
1
Proxity
1
(iv) 100,000,000 shares of Class A Preferred Stock, Par Value
$0.001
per share,
of which no shares are issued and outstanding.
4
<PAGE>
(l) As at
February 1, 2005, Cherokee and Proxity, who are Affiliates
of
the Maker, owned a total of
25,500,000 shares of the Class A Common Stock, Par
Value $0.001 per share, of
the Maker, or 98.37 % of the Issued and Outstanding
Class A Common Stock of the
Maker. In addition, Cherokee owns 150,000 shares of
the Class B Common Stock, Par
Value $0.001 per share, of the Maker, each of
which Class B shares is
entitled to 1,000 votes on matters brought before the
Shareholders. Thus, the Maker
is controlled by its Affiliates, Cherokee and
Proxity.
(m) As at
February 1, 2004, Cherokee owned or had control of
88,60,000shares of the Common
Stock, Par Value $0.001 per share, of Proxity, or
31.47 % of the Issued and
Outstanding Common Stock of Proxity, there being
300,000,000 shares
Authorized, of which 281,545,000 shares are Issued and
Outstanding.
(n) Mr.
Robinson, who is the CEO of Proxity, and of the Maker, and
of
Cyber Aero, together with his
wife and children own 6,047,027 shares, or 2.15 %
of the Issued and Outstanding
Common Stock of Proxity.
(o) As a
result of a merger of a former subsidiary of the Maker called
On
Alert Systems, Inc. into the
Maker, the Maker has assumed prior obligations
which On Alert had to either
Cherokee or Proxity, so that, as at February
1,2005, the Maker was
indebted to Cherokee and Proxity in excess of
approximately
$1,507,271.24.
3.
Representations and Warranties of the Holder.
In
connection with this Note, the Holder represents to the Maker
as
follows:
(a) The
Holder will transfer the $117,000.00 contemplated by this Note,
to
the Maker within seven
business days of the execution of this note.
(b) The
Holder has full power and legal capacity to enter into this
Note.
(c) This
Note constitutes valid and legally binding obligations of
the
Holder, enforceable in
accordance with its terms, except
(i) as limited by applicable bankruptcy, insolvency,
reorganization,
moratorium, fraudulent conveyance, and any other laws of
general
application affecting enforcement of creditors' rights generally,
and
(ii) as limited by laws relating to the availability of
specific
performance, injunctive relief, or other equitable
remedies.
(d) The
execution, delivery and performance of this Note will not
result
in any material violation of,
be in conflict with, or constitute a default
under, with or without the
passage of time or the giving of notice
(i) any provision of any judgment, decree or order to which
the
Holder is
a party or by which it is bound; or
5
<PAGE>
(ii) any material contract, obligation or commitment to which
the
Holder is
a party.
(e) The
Holder is not, and on the Maturity Date, will not be, an
affiliate
of the Maker.
(f) The
Holder is an "accredited investor" as defined in Rule 501
of
Regulation D promulgated
under the Securities Act of 1933, as amended (the
"Securities Act"), and the
Holder is accepting this Note and the Payment Shares
for his own
account.
(f) The
Holder understands that (i) this Note and the Payment Shares
are,
and when issued,
respectively, will not be registered under the Securities
Act;
(ii) that they are being
offered and sold to the Holder in reliance on specific
exemptions from the
registration requirements of Federal and State
securities
laws; and (iii) that the
Maker is relying upon the truth and accuracy of the
representat
