8% CONVERTIBLE PROMISSORY NOTE DUE [ ], 2017
Exhibit 10.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
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Original Issue Date: [ ], 2014
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8% CONVERTIBLE PROMISSORY NOTE
DUE [ ], 2017
THIS 8% CONVERTIBLE PROMISSORY NOTE is a duly authorized and validly issued 8% Convertible Note of InterCloud Systems, Inc., a Delaware corporation, (the “Company”), having its principal place of business at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, (this “Note”).
WHEREAS, this Note is being issued pursuant to that certain Interest Purchase Agreement, dated as of March [__], 2014, by and among the Company, the Holder, Tier 1 Solutions, Inc., London Bay – VL Acquisition Company, VaultLogix, LLC, Data Protection Services, LLC, and U.S. Data Security Acquisition, LLC, as amended and/or restated from time to time (the “Purchase Agreement”), and the parties hereto acknowledge that, in the event of an adjustment to the Purchase Price (as defined in the Purchase Agreement), this note shall be cancelled and replaced with a newly issued promissory note, pursuant to Section 2.3(b)(ii)(B) thereof.
FOR VALUE RECEIVED, the Company promises to pay to [], or its assigns, at [] (the “Holder”), the principal sum of $[ ] on or before [ ], 2017 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof. This Note is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, the following terms shall have the following meanings:
“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).
Section 2. Interest.
(a) Interest. The Company shall pay interest only to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of 8% per annum. All accrued interest hereunder shall be due and payable on the Maturity Date. At the election of the Company, at such time(s) as interest may be due and payable hereunder, the Company may elect to pay such interest either (i) in cash or (ii) by the issuance to the Holder of an additional promissory note, with terms substantially identical to the terms hereof (including, for the avoidance of doubt, the conversion terms set forth in Section 3 and a maturity on the Maturity Date), in the principal amount of such due and payable interest.
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(b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Interest shall cease to accrue with respect to any principal amount converted into Common Stock from and after the date of such conversion.
(c) Prepayment. The Company may prepay, with five (5) business days’ advance notice to the Holder, without penalty or premium any principal or interest owing under this Note, with any prepayments being first applied to any accrued and unpaid interest.
Section 3. Conversion.
(a) Voluntary Conversion. At any time beginning on the six month anniversary of the Original Issue Date until this Note is no longer outstanding, the outstanding principal and unpaid interest on this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time. The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount and accrued interest of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding accrued and unpaid interest and principal amount of this Note, with any conversion being first applied to any accrued and unpaid interest, in each case in an amount equal to the applicable amounts so converted into Common Stock. The Holder and the Company shall maintain records showing the accrued and unpaid interest and principal amount(s) converted and the date of such conversion(s). The Holder, and any assignee by acceptance of this Note, acknowledges and agrees that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.
(b) Conversion Price. The conversion price in effect on any Conversion Date shall be equal to $___, as adjusted in accordance with Section 3(d) (as so adjusted, the “Conversion Price”).
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(c) Mechanics of Conversion.
(i) Conversion Shares Issuable. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the principal amount and accrued interest of this Note to be converted by (y) the Conversion Price.
(ii) Delivery of Certificate Upon Conversion. Not later than five (5) Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares. The Holder acknowledges that the Conversion Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and that certificates representing Conversion Shares shall bear customary restrictive legends stating that the Conversion Shares may only be transferred upon an effective registration statement under the Securities Act or an exemption from the registration provisions thereof. Notwithstanding the foregoing, no legend shall be required to be placed on any certificates representing Conversion Shares that may be sold without restriction by the Holder pursuant to Rule 144 under the Securities Act (“Rule 144”), provided that, in connection with an opinion of counsel of the Company to be delivered to the Company’s transfer agent, the Holder executes and delivers certain documentation as reasonably requested by counsel to the Company representing that the Holder shall only sell the Conversion Shares in compliance with Rule 144.
(iii) Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Notice of Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Notice of Conversion.
(iv) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
(d) Stock Dividends and Stock Splits. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment to the Conversion Price made pursuant to this Section 3(d) shall become effective immediately after the record date for the determination of stockholder entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
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(e) Limits on Conversion. Notwithstanding anything in the foregoing, (i) a portion of the principal amount of this Note equal to twenty percent (20%) of the principal amount on the Original Issue Date shall not be convertible until the fifteen-month anniversary of the Closing Date (as defined in the Purchase Agreement), and (ii) in no event shall Holder be entitled to convert any principal amount or accrued interest under this Note to the extent that any claims for off-set against the principal amount and accrued interest under this Note validly made by the Company pursuant to Section 10.6 of the Purchase Agreement would exceed the then-remaining outstanding and unconverted principal amount and accrued interest under this Note (collectively, the “Unconvertible Portion”).
(f) Forced Conversion. Subject to the provisions of this Section 3(f), the Company may deliver a notice to the Holder (a “Forced Conversion Notice”) of its irrevocable election to force the Holder to convert some or all of the amounts of principal and accrued interest then outstanding under this Note into shares of the Company’s Common Stock at the applicable Conversion Price, with any conversion being first applied to any accrued and unpaid interest. The Company may only elect to provide a Forced Conversion Notice to the Holder in the event that (i) the average closing price of the Common Stock on the principal exchange on which the Common Stock is then traded is 105% or higher of the Conversion Price on the three (3) Trading Days immediately prior the date of delivery of the Forced Conversion Notice, and (ii) the Conversion Shares to be issued are either registered for resale under an effective registration statement filed under the Securities Act or may be sold by the Holder without restriction (including volume limitations) pursuant to Rule 144. Notwithstanding the foregoing, if the Company elects to convert any portion of the Note constituting the Unconvertible Portion, at the Company’s sole election and expense, the Conversion Shares issuable in respect of the Unconvertible Portion shall be placed in escrow with an escrow agent selected by the Company with the consent of the Holder, which consent shall not be unreasonably withheld, such escrow to be governed by an escrow agreement in customary form which is reasonably acceptable to the Holder. Such escrow agreement shall provide that any Conversion Shares issued upon conversion of the Unconvertible Portion placed into escrow that are not subject to a claim of set-off in accordance with clause (ii) of Section 3(e) shall be released from escrow on the fifteen (15) month anniversary of the Original Issue Date.
(g) Additional Conversion Right at Maturity Date. If on or after the Maturity Date, (i) the Company is restricted or otherwise unable to pay in cash all outstanding amounts under this Note, (ii) the Note has not otherwise been paid in full within ten (10) business days following the Maturity Date, or (iii) the Company is not at such time entitled to effect a forced conversion of some or all of this Note pursuant to Section 3(f), then, in the event that both (i) and (iii) above apply, the Company, and in the event that both (ii) and (iii) above apply, the Holder, shall have the right to convert all outstanding amounts owing under this Note into shares of Common Stock at a conversion price (in lieu of the Conversion Price) equal to the average closing price of the Common Stock on the three (3) Trading Days immediately preceding the date of conversion under this Section 3(g).
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Section 4. Events of Default.
(a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
(i) any default in the payment of (A) the principal amount of the Note or (B) interest and other amounts owing to the Holder on the Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within five (5) Trading Days;
(ii) the Company shall fail to observe or perform any other material covenant or agreement contained in the Note which failure is not cured, if possible to cure, within five (5) Trading Days after notice of such failure is delivered by the Holder to the Company;
(iii) the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five (5) Trading Days; and
(iv) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event.
(b) Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Note, plus accrued but unpaid interest and any other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s sole election, immediately due and payable. Commencing five (5) Trading Days after the occurrence of any Event of Default that results in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an interest rate equal to the lesser of 12% per annum or the maximum rate permitted under applicable law. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by the Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 4(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.
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Section 5. Miscellaneous.
(a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 5(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to the Holder, at the address set forth above, or such other facsimile number or address as the Holder may specify for such purposes by notice to the Company delivered in accordance with this Section 5(a). Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
(b) Company Set-Off Rights. Notwithstanding anything in this Note to the contrary, amounts payable under this Note shall be subject to the Company’s set-off rights set forth in Section 10.6 of the Purchase Agreement, as qualified by the specific limitations thereto set forth in Article X of the Purchase Agreement.
(c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof or a loss affidavit executed and delivered by the Holder.
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(d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by the Note (whether brought against a party hereto or its respective affiliates, directors, officers, shareholder, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the Note), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
(e) Amendments; Waiver. No provision of this Note may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by each of the Company and the Holder or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion.
(f) Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
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(g) Successors and Assigns. The terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. The Company may not assign this note or delegate any of its obligations hereunder without the written consent of the Holder. The Holder may assign this Note and its rights hereunder at any time without consent of Company.
(h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
(i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.
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By:
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ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal and interest under the 8% Convertible Note due [], 2017 of InterCloud Systems, Inc., a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.
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Conversion calculations:
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Address for Delivery of Common Stock Certificates:
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