Exhibit 10.2
 
CONVERTIBLE NOTE
 
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 17(a)
HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
 
INTERCLOUD SYSTEMS, INC.
 
Senior Convertible Note
 

Issuance Date: July 1, 2014  Original Principal Amount: U.S. $1,500,000

 
FOR VALUE RECEIVED, InterCloud Systems, Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of 31 GROUP, LLC or its
registered assigns ("Holder") the amount set out above as the Original Principal
Amount (as reduced pursuant to the terms hereof pursuant to redemption,
conversion or otherwise, the "Principal") when due, whether upon the Maturity
Date (as defined below), acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest ("Interest") on any
outstanding Principal (as defined below) (as such interest on any outstanding
Principal may be reduced pursuant to the terms hereof pursuant to redemption,
conversion or otherwise) at the applicable Interest Rate (as defined below) from
the date set out above as the Issuance Date (the "Issuance Date") until the same
becomes due and payable, whether upon the Maturity Date or acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms
hereof). This Senior Convertible Note is referred to as the "Note", and all
Notes issued in exchange, transfer or replacement hereof are collectively
referred to as the "Notes"). Certain capitalized terms used herein are defined
in Section 30.
 
 
 

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1.           PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay
to the Holder an amount in cash representing all outstanding Principal, accrued
and unpaid Interest and accrued and unpaid Late Charges (as defined in Section
23(c)) on such Principal and Interest. At any time upon ten (10) days written
notice to the Holder, the Company may prepay any portion of the Principal amount
of this Note and any accrued and unpaid Interest. If the Company exercises its
right to prepay the Note, the Company shall make payment to the Holder of an
amount in cash equal to the sum of the then outstanding Principal amount of this
Note and guaranteed Interest multiplied by 107% (the "Prepayment Price"). The
Holder may continue to convert the Note from the date notice of the prepayment
is given until the date of the prepayment. For the avoidance of doubt, the
amount of guaranteed Interest due at prepayment shall be calculated from the
original Principal amount times the Interest Rate, notwithstanding the date of
prepayment. Other than as specifically permitted by this Note, the Company may
not prepay any portion of the outstanding Principal, accrued and unpaid Interest
or accrued and unpaid Late Charges on Principal and Interest, if any.
 
2.           INTEREST; INTEREST RATE.
 
  (a)           The Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding Principal amount of this Note at the rate of
12% per annum, which twelve (12) months' interest amount shall be guaranteed,
payable on each Conversion Date (as to that principal amount then being
converted) or Redemption Date and on the Maturity Date in cash or, at the option
of the Holder, Common Stock.
 
  (b)           From and after the occurrence and during the continuance of any
Event of Default, the Interest Rate shall automatically be increased to the
higher of (i) the highest rate allowed by law and (ii) eighteen percent (18.0%)
per annum. In the event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be effective as
of the calendar day immediately following the date of such cure; provided that
the Interest as calculated and unpaid at such increased rate during the
continuance of such Event of Default shall continue to apply to the extent
relating to the days after the occurrence of such Event of Default through and
including the date of such cure of such Event of Default.
 
3.           CONVERSION OF NOTES. This Note shall be convertible into validly
issued, fully paid and non-assessable shares of Common Stock (as defined below),
on the terms and conditions set forth in this Section 3.
 
  (a)           Conversion Right. Subject to the provisions of Section 3(d), at
any time or times on or after the 200th day following the Issuance Date, the
Holder shall be entitled to convert any portion of the outstanding and unpaid
Conversion Amount (as defined below) into validly issued, fully paid and
non-assessable shares of Common Stock in accordance with Section 3(c), at the
Conversion Rate (as defined below). The Company shall not issue any fraction of
a share of Common Stock upon any conversion. If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock to the nearest whole share. The Company
shall pay any and all transfer, stamp, issuance and similar taxes that may be
payable with respect to the issuance and delivery of Common Stock upon
conversion of any Conversion Amount.
 
 
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  (b)           Conversion Rate. The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 3(a) shall be
determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(the "Conversion Rate").
 
  (i)         "Conversion Amount" means the portion of the Principal to be
converted, redeemed or otherwise with respect to which this determination is
being made, plus all accrued and unpaid Interest with respect to such portion of
the Principal amount and accrued and unpaid Late Charges with respect to such
portion of such Principal and such Interest.
 
  (ii)        "Conversion Price" means $6.37 (as adjusted for stock splits,
stock dividends, stock combinations or other similar transactions).
 
  (c)           Mechanics of Conversion.
 
  (i)          Optional Conversion. To convert any Conversion Amount intoshares
of Common Stock on any date (a "Conversion Date"), the Holder shall deliver
(whether via facsimile or otherwise), for receipt on or prior to 5:00 p.m., New
York time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the "Conversion Notice") to the Company and the
Company's transfer agent (the "Transfer Agent"). If required by Section
3(c)(iii), the Holder shall surrender this Note to a nationally recognized
overnight delivery service for delivery to the Company (or an indemnification
undertaking with respect to this Note in the case of its loss, theft or
destruction as contemplated by Section 17(b)). On or before the first (1st)
Trading Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile an acknowledgment of confirmation, in the form
attached hereto as Exhibit II, of receipt of such Conversion Notice to the
Holder and the Transfer Agent. On or before the second (2nd) Trading Day
following the date of receipt of a Conversion Notice, the Company shall issue
and deliver (via reputable overnight courier) to the address as specified in the
Conversion Notice, a certificate, registered in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder shall be
entitled (the "Conversion Shares"). The Company shall, upon request of the
Holder and subsequent to the date on which either a registration statement
covering the resale of the Conversion Shares has been declared effective by the
Securities and Exchange Commission or a sale of Conversion Shares pursuant to
Rule 144 has been made, use its reasonable best efforts to deliver such
Conversion Shares hereunder electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions, if available, provided, that, the Company may, but will not be
required to change its transfer agent if its current transfer agent cannot
deliver Conversion Shares electronically through the Depository Trust
Corporation. If this Note is physically surrendered for conversion as required
by Section 3(c)(iii) and the outstanding Principal of this Note is greater than
the Principal portion of the Conversion Amount being converted, then the Company
shall as soon as practicable and in no event later than three (3) Trading Days
after receipt of this Note and at its own expense, issue and deliver to the
Holder (or its designee) a new Note (in accordance with Section 17(d))
representing the outstanding Principal not converted. The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.
 
 
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  (ii)        Company's Failure to Timely Convert. If the Company shall fail,
for any reason or for no reason, to issue to the Holder within three (3) Trading
Days after the Company's receipt of a Conversion Notice (whether via facsimile
or otherwise) (the "Share Delivery Deadline"), a certificate for the number of
shares of Common Stock to which the Holder is entitled and register such shares
of Common Stock on the Company's share register or to make available for credit
the Holder's or its designee's balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder's
conversion of any Conversion Amount (as the case may be) (a "Conversion
Failure"), then, in addition to all other remedies available to the Holder, (1)
the Company shall pay in cash to the Holder on each day after the fifth (5th)
Trading Day following such Share Delivery Deadline that the issuance of such
shares of Common Stock is not timely effected an amount equal to 2% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
Holder on a timely basis and to which the Holder is entitled multiplied by (B)
the Closing Sale Price of the Common Stock on the Trading Day immediately
preceding the last possible date which the Company could have issued such shares
of Common Stock to the Holder without violating Section 3(c)(i) and (2) the
Holder, upon written notice to the Company, may void its Conversion Notice with
respect to, and retain or have returned (as the case may be) any portion of this
Note that has not been converted pursuant to such Conversion Notice, provided
that the voiding of a Conversion Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice pursuant to this Section 3(c)(ii) or otherwise. In addition to the
foregoing, if on or prior to the Share Delivery Deadline, the Company shall fail
to issue and deliver a certificate to the Holder and register such shares of
Common Stock on the Company's share register or credit the Holder's or its
designee's balance account with DTC for the number of shares of Common Stock to
which the Holder is entitled upon the Holder's conversion hereunder (as the case
may be), and if on or after such Share Delivery Deadline the Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of all or any portion of the number of
shares of Common Stock, or a sale of a number of shares of Common Stock equal to
all or any portion of the number of shares of Common Stock, issuable upon such
conversion that the Holder so anticipated receiving from the Company, then, in
addition to all other remedies available to the Holder, the Company shall,
within three (3) Business Days after receipt of the Holder's request and in the
Holder's discretion, either: (I) pay cash to the Holder in an amount equal to
the Holder's total purchase price (including brokerage commissions and other
out-of-pocket expenses, if any) for the shares of Common Stock so purchased
(including, without limitation, by any other Person in respect, or on behalf, of
the Holder) (the "Buy In Price"), at which point the Company's obligation to so
issue and deliver such certificate or make available for credit the Holder's
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder's conversion hereunder (as the case may be)
(and to issue such shares of Common Stock) shall terminate, or (II) promptly
honor its obligation to so issue and deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit the Holder's
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder's conversion hereunder (as the case may be)
and pay cash to the Holder in an amount equal to the excess (if any) of the
Buy-In Price over the product of (x) such number of shares of Common Stock
multiplied by (y) the lowest Closing Sale Price of the Common Stock on any
Trading Day during the period commencing on the date of the applicable
Conversion Notice and ending on the date of such issuance and payment under this
clause (II).
 
 
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  (iii)       Book-Entry. Notwithstanding anything to the contrary set forth in
this Section 3, following conversion of any portion of this Note in accordance
with the terms hereof, the Holder shall not be required to physically surrender
this Note to the Company unless (A) the full Conversion Amount represented by
this Note is being converted (in which event this Note shall be delivered to the
Company following conversion thereof as contemplated by Section 3(c)(i)) or (B)
the Holder has provided the Company with prior written notice (which notice may
be included in a Conversion Notice) requesting reissuance of this Note upon
physical surrender of this Note. The Holder and the Company shall maintain
records showing the Principal, Interest and Late Charges converted and/or paid
and/or adjusted (as the case may be) and the dates of such conversions and/or
payments and/or adjustments (as the case may be) or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Note upon conversion.
 
  (iv)        Disputes. In the event of a dispute as to the number of shares of
Common Stock issuable to the Holder in connection with a conversion of this
Note, the Company shall issue to the Holder the number of shares of Common Stock
not in dispute and resolve such dispute in accordance with Section 22.
 
  (d)           Limitations on Conversions. Notwithstanding anything to the
contrary contained in this Note, this Note shall not be convertible by the
Holder hereof, and the Company shall not effect any conversion of this Note or
otherwise issue any shares of Common Stock pursuant hereto, to the extent (but
only to the extent) that after giving effect to such conversion or other share
issuance hereunder the Holder (together with its affiliates) would beneficially
own in excess of 4.99% (the "Maximum Percentage") of the Common Stock. To the
extent the above limitation applies, the determination of whether this Note
shall be convertible (vis-a-vis other convertible, exercisable or exchangeable
securities owned by the Holder or any of its affiliates) and of which such
securities shall be convertible, exercisable or exchangeable (as among all such
securities owned by the Holder and its affiliates) shall, subject to such
Maximum Percentage limitation, be determined on the basis of the first
submission to the Company for conversion, exercise or exchange (as the case may
be). No prior inability to convert this Note, or to issue shares of Common
Stock, pursuant to this paragraph shall have any effect on the applicability of
the provisions of this paragraph with respect to any subsequent determination of
convertibility. For purposes of this paragraph, beneficial ownership and all
determinations and calculations (including, without limitation, with respect to
calculations of percentage ownership) shall be determined in accordance with
Section 13(d) of the 1934 Act (as defined in the Securities Purchase Agreement)
and the rules and regulations promulgated thereunder. The provisions of this
paragraph shall be implemented in a manner otherwise than in strict conformity
with the terms of this paragraph to correct this paragraph (or any portion
hereof) which may be defective or inconsistent with the intended Maximum
Percentage beneficial ownership limitation herein contained or to make changes
or supplements necessary or desirable to properly give effect to such Maximum
Percentage limitation. The limitations contained in this paragraph shall apply
to a successor Holder of this Note. The holders of Common Stock shall be third
party beneficiaries of this paragraph and the Company may not waive this
paragraph without the consent of holders of a majority of its Common Stock. For
any reason at any time, upon the written or oral request of the Holder, the
Company shall within two (2) Business Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding, including by
virtue of any prior conversion or exercise of convertible or exercisable
securities into Common Stock, including, without limitation, pursuant to this
Note or securities issued pursuant to the Securities Purchase Agreement. By
written notice to the Company, at any time the Holder may increase or decrease
the Maximum Percentage to any other percentage not in excess of 9.99% specified
in such notice; provided that (i) any such increase will not be effective until
the 61st day after such notice is delivered to the Company, and (ii) any such
increase or decrease will apply only to the Holder sending such notice and not
to any other holder of Notes.
 
 
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4.           RIGHTS UPON EVENT OF DEFAULT.
 
  (a)           Event of Default. Each of the following events shall constitute
an "Event of Default":
 
  (i)          the suspension from trading or the failure of the Common Stock to
be trading or listed (as applicable) on an Eligible Market for a period of ten
(10) consecutive days or for more than an aggregate of thirty (30) days in any
365-day period;
 
  (ii)         the Company's or any Subsidiary's (as defined in the Securities
Purchase Agreement) failure to pay to the Holder any amount of Principal,
Interest, Late Charges or other amounts when and as due under this Note
(including, without limitation, the Company's or any Subsidiary's failure to pay
any redemption payments or amounts hereunder) or any other Transaction Document
(as defined in the Securities Purchase Agreement) or any other agreement,
document, certificate or other instrument delivered in connection with the
transactions contemplated hereby and thereby, except, in the case of a failure
to pay Interest and Late Charges when and as due, in which case only if such
failure remains uncured for a period of at least five (5) days;
 
  (iii)        the occurrence of any default by the Company or any of its
Subsidiaries under, redemption of or acceleration prior to maturity of an
aggregate of $500,000 of Indebtedness of the Company or any of its Subsidiaries;
 
  (iv)        bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for the relief of debtors shall be instituted by or against
the Company or any Subsidiary and, if instituted against the Company or any
Subsidiary by a third party, shall not be dismissed within sixty (60) days of
their initiation;
 
 
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  (v)        the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a Uniform Commercial Code foreclosure sale or any other similar action
under federal, state or foreign law;
 
  (vi)       the entry by a court of (i) a decree, order, judgment or other
similar document in respect of the Company or any Subsidiary of a voluntary or
involuntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or (ii) a decree,
order, judgment or other similar document adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a petition
seeking liquidation, reorganization, arrangement, adjustment or composition of
or in respect of the Company or any Subsidiary under any applicable federal,
state or foreign law or (iii) a decree, order, judgment or other similar
document appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree, order, judgment or other
similar document or any such other decree, order, judgment or other similar
document unstayed and in effect for a period of thirty (30) consecutive days;
 
  (vii)      a final judgment or judgments for the payment of money aggregating
in excess of $500,000 are rendered against the Company and/or any of its
Subsidiaries and which judgments are not, within thirty (30) days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within forty-five (45) days after the expiration of such stay;
provided, however, any judgment which is covered by insurance or an indemnity
from a credit worthy party shall not be included in calculating the $500,000
amount set forth above so long as the Company provides the Holder a written
statement from such insurer or indemnity provider (which written statement shall
be reasonably satisfactory to the Holder) to the effect that such judgment is
covered by insurance or an indemnity and the Company or such Subsidiary (as the
case may be) will receive the proceeds of such insurance or indemnity within
thirty (30) days of the issuance of such judgment;
 
 
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  (viii)     the Company and/or any Subsidiary, individually or in the
aggregate, either (i) fails to pay, when due, or within any applicable grace
period, any payment with respect to any Indebtedness in excess of $500,000 due
to any third party (other than, with respect to unsecured Indebtedness only,
payments contested by the Company and/or such Subsidiary (as the case may be) in
good faith by proper proceedings and with respect to which adequate reserves
have been set aside for the payment thereof in accordance with GAAP) or is
otherwise in breach or violation of any agreement for monies owed or owing in an
amount in excess of $500,000, which breach or violation permits the other party
thereto to declare a default or otherwise accelerate amounts due thereunder, or
(ii) suffer to exist any other circumstance or event that would, with or without
the passage of time or the giving of notice, result in a default or event of
default under any agreement binding the Company or any Subsidiary, which default
or event of default would or is likely to have a material adverse effect on the
business, assets, operations (including results thereof), liabilities,
properties, condition (including financial condition) or prospects of the
Company or any of its Subsidiaries, individually or in the aggregate;
 
  (ix)        any breach or failure in any respect by the Company or any
Subsidiary to comply with any provision of Section 13 of this Note;
 
  (x)         other than as specifically set forth in another clause of this
Section 4(a), the Company or any of its Subsidiaries breaches any representation
or warranty in any material respect {except with respect to any representation
or warranty qualified by material or material adverse effect, in any respect) or
breaches any covenant or other term or condition of any Transaction Document,
except, in the case of a breach of a covenant or other term or condition of any
Transaction Document in any material respect which is curable, only if such
breach continues for a period of at least an aggregate of five (5) consecutive
Trading Days; or
 
  (xi)        any Change of Control occurs.
 
 
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  (b)           Notice of an Event of Default; Redemption Right. Upon the
occurrence of an Event of Default with respect to this Note, the Company shall
within one (1) Business Day deliver written notice thereof via facsimile and
overnight courier (with next day delivery specified) (an "Event of Default
Notice") to the Holder. At any time after the earlier of the Holder's receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default,
the Holder may require the Company to redeem, at any time during the period
commencing on the date the Holder first becomes aware of such Event of Default
through and including the twentieth Trading Day after the later of (x) the date
the Holder receives the applicable Event of Default Notice with respect thereto
and (y) the date such Event of Default has been cured, all or any portion of
this Note by delivering written notice thereof (the "Event of Default Redemption
Notice") to the Company, which Event of Default Redemption Notice shall indicate
the portion of this Note the Holder is electing to redeem. Each portion of this
Note subject to redemption by the Company pursuant to this Section 4(b) shall be
redeemed by the Company at a price equal to (i) the product of (A) the
Conversion Amount to be redeemed multiplied by (B) the Redemption Premium (the
"Event of Default Redemption Price"). Redemptions required by this Section 4(b)
shall be made in accordance with the provisions of Section 10. To the extent
redemptions required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of this Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 4, but subject to Section 3(d), until
the Event of Default Redemption Price (together with any Late Charges thereon)
is paid in full, the Conversion Amount submitted for redemption under this
Section 4(b) (together with any Late Charges thereon) may be converted, in whole
or in part, by the Holder into Common Stock pursuant to the terms of this Note.
In the event of the Company's redemption of any portion of this Note under this
Section 4(b), the Holder's damages would be uncertain and difficult to estimate
because of the parties' inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute investment opportunity
for the Holder. Accordingly, any redemption premium due under this Section 4(b)
is intended by the parties to be, and shall be deemed, a reasonable estimate of
the Holder's actual loss of its investment opportunity and not as a penalty.
 
5.           RIGHTS UPON FUNDAMENTAL TRANSACTION; OTHER CORPORATE EVENTS.
 
  (a)           Fundamental Transaction. If, at any time while this Note is
outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into
another Person, (ii) the Company, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which Holder
of Common Stock are permitted to sell, tender or exchange their shares for other
securities, cash or property and has been accepted by the Holder of 50% or more
of the outstanding Common Stock, (iv) the Company, directly or indirectly, in
one or more related transactions effects any reclassification, reorganization or
recapitalization of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property, (v) the Company, directly or indirectly, in one or
more related transactions consummates a stock or share purchase agreement or
other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person acquires more than 50% of the outstanding shares of Common
Stock (not including any shares of Common Stock held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination) (each a "Fundamental Transaction"), then, the Holder may
require the Company to redeem, at any time during the period commencing on the
date of such Fundamental Transaction through and including the twentieth Trading
Day after the date of such Fundamental Transaction, all or any portion of this
Note by delivering written notice thereof (the "Fundamental Transaction
Redemption Notice") to the Company, which Fundamental Transaction Redemption
Notice shall indicate the portion of this Note the Holder is electing to redeem.
Each portion of this Note subject to redemption by the Company pursuant to this
Section 5(a) shall be redeemed by the Company at a price equal to (i) the
product of (A) the Conversion Amount to be redeemed multiplied by (B) 107% (the
"Fundamental Transaction Redemption Price"). Redemptions required by this
Section 5(a) shall be made in accordance with the provisions of Section 10. Upon
the occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for {so that from and after the date of such
Fundamental Transaction, the provisions of this Note and the other Transaction
Documents referring to the "Company" shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Note and the other Transaction
Documents with the same effect as if such Successor Entity had been named as the
Company herein.
 
 
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  (b)           Other Corporate Events. In addition to and not in substitution
for any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a "Corporate Event"), the Company shall make appropriate provision
to insure that the Holder will thereafter have the right to receive upon a
conversion of this Note (i) in addition to the shares of Common Stock receivable
upon such conversion, such securities or other assets to which the Holder would
have been entitled with respect to such shares of Common Stock had such shares
of Common Stock been held by the Holder upon the consummation of such Corporate
Event (without taking into account any limitations or restrictions on the
convertibility of this Note) or (ii) in lieu of the shares of Common Stock
otherwise receivable upon such conversion, such securities or other assets
received by the holders of shares of Common Stock in connection with the
consummation of such Corporate Event in such amounts as the Holder would have
been entitled to receive had this Note initially been issued with conversion
rights for the form of such consideration (as opposed to shares of Common Stock)
at a conversion rate for such consideration commensurate with the Conversion
Rate. Provision made pursuant to the preceding sentence shall be in a form and
substance reasonably satisfactory to the Holder.
 
  (c)          The provisions of this Section 5 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied without regard to any limitations on the conversion of this Note.
 
6.          [Intentionally Omitted].
 
7.           NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation {as defined
in the Securities Purchase Agreement), Bylaws (as defined in the Securities
Purchase Agreement) or through any reorganization, transfer of assets,
consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Note, and will at all times in good
faith carry out all of the provisions of this Note and take all action as may be
required to protect the rights of the Holder of this Note. Without limiting the
generality of the foregoing, the Company (i) shall not increase the par value of
any shares of Common Stock receivable upon conversion of this Note above the
Conversion Price then in effect, (ii) shall take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the conversion of this
Note, and (iii) shall, so long as any of the Notes are outstanding, take all
action necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Notes, the maximum number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of the Notes then
outstanding (without regard to any limitations on conversion).
 
 
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8.           RESERVATION OF AUTHORIZED SHARES.
 
  (a)           Reservation. So long as any of the Notes are outstanding, the
Company shall keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, a number of
shares of Common Stock equal to 125% of the number of shares of Common Stock
into which this Note may be converted into on the Closing Date (the "Required
Reserve Amount").
 
  (b)          Insufficient Authorized Shares. If, notwithstanding Section 8(a),
and not in limitation thereof, at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an "Authorized Share Failure"), then
the Company shall immediately take all action necessary to increase the
Company's authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Notes then outstanding.
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure, but
in no event later than sixty (60) days after the occurrence of such Authorized
Share Failure, the Company shall hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of Common Stock. In
connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its reasonable best efforts to solicit its
stockholders' approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the stockholders that they
approve such proposal. In the event that the Company is prohibited from issuing
shares of Common Stock upon any conversion due to the failure by the Company to
have sufficient shares of Common Stock available out of the authorized but
unissued shares of Common Stock (such unavailable number of shares of Common
Stock, the "Authorization Failure Shares"), in lieu of delivering such
Authorization Failure Shares to the Holder, the Company shall pay cash in
exchange for the redemption of such portion of the Conversion Amount convertible
into such Authorized Failure Shares at a price equal to the sum of (i) the
product of (x) such number of Authorization Failure Shares and (y) the greatest
Closing Sale Price of the Common Stock on any Trading Day during the period
commencing on the date the Holder delivers the applicable Conversion Notice with
respect to such Authorization Failure Shares to the Company and ending on the
date of such issuance and payment under this Section 8(b) and (ii) to the extent
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of Authorization
Failure Shares, any brokerage commissions and other out-of-pocket expenses, if
any, of the Holder incurred in connection therewith. Nothing contained in
Section 8(a) or this Section 8(b) shall limit any obligations of the Company
under any provision of the Securities Purchase Agreement.
 
 
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9.           COMPANY OPTIONAL REDEMPTION. At any time after the Issuance Date,
the Company shall have the right to redeem all, or any part, of the Conversion
Amount then remaining under this Note (the "Company Optional Redemption Amount")
on the Company Optional Redemption Date (as defined below) (a "Company Optional
Redemption"). The portion of this Note subject to redemption pursuant to this
Section 9 shall be redeemed by the Company in cash at a price (the "Company
Optional Redemption Price") equal to 107% of the Conversion Amount of this Note
then outstanding. The Company may exercise its right to require redemption under
this Section 9 by delivering an irrevocable written notice thereof by facsimile
and overnight courier to the Holder (the "Company Optional Redemption Notice"
and the date the Holder receives such notice is referred to as the "Company
Optional Redemption Notice Date"). The Company may deliver only one Company
Optional Redemption Notice in any six calendar month period. The Company
Optional Redemption Notice shall (x) state the date on which the Company
Optional Redemption shall occur (the "Company Optional Redemption Date") which
date shall not be less than five (5) Trading Days nor more than twenty (20)
Trading Days following the Company Optional Redemption Notice Date, and (y)
state the aggregate Conversion Amount of the Notes which is being redeemed in
such Company Optional Redemption from the Holder pursuant to this Section 9 on
the Company Optional Redemption Date. Notwithstanding anything herein to the
contrary, at any time prior to the date the Company Optional Redemption Price is
paid, in full, the Company Optional Redemption Amount may be converted, in whole
or in part, by the Holder into shares of Common Stock pursuant to Section 3. All
Conversion Amounts converted by the Holder after the Company Optional Redemption
Notice Date shall reduce the Company Optional Redemption Amount of this Note
required to be redeemed on the Company Optional Redemption Date. Redemptions
made pursuant to this Section 9 shall be made in accordance with Section 10.
 
10.         REDEMPTIONS.
 
  (a)           Mechanics. The Company shall deliver the applicable Event of
Default Redemption Price or Fundamental Transaction Redemption Price to the
Holder in cash within five (5) Business Days after the Company's receipt of the
Holder's Event of Default Redemption Notice or Fundamental Transaction
Redemption Notice. The Company shall deliver the applicable Company Optional
Redemption Price to the Holder in cash on the applicable Company Optional
Redemption Date. In the event of a redemption of less than all of the Conversion
Amount of this Note, the Company shall promptly cause to be issued and delivered
to the Holder a new Note (in accordance with Section 17(d)) representing the
outstanding Principal which has not been redeemed. The Holder's delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company's obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.
 
11.          VOTING RIGHTS. The Holder shall have no voting rights as the holder
of this Note, except as required by law (including, without limitation, the
Delaware General Corporation Law) and as expressly provided in this Note.
 
12.          [Intentionally Omitted]
 
 
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13.          COVENANTS. Until all of the Notes have been converted, redeemed or
otherwise satisfied in accordance with their terms:
 
  (a)          Incurrence of Indebtedness. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
incur or guarantee, assume or suffer to exist any Indebtedness (other than (i)
the Indebtedness evidenced by this Note and (ii) other Permitted Indebtedness).
 
  (b)           Restricted Payments. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, redeem,
defease, repurchase, repay or make any payments in respect of, by the payment of
cash or cash equivalents (in whole or in part, whether by way of open market
purchases, tender offers, private transactions or otherwise), all or any portion
of any Indebtedness, whether by way of payment in respect of principal of (or
premium, if any) or interest on, such Indebtedness if at the time such payment
is due or is otherwise made or, after giving effect to such payment, (i) an
event constituting an Event of Default has occurred and is continuing or (ii) an
event that with the passage of time and without being cured would constitute an
Event of Default has occurred and is continuing.
 
  (e)           Restricted Issuances. The Company shall not, directly or
indirectly, without the prior written consent of the holders of a majority in
aggregate principal amount of the Notes then outstanding, (i) issue any Notes
(other than as contemplated by the Securities Purchase Agreement and the Notes)
or (ii) issue any other securities that would cause a breach or default under
the Notes.
 
  (d)           Restriction on Redemption and Cash Dividends. Except as set
forth in the Public Reports, the Company shall not, and the Company shall cause
each of its Subsidiaries to not, directly or indirectly, redeem, repurchase or
declare or pay any cash dividend or distribution on any of its capital stock
(other than dividends and distributions to the Company to or from any
wholly-owned Subsidiary of the Company or between wholly-owned Subsidiaries of
the Company).
 
  (e)           Restriction on Transfer of Assets. The Company shall not, and
the Company shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, spin-off, split-off, close, convey or
otherwise dispose of any assets or rights of the Company or any Subsidiary owned
or hereafter acquired whether in a single transaction or a series of related
transactions, other than (i) sales, leases, licenses, assignments, transfers,
conveyances and other dispositions of such assets or rights by the Company and
its Subsidiaries in the ordinary course of business, (ii) any license to any
Person in furtherance of a business plan of the Company approved by the board of
directors of the Company and not in violation of Section 13(g) below and (iii)
sales of inventory in the ordinary course of business.
 
  (f)            Change in Nature of Business. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
engage in any business substantially different from the business conducted by
the Company and each of its Subsidiaries on the Issuance Date or any business
substantially related or incidental thereto. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
modify its or their corporate structure or purpose.
 
 
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  (g)           Preservation of Existence, Etc. The Company shall maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve, its
existence, rights and privileges, and become or remain, and cause each of its
Subsidiaries to become or remain, duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary.
 
  (h)           Maintenance of Properties, Etc. The Company shall reasonably
maintain and preserve, and cause each of its Subsidiaries to reasonably maintain
and preserve, all of its properties which are necessary or useful in the proper
conduct of its business in good working order and condition, ordinary wear and
tear excepted, and comply, and cause each of its Subsidiaries to comply, at all
times with the material provisions of all leases to which it is a party as
lessee or under which it occupies property, so as to prevent any material loss
or forfeiture thereof or thereunder.
 
  (i)            Maintenance of Intellectual Property. The Company will, and
will cause each of its Subsidiaries to, take all reasonable action necessary or
advisable to maintain all of the Intellectual Property Rights of the Company
and/or any of its Subsidiaries that are necessary or material to the conduct of
its business in full force and effect.
 
  (j)            Transactions with Affiliates. The Company shall not, nor shall
it permit any of its Subsidiaries to, enter into, renew, extend or be a party
to, any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease, transfer or exchange of property or
assets of any kind or the rendering of services of any kind) with any affiliate,
except in the ordinary course of business in a manner and to an extent
consistent with past practice and necessary or desirable for the prudent
operation of its business, for fair consideration and on terms no less favorable
to it or its Subsidiaries than would be obtainable in a comparable arm's length
transaction with a Person that is not an affiliate thereof.
 
14.         PARTICIPATION. Upon any conversion of this Note, the Holder shall be
entitled to receive such dividends paid and distributions made to the holders of
Common Stock from and after the initial Issuance Date to the same extent as if
the Holder had effected such conversion and had held such shares of Common Stock
(issued or to be issued in such conversion) on the record date for such
dividends and distributions. Payments under the preceding sentence shall be made
on or prior to the applicable Share Delivery Deadline with respect to such
conversion (provided, however, to the extent that the Holder's right to
participate in any such dividend or distribution would result in the Holder
exceeding the Maximum Percentage, then the Holder shall not be entitled to
participate in such dividend or distribution to such extent (or the beneficial
ownership of any such shares of Common Stock as a result of such dividend or
distribution to such extent) and such dividend or distribution to such extent
shall be held in abeyance for the benefit of the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Maximum
Percentage).
 
15.        AMENDING THE TERMS OF THIS NOTE. The prior written consent of the
Holder and the Company shall be required for any change or amendment to this
Note.
 
16.         TRANSFER. This Note and any shares of Common Stock issued upon
conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of
Section 4.4 of the Securities Purchase Agreement.
 
 
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17.          REISSUANCE OF THIS NOTE.
 
  (a)          Transfer. If this Note is to be transferred, the Holder shall
surrender this Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note (in accordance with Section
17(d)), registered as the Holder may request, representing the outstanding
Principal being transferred by the Holder and, if less than the entire
outstanding Principal is being transferred, a new Note (in accordance with
Section 17(d)) to the Holder representing the outstanding Principal not being
transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii)
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.
 
  (b)           Lost, Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 17(d))
representing the outstanding Principal.
 
  (c)           Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 17(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.
 
  (d)           Issuance of New Notes. Whenever the Company is required to issue
a new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 17(a) or Section 17(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent
accrued and unpaid Interest and Late Charges on the Principal and Interest of
this Note, from the Issuance Date.
 
 
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18.         REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. The Company covenants to the
Holder that there shall be no characterization concerning this instrument other
than as expressly provided herein. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the Holder and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any such breach or any such threatened breach, without the necessity
of showing economic loss and without any bond or other security being required.
The Company shall provide all information and documentation to the Holder that
is requested by the Holder to enable the Holder to confirm the Company's
compliance with the terms and conditions of this Note.
 
19.         PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note
is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
without limitation, reasonable attorneys' fees and disbursements. The Company
expressly acknowledges and agrees that no amounts due under this Note shall be
affected, or limited, by the fact that the purchase price paid for this Note was
less than the original Principal amount hereof.
 
20.         CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and the Holder and shall not be construed against any
Person as the drafter hereof. The headings of this Note are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Note. Terms used in this Note but defined in the other Transaction Documents
shall have the meanings ascribed to such terms on the Closing Date in such other
Transaction Documents unless otherwise consented to in writing by the Holder.
 
21.         FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. No waiver shall be effective unless it is
in writing and signed by an authorized representative of the waiving party.
 
 
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22.         DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Conversion Price (including, without limitation, any disputed adjustment
thereto), the Conversion Price, any Redemption Price, the Closing Bid Price, the
Closing Sale Price or fair market value (as the case may be) or the arithmetic
calculation of the Conversion Rate or the applicable Redemption Price (as the
case may be), the Company or the Holder (as the case may be) shall submit the
disputed determinations or arithmetic calculations (as the case may be) via
facsimile (i) within two (2) Business Days after receipt of the applicable
notice giving rise to such dispute to the Company or the Holder (as the case may
be) or (ii) if no notice gave rise to such dispute, at any time after the Holder
learned of the circumstances giving rise to such dispute. If the Holder and the
Company are unable to agree upon such determination or calculation within two
(2) Business Days of such disputed determination or arithmetic calculation (as
the case may be) being submitted to the Company or the Holder (as the case may
be), then the Company shall, within two (2) Business Days, submit via facsimile
(a) the disputed determination of the Conversion Price, the Company Conversion
Price, any Redemption Price, the Closing Bid Price, the Closing Sale Price or
fair market value (as the case may be) to an independent, reputable investment
bank selected by the Company and approved by the Holder or (b) the disputed
arithmetic calculation of the Conversion Rate or any Redemption Price (as the
case may be) to an independent investment bank or accountant selected by the
Holder that is reasonably acceptable to the Company. The Company and the Holder
shall cause, at their joint expense, the investment bank or the accountant (as
the case may be) to perform the determinations or calculations (as the case may
be) and notify the Company and the Holder of the results no later than ten (10)
Business Days from the time it receives such disputed determinations or
calculations (as the case may be). Such investment bank's or accountant's
determination or calculation (as the case may be) shall be binding upon all
parties absent demonstrable error.
 
23.         NOTICES; CURRENCY', PAYMENTS.
 
  (a)           Notices. Whenever notice is required to be given under this
Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Securities Purchase Agreement. The Company shall
provide the Holder with prompt written notice of all actions taken pursuant to
this Note, including in reasonable detail a description of such action and the
reason therefore. Without limiting the generality of the foregoing, the Company
will give written notice to the Holder (i) immediately upon any adjustment of
the Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B)      with respect to any
grant, issuances, or sales of any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property to holders of shares of
Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.
 
  (b)           Currency. All dollar amounts referred to in this Note are in
United States Dollars ("U.S. Dollars"), and all amounts owing under this Note
shall be paid in U.S. Dollars. All amounts denominated in other currencies (if
any) shall be converted into the U.S. Dollar equivalent amount in accordance
with the Exchange Rate on the date of calculation. "Exchange Rate" means, in
relation to any amount of currency to be converted into U.S. Dollars pursuant to
this Note, the U.S. Dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation (it being understood and agreed that where
an amount is calculated with reference to, or over, a period of time, the date
of calculation shall be the final date of such period of time).
 
 
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  (c)           Payments. Whenever any payment of cash is to be made by the
Company to any Person pursuant to this Note, unless otherwise expressly set
forth herein, such payment shall be made in lawful money of the United States of
America by a certified check drawn on the account of the Company and sent via
overnight courier service to such Person at such address as previously provided
to the Company in writing (which address, in the case of the Investor, shall
initially be as set forth on Schedule I attached to the Securities Purchase
Agreement), provided that the Holder may elect to receive a payment of cash via
wire transfer of immediately available funds by providing the Company with prior
written notice setting out such request and the Holder's wire transfer
instructions. Whenever any amount expressed to be due by the terms of this Note
is due on any day which is not a Business Day, the same shall instead be due on
the next succeeding day which is a Business Day. Any amount of Principal or
other amounts due under the Transaction Documents which is not paid when due
shall result in a late charge being incurred and payable by the Company in an
amount equal to interest on such amount at the rate of eighteen percent (18%)
per annum from the date such amount was due until the same is paid in full
("Late Charge").
 
24.        CANCELLATION. After all Principal, accrued Interest, Late Charges and
other amounts at any time owed on this Note have been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
 
25.        WAIVER OF NOTICE. To the extent peiinitted by law, the Company hereby
irrevocably waives demand, notice, presentment, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Securities Purchase Agreement.
 
26.        GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in New York, NY,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, 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 any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note.
Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company's obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a
judgment or other court ruling in favor of the Holder. THE PARTIES HEREBY
IRREVOCABLY WAIVE ANY RIGHT THEY MAY HAVE TO, AND AGREE NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.
 
 
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27.         MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Holder and thus refunded to the
Company.
 
28.         SECURITY AGREEMENT. In the event the outstanding Principal amount of
this Note plus accrued and unpaid Interest is not paid in full by the 45th day
after the date of this Note, the Company and the Holder shall enter into a
Security Agreement in the form attached as Exhibit A hereto.
 
29.         DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
non-public information relating to the Company or any of its Subsidiaries, the
Company shall within one (1) Business Day after any such receipt or delivery
publicly disclose such material, non-public information on a Current Report on
Form 8-K or otherwise. In the event that the Company believes that a notice
contains material, non-public information relating to the Company or any of its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, non-public information relating to the Company or its
Subsidiaries. Nothing contained in this Section 28 shall limit any obligations
of the Company, or any rights of the Holder, under Section 4.3 of the Securities
Purchase Agreement.
 
30.         CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
 
  (a)          "Bloomberg" means Bloomberg, L.P.
 
  (b)          "Business Day" means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.
 
  (c)         "Change of Control' means any Fundamental Transaction other than
(i) any merger of the Company or any of its, direct or indirect, wholly-owned
Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization,
recapitalization or reclassification of the shares of Common Stock in which
holders of the Company's voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, are, in all material respects, the holders of the voting
power of the surviving entity (or entities with the authority or voting power to
elect the members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities) after such reorganization,
recapitalization or reclassification, or (iii) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Company or any of its Subsidiaries).
 
 
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  (d)          "Closing Bid Price" and "Closing Sale Price" means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price
(as the case may be) then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by OTC
Markets Group Inc. (formerly Pink Sheets LLC).
 
  (e)           "Closing Date" shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company initially
issued the Note pursuant to the terms of the Securities Purchase Agreement.
 
  (f)            "Common Stock" means (i) the Company's common stock, $0.0001
par value per share, and (ii) any capital stock into which such common stock
shall have been changed or any share capital resulting from a reclassification
of such common stock.
 
  (g)           "Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto
 
  (h)           "Convertible Securities" means any stock or other security
(other than Options) that is at any time and under any circumstances, directly
or indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.
 
  (i)            "Eligible Market" means the OTC Bulletin Board, The NASDAQ
Global Market, The NASDAQ Global Select Market, The NASDAQ Capital Market, the
New York Stock Exchange, NYSE Arca, the NYSE MKT, the OTCQX Marketplace or the
OTCQB Marketplace operated by OTC Markets Group Inc. (or any successor to any of
the foregoing).
 
  (j)            "GAAP" means United States generally accepted accounting
principles, consistently applied.
 
 
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  (k)           "Indebtedness" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (including,
without limitation, "capital leases" in accordance with generally accepted
accounting principles) (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
claim, lien, tax, right of first refusal, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts and
contract rights) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (A) through (G) above.
 
  (l)           "Interest Rate" means twelve percent (12%) per annum, as may be
adjusted from time to time in accordance with Section 2.
 
  (m)         "Maturity Date" shall mean July 1, 2015; provided, however, the
Maturity Date may be extended at the option of the Holder through the date that
is twenty (20) Business Days after the consummation of a Fundamental Transaction
in the event that a Fundamental Transaction is publicly announced or a
Fundamental Transaction Notice is delivered prior to the Maturity Date.
 
  (n)          "Options" means any rights, warrants or options to subscribe for
or purchase shares of Common Stock or Convertible Securities.
 
  (o)          "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
 
  (p)          "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency
thereof.
 
 
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           "Permitted Governmental Indebtedness" means Indebtedness provided by
the Export and Import Bank of the United States of America or other similar
governmental entity for the purpose of supporting product sales by the Company.
 
          "Permitted Indebtedness" means (i) indebtedness evidenced by this
Note, (ii) Indebtedness described on Schedule 13(a) attached hereto, (iii)
indebtedness secured by Permitted Liens described in clauses (iv) and (v) of the
definition of Permitted Liens, (iv) Permitted Governmental Indebtedness, and (v)
any other indebtedness of the Company and Subsidiaries, not to exceed $100,000
in the aggregate.
 
          "Permitted Liens" means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iii) any Lien
created by operation of law, such as materialmen's liens, mechanics' liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment
acquired or held by the Company or any of its Subsidiaries to secure the
purchase price of such equipment or indebtedness incurred solely for the purpose
of financing the acquisition or lease of such equipment, (B) existing on such
equipment at the time of its acquisition, provided that the Lien is confined
solely to the property so acquired and improvements thereon, and the proceeds of
such equipment, (C) upon any real estate to secure the purchase price, incurred
solely to purchase the acquisition thereof, (v) Liens incurred in connection
with the extension, renewal or refinancing of the indebtedness secured by Liens
of the type described in clause (iv) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, (vii) Liens securing Permitted Governmental
Indebtedness, (vii) Liens securing the Company's obligations under the Notes.
 
          "Principal Market" means, as of any date of determination, the
principal securities exchange or securities market on which the Common Stock is
then traded.
 
  (u)          "Redemption Notices" means, collectively, the Event of Default
Redemption Notices, the Fundamental Transaction Redemption Notices and the
Company Optional Redemption Notices, and each of the foregoing, individually, a
"Redemption Notice."
 
  (v)         "Redemption Premium" means 110%.
 
  (w)         "Redemption Prices" means, collectively, Event of Default
Redemption Prices, and the Company Optional Redemption Prices and each of the
foregoing, individually, a "Redemption Price."
 
           "SEC' means the United States Securities and Exchange Commission or
the successor thereto.
 
 
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  (y)           "Securities Purchase Agreement" means that certain Securities
Purchase Agreement, dated as of the date hereof, by and between the Company and
the Holder pursuant to which the Company issued this Note, as may be amended
from time to time.
 
  (z)           "Subsidiaries" shall have the meaning as set forth in the
Securities Purchase Agreement.
 
  (aa)         "Successor Entity" means the Person (or, if so elected by the
Holder, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Holder, the
Parent Entity) with which such Fundamental Transaction shall have been entered
into.
 
  (bb)        "Trading Day" means any day on which the Common Stock is traded on
the Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded, provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time) unless such day is otherwise designated
as a Trading Day in writing by the Holder.
 
  (cc)         "Voting Stock" of a Person means capital stock of such Person of
the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority of
the board of directors, managers, trustees or other similar governing body of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).
 
  (dd)        "VWAP" means the volume weighted average price (the aggregate
sales price of all trades of Common Stock during a Trading Day divided by the
total number of shares of Common Stock traded during such Trading Day) of the
Common Stock during a Trading Day as reported by Bloomberg L.P. using the AQR
function.
 
[signature page follows]
 
 
 
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.
 

 
INTERCLOUD SYSTEMS, INC.
         
 
By:
/s/ Lawrence Sands      
Name : Lawrence Sands
      Title:    SVP   

 
 
Senior Secured Convertible Note - Signature Page
 
 
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EXHIBIT I
 
INTERCLOUD SYSTEMS, INC.
CONVERSION NOTICE
 
Reference is made to the Convertible Note (the "Note") issued to the undersigned
by InterCloud Systems, Inc., a Delaware corporation (the "Company"). In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock, $0.0001 par value per share (the "Common
Stock"), of the Company, as of the date specified below Capitalized terms not
defined herein shall have the meaning as set forth in the Note.
 
Date of Conversion:
                                                                                                                                                                                                                                       
   
Aggregate Principal to be converted:
                                                                                                                                                                                                                                       
   
Aggregate accrued and unpaid Interest and accrued and unpaid Late Charges with
respect to such portion of the Aggregate Principal and such Aggregate Interest
to be converted:
                                                                                                                                                                                                                                       
   
AGGREGATE CONVERSION AMOUNT TO BE CONVERTED:
                                                                                                                                                                                                                                       
   

 
Please confirm the following information:
 
Conversion Price:
                                                                                                                                                                                                                                       
   
Number of shares of Common Stock to be issued:
                                                                                                                                                                                                                                       
   

Notwithstanding anything to the contrary contained herein, this Conversion
Notice shall constitute a representation by the Holder of the Note submitting
this Conversion Notice that after giving effect to the conversion provided for
in this Conversion Notice, such Holder (together with its affiliates) will not
have beneficial ownership (together with the beneficial ownership of such
Person's affiliates) of a number of shares of Common Stock which exceeds the
Maximum Percentage of the total outstanding shares of Common Stock of the
Company as determined pursuant to the provisions of Section 3(d) of the Note.
 
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
 
Issue to:
                                                                                                                                                                                                                                       
 
                                                                                                                                                                                                                                       
 
                                                                                                                                                                                                                                       
 
                                                                                                                                                                                                                                       
   
Facsimile Number:
                                                                                                                                                                                                                                       
   
Holder:
                                                                                                                                                                                                                                       
                    By:
                                                                                                                                                                                                                                       
   
Title:
                                                                                                                                                                                                                                       
                    Dated:
                                                                                                                                                                                                                                       
   
Account Number:
                                                                                                                                                                                                                                       
(if electronic book entry transfer)
                   Transaction Code Number:
                                                                                                                                                                                                                                       
(if electronic book entry transfer)

 
 
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ACKNOWLEDGMENT
 
The Company hereby acknowledges this Conversion Notice and hereby
directs                                  to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions
dated                                  , 20    from the Company and acknowledged
and agreed to by                                  .
 

 
INTERCLO SYSTEMS, INC.
         
 
By:
       
Name :
      Title:     

 
 
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Schedule 13(a)
 
Permitted Indebtedness
 
 
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Exhibit A
 
Security Agreement
 
 
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its authorized officer  as of the date first indicated above.
 

 
INTERCLO SYSTEMS, INC.
         
 
By:
/s/ Lawrence Sands      
Name : Lawrence Sands
      Title:    SVP   

 
 
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