Exhibit 4.1
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE (A) ABSENCE OF (I) A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT OR (II) AN OPINION OF COUNSEL
TO THE HOLDER THAT SUCH REGISTRATION IS NOT REQUIRED OR (B) UNLESS SOLD PURSUANT
TO RULE 144 OR RULE 144A OF THE SECURITIES ACT.
AMENDED AND RESTATED SECURED
CONVERTIBLE PROMISSORY NOTE
|
US$
|
,
2008
Hong
Kong, China
|
FOR VALUE
RECEIVED, NETWORK CN INC., a Delaware corporation (hereinafter called
the “
Borrower
” or the
“
Company
”), hereby
promises to pay to [INVESTOR], a company organized under the laws of the
Republic of Ireland (the “
Holder
”) or its registered
assigns or successors in interest or order, without demand, the sum of
___________(US$__________)
,
or if less, the aggregate principal amount of the borrowing outstanding
(“
Principal Amount
”),
plus accrued and unpaid interest thereon, on June 30, 2011 (the “
Maturity Date
”).
This
Amended and Restated Secured Convertible Promissory Note is one of a series of
Notes (as they may hereafter be further amended, restated, supplemented or
otherwise modified from time to time, being the “
Notes
”) that have been issued
pursuant to, and are subject to, the Note and Warrant Purchase Agreement dated
as of November 19, 2007, as amended by the First Amendment to Note and Warrant
Purchase Agreement, dated as of January __, 2008, by and among the Borrower and
the Holder, among others (said Note and Warrant Purchase Agreement, as it may be
amended, restated, supplemented or otherwise modified from time to time, being
the “
Purchase
Agreement
”), shall be governed to the extent applicable and except as
otherwise provided herein by the terms of the Purchase Agreement and shall
evidence all principal and accrued interest evidenced by those certain Notes
issued by Borrower to the Holder prior to the date hereof pursuant to the
Purchase Agreement (as the “Prior Holder Notes”). The securities
represented by the Notes are also subject to the Registration Rights Agreement
and the Investor Rights Agreement. The Notes are secured by certain
Security Documents as further set forth therein
.
The
following terms shall apply to this Note:
Form
of Amended and Restated Note
ARTICLE
I
DEFINITIONS
1.1
Definitions
. Except
as otherwise defined herein, each capitalized term used herein shall have the
meaning assigned to it in the Purchase Agreement. As used in this
Note, the following terms, unless the context otherwise requires, have the
following meanings:
(a)
“Bridge Loan Note”
means a
six-month convertible note issued to Wei An Developments Limited on November 12,
2007 in the principal amount of $5,000,000 and at the interest rate of 12% per
annum.
(b)
“Bridge Loan Warrant”
means a
warrant issued to Wei An Developments Limited on November 12, 2007 to purchase a
total of 250,000 shares of the Company’s Common Stock at an exercise price of
US$2.3 per share and within two years after the issuance.
(c)
“Broker’s Warrant”
means
the warrant issued to 9
Limited on September 10, 2007 to purchase a total of 300,000 shares of the
Company’s Common Stock at an exercise price of US$3.0 per share and within two
years after the issuance.
(d)
“Common Stock Equivalent”
means any shares, securities, exchangeable securities, subscription
rights, options or other obligations of the Borrower which are by their terms
capable of being subscribed, exchanged, exercisable or otherwise convertible
into any Common Stock of the Borrower.
(e) “
ESOP
” means (i) the 2004 Stock
Incentive Plan filed as an exhibit to the Company’s registration statement on
form S-8 filed with the SEC on April 22, 2004 ; (ii) the 2007 Stock Option /
Stock Issuance Plan filed as an exhibit to the Company’s proxy statement on form
14A filed with the SEC on October 19, 2007; it being understood that no more
than 12%, 20%, 25%, 34%, and the remaining of the total number of shares of
Common Stock issuable under the ESOP shall be issued in November and December of
2007, 2008, 2009, 2010, and 2011, respectively.
(f) “
Exempt Issuance
” means the
issuance of (a) up to 7,500,000 shares of Common Stock under either the
Company’s ESOP, subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common
Stock that occur after the First Closing Date, or to employees, consultants,
service providers, officers or directors of the Borrower pursuant to any other
stock or option plan duly adopted for such purpose by a majority of the
non-employee members of the Board of Directors or a majority of the members of a
committee of non-employee directors established for such purpose, (b) securities
upon the exercise or exchange of or conversion of any securities issued
hereunder and/or other securities exercisable or exchangeable for or convertible
into shares of Common Stock issued and outstanding on the First Closing Date,
provided that such securities have not been amended since the date of this Note
to increase the number of such securities or to decrease the exercise, exchange
or conversion price of such securities.
(g) “
Majority Holders
” means the
holders of a majority of the principal amount of the Notes.
Form
of Amended and Restated Note
(h) “
Permitted Indebtedness
” means
(a) the indebtedness evidenced by the Notes, (b) the Indebtedness existing on
the First Closing Date and set forth on the Most Recent Balance Sheet, (c) lease
obligations, purchase money indebtedness of up to $2,000,000, in the aggregate,
incurred in connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets and (d) indebtedness
that is expressly subordinate to the Notes pursuant to a written subordination
agreement with the Holders of the Notes and the Collateral Agent and does not
exceed $2,000,000 in the aggregate; and (e) trade payable and other accounts
payable incurred in the ordinary course of business of the Company and its
Subsidiaries of up to $2,000,000 in the aggregate.
(i) “
Permitted Lien
” means the
individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Borrower) have been established in
accordance with GAAP and duly reflected in the Financial Statements; (b) Liens
imposed by law which were incurred in the ordinary course of the Borrower’s
business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory
landlords’ Liens, and other similar Liens arising in the ordinary course of the
Borrower’s business, and which (x) do not individually or in the aggregate
materially detract from the value of such property or assets or materially
impair the use thereof in the operation of the business of the Borrower and its
consolidated Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for the
foreseeable future the forfeiture or sale of the property or asset subject to
such Lien; and (c) Liens incurred in connection with Permitted Indebtedness
under clauses (c) thereunder, provided that such Liens are not secured by assets
of the Company or its Subsidiaries other than the assets so acquired or
leased.
ARTICLE
II
INTEREST
2.1
Interest
Rate
. The Borrower hereby agrees to pay interest to the Holder
in respect of the outstanding Principal Amount of this Note at a per annum rate
equal to 3% (“
Interest
Rate
”) in cash. Such interest shall accrue on the outstanding Principal
Amount of this Note from and after the date hereof (or, in the case of principal
under any Prior Holder Note, from and after the date of such Prior Holder Note)
and shall be payable semi-annually in arrears with the first interest payment
due on December 31, 2007 and succeeding interest payments due on the last
Business Day of each June and December thereafter. All computations
of interest hereunder shall be made on the basis of a year of 360 days for the
actual number of days (including the first but excluding the last day) occurring
in the period for which such interest is payable.
2.2
Default
Interest
. Notwithstanding anything to the contrary contained
in
Section 2.1
,
upon the occurrence and during the continuation of any Event of Default (as
defined below), Interest on the outstanding Principal Amount of this Note shall
accrue at 25% per annum from the date of such Event of Default until the
Redemption Price is paid in full (as defined below), payable on
demand.
Form
of Amended and Restated Note
2.3
No
Prepayment
. The Borrower may not prepay all or any part of the
Note at any time without the express written consent of the Holder.
2.4
Taxes
. Any and all
payments by the Borrower to or for the account of the Holder under this Note
shall be made free and clear of and without deduction for any Taxes, except as
required by Applicable Law. If the Borrower shall be required by any
Applicable Law to dedu
ct any Taxes from or in
respect of any sum payable under this Note to the Holder, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this
Section
2.4
), the Holder receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions, (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with Applicable
Law, and (iv) as promptly as practicable after the date of such payment, the
Borrower shall furnish to the Holder the original or a certified copy of a
receipt evidencing payment thereof.
ARTICLE
III
CONVERSION
RIGHTS
3.1
Holder’s Conversion
Rights
. The Holder shall have the right, but not the
obligation, to convert all or a part of the outstanding Principal Amount of this
Note, together with any accrued and unpaid interest thereon to the date of such
conversion, into such number of fully paid and non-assessable Common Stock of
the Borrower (the “
Conversion
Shares
”), at any time prior to the later of the Maturity Date or the date
on which this Note is paid in full, subject to the terms and conditions set
forth in this
Article
3
, at a conversion price (the “
Conversion Price
”) per share
of Common Stock calculated in accordance with
Section
3.2
.
3.2
Conversion
Price
.
(a) The
initial conversion price (the “
Initial Conversion Price
”)
shall be US$1.65, as proportionally adjusted for any subdivision, consolidation,
reclassification or similar event of the Common Stock.
(b) The
Initial Conversion Price shall be adjusted downwards if the Actual EPS for the
fiscal year ending 31 December 2008 is less than the 2008 EPS Target as
follows:
2008
Adjusted Conversion Price =Initial Conversion Price X [1- (2008 EPS Target -
Actual 2008 EPS) / 2008 EPS Target]
(c) The
Conversion Price then in effect (as adjusted if applicable) shall be further
adjusted downwards if the Actual EPS for the fiscal year ending 31 December 2009
is less than the 2009 EPS Target as follows:
Form
of Amended and Restated Note
2009
Adjusted Conversion Price = Conversion Price then in effect X [1-(2009 EPS
Target - Actual 2009 EPS) / 2009 EPS Target]
(d) The
Conversion Price then in effect (as adjusted if applicable) shall be further
adjusted downwards if the Actual EPS for the fiscal year ending 31 December 2010
is less than the 2010 EPS Target as follows:
2010
Adjusted Conversion Price = Conversion Price then in effect X [1-(2010 EPS
Target - Actual 2010 EPS) / 2010 EPS Target]
(e) “EPS
Target” means, for the fiscal years ending 31 December 2008, 2009 and 2010, the
recurring earning per share of US$0.081, US$0.453, and US$0.699,
respectively.
(f) “Actual
EPS” for a fiscal year means the amount of fully diluted recurring earning per
share calculated in accordance with the earning per share stated in the
Borrower’s audited financial statements contained in its annual report filed
with the U.S. Securities and Exchange Commission(the “
SEC
”) for such fiscal year.
For the avoidance of doubt, the net income amount for a fiscal year used for the
calculation of the Actual EPS shall exclude the following expenses or income for
such fiscal year (without double counting): (i) accounting charges arising from
or in connection with the issuance or conversion of the Notes and their embedded
derivatives; and all other accounting charges related to the Notes and their
embedded derivatives, if any, (ii) accounting charges arising from or in
connection with the issuance or exercise of the Warrants, Bridge Loan Warrant
and Broker’s Warrant; and all other accounting charges related to the Warrants,
Bridge Loan Warrant and Broker’s Warrant, if any, (iii) the after tax amount of
interest recognized in each of the relevant fiscal year associated with the
Notes and Bridge Loan Note, (iv) accounting income or charges arising from any
changes or introduction of new accounting standards after the Initial Closing;
and (v) any extraordinary gain or loss. The amount of each of the
aforementioned items shall be determined in accordance with the
GAAP. Furthermore, the number of shares used for the calculation of
the Actual EPS shall exclude the number of (i) shares of Common Stock issued or
issuable upon conversion
of the Notes
, (ii)
shares of Common Stock issued or
issuable upon exercise of the
Warrants, (iii) shares of Common Stock and options issued or issuable
under the ESOP in accordance with the GAAP, (iv) up to 1,500,000 shares of
Common Stock issued or issuable in relation to the acquisition of Cityhorizon;
(v) shares of Common Stock issued or issuable upon exercise of the Bridge
Loan Warrant, and (vi) shares of Common Stock issued or issuable upon exercise
of the Broker’s Warrant.
(g) In
the event of any dispute with the calculation of Actual EPS for any fiscal year
between the Borrower and the Holder, the Borrower and the Holder shall negotiate
in good faith to resolve such disagreement; if resolution cannot be achieved
within thirty (30) days from the date of the initial disagreement, the Borrower
and the Holder shall jointly appoint an independent accounting firm with
international reputation, who shall not be the auditors of the Borrower to
resolve the dispute with respect to the calculation of the relevant Actual EPS,
whose decision shall be final and binding upon the Borrower and the
Holder. The fees and costs of the independent accounting firm
incurred in the resolution of the amount of relevant Actual EPS in dispute shall
be reasonably determined by the independent accounting firm and set forth in its
decision, and shall be allocated between and paid by the Borrower, on the one
hand, and the Holder, on the other hand, in inverse proportion to the extent
they prevailed on the amount of relevant Actual EPS in dispute.
Form
of Amended and Restated Note
(h) If
the Third Closing fails to be completed before December 31, 2007, the EPS Target
for 2008 shall be adjusted as follows:
Adjusted
2008 EPS Target = 0.081 * [(365-X) / 365]
Where
|
|
X
--
|
The
actual number of days for the period commencing from January 1, 2008 to
the date of the Third Closing.
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(i) In
the event of any restatement of the Borrower’s audited financial statements at a
date later than their publication in the Borrower’s annual report filed with the
SEC for the relevant fiscal year, the Conversion Price then in effect shall be
appropriately adjusted notwithstanding any earlier adjustment, provided that any
restatement caused by changes to the GAAP itself shall not trigger any
adjustment of the Conversion Price then in effect.
(j) For
the avoidance of doubt, any adjustment to the Conversion Price then in effect
can only result in a downward adjustment. If the actual Conversion
Price after adjustment is more than the Conversion Price then in effect, the
Conversion Price shall remain unchanged.
3.3
Conversion
Procedures
.
(a) In
the event that the Holder elects to convert this Note into Common Stock, the
Holder shall give notice of such election by delivering an executed and
completed notice of conversion (a “
Notice of Conversion
”) to the
Borrower, which Notice of Conversion shall provide a breakdown in reasonable
detail of the Principal Amount, accrued an unpaid interest and amounts being
converted. The date specified in the Notice of Conversion, or if no
date is specified, then the date of the delivery of the Notice of Conversion,
shall be referred to as the “
Conversion Date
.” A
form of Notice of Conversion to be employed by the Holder is annexed hereto as
Exhibit
A
.
(b) Pursuant
to the terms of the Notice of Conversion, the Borrower shall deliver, or cause
to be delivered, such number of Conversion Shares as determined pursuant to this
Note via physical certificates. In the case of the exercise of the conversion
rights set forth herein, the conversion privilege shall be deemed to have been
exercised and the Conversion Shares issuable upon such conversion shall be
deemed to have been issued upon the Conversion Date. The Holder shall
be treated for all purposes as the beneficial holder of such shares of Common
Stock, unless the Holder provides the Borrower written instructions to the
contrary.
(c) The
number of Conversion Shares to be issued upon each conversion of this Note
pursuant to this
Article 3
shall be
determined by dividing
the Principal Amount and
accrued interest to be converted, if any, by the then applicable Conversion
Price. No fractional shares of Common Stock shall be issued upon any
conversion of this Note. In lieu of the Borrower issuing any
fractional shares to the Holder upon any conversion of this Note, the
Borrower shall make an adjustment and payment in cash to the
Holder.
Form
of Amended and Restated Note
3.4
Further Adjustment
Events
.
(a) The
Conversion Price and number and kind of shares or other securities to be issued
upon conversion shall be subject to adjustment from time to time upon the
happening of certain events while this conversion right remains outstanding, as
follows:
(i)
Merger, Sale of Assets,
etc
. If (A) the Borrower effects any merger or consolidation
of the Borrower with or into another entity, (B) the Borrower effects any sale
of all or substantially all of its assets in one or a series of related
transactions, (C) any tender offer or exchange offer (whether by the Borrower or
another entity) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, (D) the Borrower consummates a stock purchase agreement or other
business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with one or more persons or
entities whereby such other persons or entities acquire more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by such other persons or entities making or party to, or associated or
affiliated with the other persons or entities making or party to, such stock
purchase agreement or other business combination), or (E) any “person” or
“group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the
1934 Act) is or shall become the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of 50% of the aggregate Common
Stock of the Borrower (in any such case, a “
Fundamental Transaction
”),
this Note, as to the Principal Amount thereof and accrued and unpaid interest
thereon, shall thereafter be deemed to evidence the right to convert into such
number and kind of shares or other securities and property as would have been
issuable or distributable on account of such Fundamental Transaction, upon or
with respect to the securities subject to the conversion right immediately prior
to such Fundamental Transaction. The foregoing provision shall
similarly apply to successive Fundamental Transactions of a similar nature by
any such successor or purchaser. Without limiting the generality of the
foregoing, the provisions of this Section shall apply to such securities of such
successor or purchaser after any such Fundamental Transaction.
(ii)
Reclassification,
etc
. If the Borrower at any time shall, by reclassification or
otherwise, change the Common Stock into the same or a different number of
securities of any class or classes, this Note, as to the Principal Amount hereof
and accrued and unpaid interest hereon, shall thereafter be deemed to evidence
the right to convert into an adjusted number of such securities and kind of
securities as would have been issuable as the result of such change with respect
to the Common Stock immediately prior to such reclassification or other
change.
(iii)
Stock Splits, Combinations
and Dividends
. If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, or if a
dividend is paid on the Common Stock in shares of Common Stock, the Conversion
Price shall be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of shares, in
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event.
Form
of Amended and Restated Note
(iv)
Share
Issuance
. So long as any amount of this Note is outstanding,
if the Borrower shall issue any Common Stock except for Common Stock issued or
issuable pursuant to an Exempt Issuance, prior to the full conversion or payment
of this Note, for a consideration less than the Conversion Price then in
effect(as adjusted if applicable), then, and thereafter successively upon each
such issuance, the Conversion Price shall be reduced to such other lower issue
price. For purposes of this adjustment, the issuance of any security
or debt instrument of the Borrower carrying the right to convert such security
or debt instrument into Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price upon
the issuance of the above-described security, debt instrument, warrant, right,
or option and again upon the issuance of shares of Common Stock upon exercise of
such conversion or purchase rights if such issuance is at a price lower than the
then applicable Conversion Price. For the avoidance of doubt, any
issuance of shares of Common Stock issuable upon conversion of the Bridge Loan
Note or exercise of the Bridge Loan Warrant shall trigger the adjustment under
this
Section 3.4 (a)
(iv)
.
(b) If
the Borrower at any time or from time to time, prior to the full conversion of
this Note, shall take any action affecting its Common Stock or share capital
similar to or having an effect similar to any of the actions described in
Section 3.4(a)
, then,
and in each such case, the Conversion Price shall be adjusted in such manner as
would be equitable in the circumstances.
3.5
Notice as to
Adjustments
. Whenever the Conversion Price is adjusted pursuant to this
Article 3
, the
Borrower shall promptly mail to the Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a statement of the facts requiring
such adjustment.
3.6
Reservation and
Registration
. The Borrower covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock for the sole purpose of issuance upon conversion of this Note, free from
all Liens, preemptive rights or any other actual contingent purchase rights of
Persons other than the Holder, not less than the aggregate number of shares of
the Common Stock as shall be issuable (taking into account the adjustments and
restrictions of this Article II) upon the conversion of this
Note. The Borrower covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, pursuant to the Registration Rights Agreement,
shall be registered for public sale in accordance therewith. The
Borrower agrees that its issuance of this Note shall constitute full authority
to its officers, agents, and transfer agents who are charged with the duty of
executing and issuing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of this
Note.
3.7
Transfer
Taxes
. The issuance of certificates for shares of the Common
Stock on conversion of this Note shall be made without charge to the Holder
hereof for any documentary, stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificates.
Form
of Amended and Restated Note
ARTICLE
IV
COVENANTS
OF THE BORROWER
4.1
Affirmative Covenants of the
Borrower
.
(a)
Maintenance of
Insurance
. The Borrower shall, and shall cause other Group Companies to,
maintain such insurance policies as are normal and customary for companies in
the same business and of the same or similar size as the Borrower to cover the
risks of the business carried on by the Borrower or other Group
Companies.
(b)
Qualified Accounting
Firm
. The Borrower shall maintain the engagement of Jimmy
Cheung & Co. / Webb and Company, P.A. or shall appoint at its own expense an
accounting firm of international reputation (each, a “
Qualified Accounting Firm
”),
as auditor of the Group Companies, and shall cause this auditor to audit the
Group Companies’ consolidated annual financial statements for the fiscal year
beginning January 1, 2007 and perform interim reviews of the Group Companies’
consolidated quarterly financial statements, all in accordance with Regulation
S-X.
(c)
Maintaining Records;
Information Rights
.
The Borrower
shall maintain financial records in accordance with generally accepted practices
and, upon reasonable notice, at all reasonable times and as often as the Holder
may reasonably request, permit any authorized representative designated by the
Holder to visit and inspect the properties and financial records of the Group
Companies and to make extracts from such financial records, and permit any
authorized representative designated by the Holder to discuss the affairs,
finances and conditions of the Group Companies with the senior management
personnel of the Borrower, the Qualified Accounting Firm, and such other
employees as the Borrower shall deem appropriate, subject to the execution of
appropriate non-disclosure agreements whereby the Holder agrees not to trade on
any acquired inside information illegally.
(d)
Use of Proceeds
. The
Borrower shall use the net proceeds from the sale of the Note for capital
expenditures on tangible assets, leases, license rights and potential
acquisitions related to the Group Companies’ media business and the expansion of
the Group Companies as a whole.
(e)
Purchase
Agreement
. The Borrower shall, and shall cause each Group
Company to, comply with all provisions of the Purchase Agreement that relate to
the Notes , the Common Stock issuable upon conversion of the Notes and the
Security Documents, including, without limitation, Section 7 of the Purchase
Agreement; it being understood that each Group Company shall comply or cause
compliance with each such Transaction Document which is applicable to it and its
Subsidiaries.
(f)
Other
Documents
. The Borrower shall, and shall cause
each Group Company to, comply with the terms of each Security Document and each
Transaction Document; it being understood that each Group Company shall comply
or cause compliance with each such Transaction Document which is applicable to
it and its Subsidiaries.
Form
of Amended and Restated Note
4.2
Negative Covenants of the
Borrower
.
The Borrower,
covenants that, so long as all or any of the Principal Amount of this Note
remains outstanding, no Group Company shall, without the prior written consent
of the Collateral Agent and the Majority Holders:
(a)
Charter
Documents
. Modify, alter, repeal or amend any Group Company’s
Charter Documents or effect any change of legal form of any Group
Company.
(b)
Major
Transaction
. Merge, consolidate or amalgamate with or into any
other Person or sell, transfer, assign, lease, convey or otherwise dispose of
all or substantially all of its assets in any one transaction or series of
transactions.
(c)
Dividends or
Repurchases
. Declare or pay dividends or other distributions
by any Group Company, or the redemption or repurchase more than a de minimis
number of shares of its Common Stock other than as (a) permitted or required
under the Transaction Documents, or (b) repurchases of Common Stock or Common
Stock Equivalents of departing officers and directors of the
Company.
(d)
Equity
Interests
. Except for Exempt Issuance or as otherwise
expressly contemplated in the Transaction Documents, authorize, reclassify,
recapitalize, issue, offer or exchange any securities or other equity interests
of any Group Company, including, without limitation, any and all shares of
capital stock, securities convertible into, or exchangeable or exercisable for,
such shares, and options, warrants or other rights to acquire such shares and
any securities that represent the right to receive any of the
foregoing.
(e)
Benefit
Plans
. Grant of any equity incentives to, and adoption,
amendment or termination of any equity incentive plan or employee benefit plan
(including but not limited to the ESOP) for the benefit of, officers, directors
or employees of any member of the Company Group.
(f)
Expenditures
. (i)
Acquire, or invest in, any business, (ii) make any capital expenditure for an
amount greater than US$2,000,000, (iii) dispose of any asset for an amount
greater than US$2,000,000 or less than the book value of such asset (other than
the sale of inventory in the ordinary course of business), (iv) acquire or
purchase any interest in any real property for an amount greater than
US$2,000,000, other than, in each case, as specifically pre-approved by the
Board of Directors in an annual budget.
(g)
Bankruptcy and
Liquidation
. Commence or consent by to any proceeding seeking
(i) to adjudicate it as bankrupt or insolvent, (ii) liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of its indebtedness under any law relating to bankruptcy,
insolvency, or reorganization or relief of debtors, or (iii) the entry of
an order for relief or the appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property.
(h)
Public
Offering
. Any public offering or registration of securities of
any Group Company other than as expressly contemplated by the Transaction
Documents.
(i)
Fiscal
Year
. Change of the term of the fiscal year of any Group
Company.
Form
of Amended and Restated Note
(j)
Material
Agreements
. Enter into, extend, terminate or otherwise
materially modify or amend: (i) any Material Contract and (ii) any
other agreement with an Affiliate, officer, director, stockholder, consultant or
employee of any Group Company.
(k)
Indebtedness.
Create,
incur, assume, guarantee or be or remain liable for, contingently or otherwise,
or suffer to exist (i) any Debt, other than Permitted Indebtedness, or (ii) any
Debt, other than the Notes and any other Permitted Indebtedness, that is
convertible into the shares of Common Stock or other securities of the
Borrower.
(l)
Lien
. Other
than Permitted Liens, create, incur, assume, guarantee or be or remain liable
for, contingently or otherwise, or suffer to exist any Liens.
(m)
Financing
. Enter or
agree to any other capital raising transaction or transactions with any Person
other than the Holder or its Affiliates; provided that, if the Holder fails to
exercise the Warrants, in whole or in part, for an aggregate amount of
$50,000,000 on or prior to July 1, 2008, the Borrower can raise up to in the
aggregate amount of $50,000,000 in the form of the Common Stock of the Company
from a Person other than the Holder or its Affiliates for a period of 180 days
commencing on July 1, 2008 without the prior consent of the Holder. The Holder
maintains its preemptive or similar rights with respect to any subsequent
financing.
(n)
Investments, Partnerships
and Joint Ventures
. (i) Subscribe, purchase or acquire any
securities of, or any interest in, or the making of any contribution to, any
Person (other than contributions by such Group Company to another Group
Company), (ii) create or cause to be formed any new Subsidiary, (iii) enter into
any partnerships, joint ventures or consortiums, or (iv) otherwise transfer all
or any part of the businesses of the Group Companies to another
Person.
(o)
Compensation
. Materially
increase or change the compensation package (including salary, bonus and equity
incentives, if any) of any member of the management team of any Group Company
with an annual total compensation package in excess of US$100,000.
(p)
Accountants
. Appoint
or remove of any independent public accountant of any Group Company, including
the Qualified Accounting Firm.
(q)
Litigation
. Commence
or settle of any litigation or claim involving a monetary payment greater than
US$500,000 or which imposes restrictions on any Group Company or the conduct of
its businesses, except collection actions against third parties in the ordinary
course of business.
(r)
Tax and Accounting
Practices
. Adopt or change a significant tax or accounting
practice or the making of any significant tax or accounting election or the
adoption of any position for purposes of any financial statements that, in the
reasonable judgment of the Holder, shall have a material adverse effect on the
Group Companies taken, taken as a whole, or on the Holder, unless the taking of
such position is expressly contemplated by the Transaction
Documents.
Form
of Amended and Restated Note
(s)
Transactions with Related
Parties
.
Enter into any
transaction with any officer, director or employee of any Group Company or any
“affiliate” or “associate” (as those terms are defined in Rule 405 promulgated
under the Securities Act) or any of them (each of the foregoing, a “
Related Party
”), except (i) as
expressly permitted by the Transaction Documents or (ii) in the ordinary course
of business and pursuant to the reasonable requirements of the business of any
Group Company, and, in the case of clause (ii), upon fair and reasonable terms
no less favorable to the Group Company than would be obtained in a comparable
arm’s-length transaction with a Person not a Related Party and which are
disclosed in advance to the Holder and which are disclosed or disclosable in the
audited financial statements of the Borrower.
(t)
Other
Businesses
. Engage, directly or indirectly, in any business
other than the business currently conducted by the Group Companies.
ARTICLE
V
EVENTS
OF DEFAULT
The
occurrence of any of the following events shall constitute an event of default
(“
Event of
Default
”):
5.1
Failure to Pay Principal or
Interest
. the Borrower shall fail to pay any Principal Amount,
when due, or any interest or other sum due under this Note or any Transaction
Documents.
5.2
Breach of
Covenant
. The Borrower or any Subsidiary of the Borrower
breaches any covenant or other term or condition of the this Note (including but
not limited to the conversion obligations in
Article 3
), the NCN
Group Note, the Purchase Agreement, the Undertaking Agreement or any Security
Document, which failure is not cured, if possible to cure, within five Business
Days after any Group Company has become or should have become aware of such
failure.
5.3
Breach of Representations
and Warranties
. Any representation or warranty of the Borrower
or any Subsidiary of the Borrower made herein or in any other Security Document
or other Transaction Document shall be false or misleading in any material
respect as of the date made.
5.4
Receiver or
Trustee
. The Borrower or any Subsidiary of the Borrower shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for them or for a substantial part of their
property or business; or such a receiver or trustee shall otherwise be
appointed.
5.5
Judgments
. Any
judgment against the Borrower or any Subsidiary of the Borrower or any of their
property or other assets with actual damages, net of insurance proceeds in
excess of $500,000 and such judgment, writ or similar final process shall remain
unvacated, unbonded or unstayed for a period of thirty (30) calender
days.
Form
of Amended and Restated Note
5.6
Non-Payment
. A
default by the Borrower or any Subsidiary under any one or more obligations in
an aggregate monetary amount in excess of $100,000, unless the Borrower or such
Subsidiary is contesting the validity of such obligation in good faith and has
segregated cash funds equal to the contested amount.
5.7
Bankruptcy
. Bankruptcy,
insolvency, reorganization, or liquidation proceedings or other such proceedings
or relief under any bankruptcy law or any law, or the issuance of any notice in
relation to such event, shall be instituted by or against the Borrower or any
Subsidiary of Borrower.
5.8
Delisting
. The
Common Stock shall not be eligible for listing or quotation for trading on a
Trading Market for a period of ten (10) consecutive trading days, and shall not
be eligible to resume listing or quotation for trading thereon within thirty
(30) trading days.
5.9
Stop
Trade
. An SEC or judicial stop trade order or OTC Bulletin
Board or other exchange trading suspension with respect to Borrower’s Common
Stock and not being rectified and resumed within thirty (30) trading
days.
5.10
Failure to Deliver Common
Stock
. Borrower’s failure to timely deliver shares of Common
Stock to the Holder prior to the seventh (7
th
)
trading day after a conversion date.
5.11
Non-Registration
. The
failure to timely file the registration statements covering the Conversion
Shares and the Warrant Shares in accordance with the Registration Rights
Agreement.
5.12
Cross
Default
. A default by the Borrower of a material term,
covenant, warranty or undertaking of any Transaction Document or other Material
Contracts which is not cured after any required notice and/or cure period and
could reasonably be expected to have a Material Adverse Effect.
5.13
Concession Advertising
Rights Agreements
. Termination of any Concession Advertising Rights
Agreements to which any PRC Operating Company is a party or the failure of any
Intermediate Companies to obtain or maintain any Concession Advertising Rights
which could reasonably be expected to have a Material Adverse
Effect.
5.14
Moratorium and
Nationalization
. (i) the confiscation, expropriation or
nationalization by any Governmental Authority of any property or assets of the
Borrower or any of its Subsidiaries if such confiscation, expropriation or
nationalization could reasonably be expected to have a Material Adverse Effect;
or (ii) if such revocation or repudiation could reasonably be expected to have a
Material Adverse Effect, the revocation or repudiation by any Governmental
Authority of any previously granted governmental permits or licenses to the
Borrower’s PRC Subsidiaries or Intermediate Companies, or (iii) the imposition
or introduction of material and discriminatory taxes, tariffs, royalties,
customs or excise duties imposed on the Borrower’s PRC Subsidiaries, or the
material and discriminatory withdrawal or suspension of material privileges or
specifically granted material rights of a fiscal nature.
5.15
Security
Interest
. Any Security Document or any of the security
provided for therein shall, at any time, cease to be in full force and
effect for any reason other than the satisfaction in full of all obligations
under the Note and discharge of the Note or any security interest created
thereunder shall be declared invalid or unenforceable or the Borrower or any of
its Subsidiaries or Affiliates shall assert, in any pleading in any court of
competent jurisdiction, that any such security interest is invalid or
unenforceable.
Form
of Amended and Restated Note
5.16
Reservation
Default
. Failure by the Borrower to have reserved for issuance
upon conversion of the Note the amount of Common Stock as set forth in this Note
and the Transaction Documents.
5.17
Material Adverse
Effect
. The occurrence of a Material Adverse Effect in respect
of the Borrower or any of its Subsidiaries taken as a whole.
Upon the occurrence of any Event of
Default specified in Section 5.4 or 5.7 above, the principal amount of this Note
together with accrued interest thereon shall become immediately due and payable,
without presentment, demand, notice, protest or other requirements of any kind
(all of which are hereby expressly waived by the Borrower). Upon the
occurrence and during the continuance of any other Event of Default, the
Majority Holders or the Collateral Agent may, by written notice to Borrower,
declare the principal amount of this Note together with accrued interest thereon
to be due and payable, and the principal amount of this Note together with such
interest shall thereupon immediately become due and payable without presentment,
further notice, protest or other requirements of any kind (all of which are
hereby expressly waived by Borrower). Upon the occurrence and during
the continuance of an Event of Default, the Collateral Agent and Majority
Holders may exercise all rights and remedies of every nature under the Notes,
the Security Documents and any and all other Transaction Documents.
ARTICLE
VI
REDEMPTION
6.1
Optional Redemption
Rights
. If (i) there is an occurrence of any Event of Default,
or (ii) the Actual EPS for any of the fiscal years ending 31 December
2008, 2009, or 2010 is less than 80% of the respective EPS Target for such
fiscal year, the Holder shall have the right, at its option, to require the
Borrower to repurchase this Note (the "
Redemption Rights")
from the
Holder for an aggregate purchase price in cash (the "
Redemption Price
") equal to
(i) the aggregate Principal Amount and any accrued and unpaid interest
(including default interest), plus (ii) an amount representing a 20% Internal
Rate of Return on the Principal Amount, calculated from the date hereof through
and until the date of payment in full of the Redemption Price (the "
Redemption
Date
").
6.2
Redemption
Procedures
. The Holder may exercise the Redemption Rights
under
Section
6.1
by delivering written notice to the Borrower (the "
Redemption
Notice
"). The Borrower shall pay the Holder the Redemption
Price not later than twenty (20) Business Days after delivery of such Redemption
Notice by the Holder, and this Note shall be cancelled and
retired. If the Redemption Notice shall have been duly given,
and if on the Redemption Date the Redemption Price payable upon repurchase of
this Note on the Redemption Date is paid or tendered for payment or deposited
with an independent payment agent so as to be available therefor, then
notwithstanding that this Note shall not have been surrendered by the Holder,
interest with respect to this Note shall cease to accrue after the Redemption
Date and all rights with respect to this Note (other than the right to receive
the Redemption Price) shall forthwith after the Redemption Date
terminate.
Form
of Amended and Restated Note
6.3
Failure to
Pay
. In the event that the Holder exercises the Redemption
Rights and the Borrower does not have sufficient funds to pay the Redemption
Price in full, this Note and the then outstanding Principal Amount plus all
accrued and unpaid interest thereon shall, notwithstanding the Holder’s
surrender of the Note to the Borrower pursuant to
Section 6.2
, remain
outstanding until the date the Holder receives the Redemption Price in full and
the Holder shall maintain all of its rights and remedies under this
Note. For the avoidance of doubt, interest on the Principal Amount
shall continue to accrue to the extent provided in
Section 2.1
until the
date the Holder receives the Redemption Price in full.
6.4
Internal Rate of
Return
. “Internal Rate of Return” as used in
Section 6.1
means a
compounded, cumulative internal rate of return, compounded annually calculated
at the designated annual discount rate, which, when applied to any amount, and
discounted annually, produces a net present value of such amount equal to zero.
Internal rate of return, for all relevant purposes of this Note, shall be
calculated by using the Microsoft Excel method of calculating internal rate of
return, using the XIRR function (or if such program is no longer available, such
other software program for calculating internal rate of return proposed by the
Holder and reasonably acceptable to the Borrower).
ARTICLE
VII
SENIOR
STATUS OF NOTE
7.1
Senior Status of
Note
. Except for obligations arising from the Permitted Lien,
the obligations of the Borrower under this Note shall rank senior to all other
Debt of the Borrower, whether now or hereinafter existing. Upon any Liquidation
Event, the Holder will be entitled to receive, before any distribution or
payment is made upon, or set apart with respect to, any other Debt of the
Borrower or any class of capital stock or the Borrower, an amount equal to the
Principal Amount plus all accrued and unpaid interest thereon. For
purposes of this Note, “
Liquidation Event
” means a
liquidation pursuant to a filing of a petition for bankruptcy under applicable
law or any other insolvency or debtor’s relief, an assignment for the benefit of
creditors, or a voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Borrower.
Form
of Amended and Restated Note
ARTICLE
VIII
MISCELLANEOUS
8.1
Failure or Indulgence Not
Waiver
. No failure or delay on the part of Holder hereof 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. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise
available.
8.2
Amendments
. Any
provision of any Note may be amended, supplemented or waived if, but only if,
such amendment, supplement or waiver is in writing and is signed by the Borrower
party thereto and the Majority Holders; and provided further without the consent
of each holder of any Notes affected thereby, an amendment, supplement or waiver
may not:
(i) postpone
or delay any date fixed for any payment of principal, interest, fees or other
amounts due to such holder under its Note;
(ii) reduce
the principal of, or the rate of interest applicable to, the Note of such
holder;
(iii) change
the aggregate percentage of the outstanding principal amount of any of the Notes
which is required for the holders thereof (or any of them) to take any
action;
(iv) change
Article III hereof in any manner adverse to the Holder;
(v) affect
the ranking of the Notes; or
(vi) impair
the right to institute suit for the enforcement of any payment on or right with
respect to the Notes (as any such right may be amended or modified in accordance
with this Section 8.2(a)).
8.3
Notices
. Any
notice required or permitted pursuant to this Note shall be given in writing and
shall be given either personally or by sending it by next-day or second-day
courier service, fax, electronic mail or similar means to the address as shown
below (or at such other address as such party may designate by fifteen (15)
days’ advance written notice to the other parties to this Note given in
accordance with this section):
If to the Borrower, to:
Network
CN Inc.
21F,
Chinachem Century Tower,
178
Gloucester Road,
Wanchai,
Hong Kong
Tel:
(852) 2833-2186
Fax:
(852) 2295-6977
Attention:
Daley Mok
Form
of Amended and Restated Note
with a
copy to:
[Address
1]
[Address
2]
If to the
Holder, to:
[Address
1]
[Address
2]
Attention:
with a
copy to:
[Address
1]
[Address
2]
Attention:
Fax:
Where a
notice is sent by next-day or second-day courier service, service of the notice
shall be deemed to be effected by properly addressing, pre-paying and sending by
next-day or second-day service through an internationally-recognized courier a
letter containing the notice, with a confirmation of delivery, and to have been
effected at the expiration of two (2) days after the letter containing the same
is sent as aforesaid. Where a notice is sent by fax or electronic mail, service
of the notice shall be deemed to be effected by properly addressing, and sending
such notice through a transmitting organization, with a written confirmation of
delivery, and to have been effected on the day the same is sent as
aforesaid.
8.4
Amendment
Provision
. The term “Note” and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or
supplemented.
8.5
Assignability
. This
Note shall be binding upon the Borrower and its permitted successors and
assigns, and shall inure to the benefit of the Holder and its successors and
assigns. Subject to applicable laws and regulations, this Note and all rights
hereunder may be transferred or assigned in whole or in part by the Holder, and
the Borrower shall assist the Holder in consummating any such transfer or
assignment and Borrower may not assign this Note without the consent of all
Holders. A transfer of this Note may be effected only by a surrender hereof to
the Borrower and the issuance by the Borrower of a new note or notes in
replacement thereof, which shall be registered by the Borrower in accordance
with
Section
8.5
hereof once an executed copy of the replacement note has been
executed by the transferee.
8.6
Transfer Register.
In
the event of a transfer, the Borrower shall maintain a register (the "
Register
") for the
registration or transfer of the Note, and shall enter the names and addresses of
the registered holders of the Note, the transfers of the Note and the names and
addresses of the transferees of the Note. the Holder and each assignee shall be
provided reasonable opportunities to inspect the Register from time to time.
The Borrower shall treat any registered holder as the absolute owner of
the Note held by such holder, as indicated in the Register, for the purpose of
receiving payment of all amounts payable with respect to such Note and for all
other purposes. The Note is registered obligations and the right, title,
and interest of any Person in and to such Note shall be transferable only upon
notation of such transfer in the Register. Solely for purposes of this
Section 8.5
and
for tax purposes only, the keeper of the Register, if it is not the Borrower,
shall be the Borrowers' agent for purposes of maintaining the Register.
This
Section
8.5
shall be construed so that the Note is at all times maintained in
"registered form" within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2)
of the Code and any related regulations (and any other relevant or successor
provisions of the Code or such regulations).
Form
of Amended and Restated Note
8.7
Cost of
Collection
. Notwithstanding anything in any Transaction
Document to be contrary, Borrower shall pay the Holder hereof reasonable costs
of collection, including attorneys’ fees if default is made in the payment of
this Note; and, in addition, Borrower shall also pay all reasonable costs and
expenses of enforcement, including attorneys’ fees, of this Note, the Purchase
Agreement, the Undertaking Agreement, the Security Documents and the other
Transaction Documents and of any amendment or modification of any Transaction
Documents requested by Borrower or arising following an Event of Default
following the Third Closing.
8.8
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 Borrower to the Holder and thus refunded to the
Borrower.
8.9
Construction
. Each
party acknowledges that its legal counsel participated in the preparation of
this Note and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Note to favor any party against the
other.
8.10
No Rescission, Set Off,
Counterclaim or Defense
. This Note is not subject to any right
of rescission, set off, counterclaim or defense by the Borrower, including the
defense of usury, nor would the operation of any of the terms of this Note or
the other Transaction Documents, or the exercise of any right hereunder or
thereunder, render this Note unenforceable (subject to principles of equity and
bankruptcy, insolvency and other laws generally affecting creditors’ rights and
the enforcement of debtors’ obligations), and the Borrower has not asserted any
right of rescission, set off, counterclaim or defense with respect
thereto.
8.11
Governing Law; Rules of
Construction
.
THIS NOTE
AND THE RIGHTS AND OBLIGATIONS OF THE BORROWER HEREUNDER SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
Form
of Amended and Restated Note
8.12
Consent to Jurisdiction and
Service of Process
.
ALL JUDICIAL PROCEEDINGS BROUGHT
AGAINST BORROWER ARISING OUT OF OR RELATING TO THIS NOTE, OR ANY OBLIGATIONS
HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK
8.13
Waiver of Jury
Trial
.
BORROWER HEREBY AGREES TO WAIVE ITS
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS NOTE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS.
8.14
Non-Business
Days
. Whenever any payment or any action to be made shall be
due on a Saturday, Sunday or a public holiday under the laws of the State of New
York, such payment may be due or action shall be required on the next succeeding
business day and, for such payment, such next succeeding day shall be included
in the calculation of the amount of accrued interest payable on such
date.
* * *
[Remainder
of the Page Intentionally Left Blank]
Form
of Amended and Restated Note
IN WITNESS WHEREOF
, Borrower
has caused this Note to be signed in its name by an authorized officer as of the
date first set forth above.
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NETWORK
CN INC.
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Title:
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ACCEPTED
AND AGREED:
[INVESTOR]
Form
of Amended and Restated Note
Exhibit
A
NOTICE OF
CONVERSION
The
undersigned hereby elects to convert principal and accrued and unpaid interest
under the Amended and Restated Secured Convertible Promissory Note due 2011 of
NETWORK CN INC., a Delaware corporation (the “
Company
”), into shares of
Common Stock according to the conditions hereof, as of the date written
below. No fee will be charged to the holder for any
conversion.
Conversion
calculation:
Date to
Effect Conversion:
Number of
shares of Common Stock to be issued:
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HOLDER:
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(Print
Name of Holder)
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By:
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Form
of Amended and Restated Note
21