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
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X
--
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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
