Exhibit 99.2
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.
SECURED CONVERTIBLE PROMISSORY NOTE
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US$[_________]
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___________,
2007
Hong
Kong, China
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FOR
VALUE RECEIVED, NETWORK CN INC., a Delaware
corporation (hereinafter called the “
Borrower ”), hereby promises to pay to
[ Name of the Investor ], a company organized under
the laws of the Republic of Ireland (the “
Holder ”) or its registered assigns or
successors in interest or order, without demand, the sum of
[___________(US$__________)] ,
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
Secured Convertible Promissory Note (“
Note ”) has been entered into pursuant
to, and is subject to, a Note and Warrant Purchase Agreement
dated as of November 19, 2007 by and among the Borrower and
the Holder, among others (the “ Purchase
Agreement ”), and shall be governed by the
terms of such Purchase Agreement. The securities
represented by this Note are also subject to the Registration
Rights Agreement and the Investor Rights
Agreement. This Note is secured by the Security
Documents .
The
following terms shall apply to this 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 * 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 *%, *%, *%, *%, 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 date of this Note, 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 date of this Note,
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) “
Permitted Indebtedness ” means (a) the
indebtedness evidenced by this Note, (b) the Indebtedness
existing on the date of this Note 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
Holder 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 of up to $2,000,000 in the aggregate.
(h) “
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 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.
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 deduct
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
un der
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 Maturity Date, 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:
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.
Text marked by “*” has been omitted pursuant to a
request for confidential treatment and was filed separately with
the Securities and Exchange Commission.
(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 this Note 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 * or * in relation to the *of *; (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.
(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.
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
