CONVERTIBLE PROMISSORYNOTE

 

 

 

 

For value received Sinotop Group Ltd., a Hong Kong company (“Payor”) promises to pay to China Broadband Ltd., a Cayman Islands company or its assigns (collectively, “Holder”) the principal sum of Five Hundred Eighty Thousand United States Dollars and No Cents (US$580,000.00) with interest on the outstanding principal amount at the rate of five percent (5%) simple interest per annum.  Interest will commence with the date hereof and will continue on the outstanding principal until paid in full.

 

1.            This note (the “Note”) is issued pursuant to the terms of that certain Note Purchase Agreement (the “Note Purchase Agreement”) dated as the date hereof between the Payor and Holder.

 

 

 

(a)           In the event the Payor sells shares of its capital stock (“Shares”) in a transaction or series of related transactions resulting in aggregate gross proceeds to the Payor (excluding amounts related to conversion of the Note) of at least One Million United States Dollars ($1,000,000) (a “Qualified Financing”), the outstanding principal hereunder and all interest accrued thereon shall automatically be converted into the Shares sold in such Qualified Financing at a price equal to seventy percent (70%) of the price per share generally paid for such Shares by other investors in such Qualified Financing.

 

(b)           In the event the Payor undergoes a Change in Control (as defined below), the outstanding principal hereunder and all interest accrued thereon shall automatically be converted into ordinary shares of the Payor representing fifty percent (50%) of the issued and outstanding capital stock of the Payor. For purposes of this Note, “Change in Control” means a merger, consolidation or other acquisition in which the shareholder(s) of the Payor immediately prior to the merger, consolidation or other acquisition do not continue to own more than fifty percent (50%) of the voting power of the surviving or acquiring entity, or the sale of all or substantially all of the assets of the Payor.

 

(c)           This Note may be converted, at any time after the Maturity Date or upon the occurrence of an Event of Default, in the sole discretion of the Holder, into ordinary shares of the Payor representing fifty percent (50%) of the issued and outstanding capital stock of the Payor, calculated on a fully diluted basis, assuming all outstanding options and other convertible instruments are exercised and converted.

 

4.            Unless this Note has been converted in accordance with the terms of Section 3 above, the entire outstanding principal balance and all unpaid accrued interest shall become fully due and payable on the earlier of (a) the fifth annual anniversary of the date first set forth above; or (b) the date which is one day before the closing of a Change in Control (in either case, the “Maturity Date”).

 

5.            This Note may not be prepaid prior to the Maturity Date unless the Holder consents to such prepayment in writing.

 

6.            This Note may be assigned by the Holder in its sole discretion. It may not be assigned, nor may any of Payor’s obligations hereunder be delegated, without the advance written consent of the Holder, which may be given or withheld in its sole discretion.

 

7.            The Payor hereby represents that its directors, in the exercise of their fiduciary duty, have approved the Payor’s execution of this Note based upon a reasonable belief that the principal provided hereunder is appropriate for the Payor after reasonable inquiry concerning the Payor’s financing objectives and financial situation. In addition, the Payor hereby represents that it intends to use the principal of this Note for the purposes set forth in the Note Purchase Agreement.

 

8.            In case one or more of the following events (“Events of Default”) (whatever the reason for such Event of Default and whether it will be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) will have occurred and be continuing:

 

 

(b)           a default in the payment of all or any part of the interest on any of this Note as and when same will become due and payable and the default continues without being cured for a period of three days;

 

 

(d)           any event or condition will occur which results in the acceleration of the maturity of any Debt or enables or, with the giving of notice or lapse of time or both, would enable the holder of such Debt or any Person acting on such holder’s behalf to accelerate the maturity thereof;

 

 

(f)           a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against Payor in an involuntary case, (ii) appoints a custodian of Payor or for all or substantially all of the property of Payor, or (iii) orders the liquidation of Payor; and such order or decree remains unstayed and in effect for sixty (60) days; or

 

then, in each case where an Event of Default occurs, the Holder, by notice in writing to Payor (the “Acceleration Notice”), may, at its option, declare the principal hereunder and all accrued and unpaid interest hereon to be due and payable immediately, and upon any such declaration the same will become immediately due and payable; provided that if an Event of Default specified in Sections 8(e) or 8(f) occurs, the principal hereunder and all accrued and unpaid interest hereon will become and be immediately due and payable without any declaration or other act on the part of the Holders.

 

 

 

11.          If one or more provisions of this Note are held to be unenforceable under applicable law, such provision will be excluded from this Note and the balance of the Note will be interpreted as if such provision were so excluded and will be enforceable in accordance with its terms, and the Holder and the Payor will endeavor to take such action as necessary to achieve the same purpose of such provision held to be unenforceable.

 

12.          The terms of this Note will be construed in accordance with the laws of Hong Kong.