Document:

Execution
copy

     

    THIS
CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF ANY OTHER
JURISDICTION.  NO SALE OR DISPOSITION OF THIS NOTE MAY BE EFFECTED
EXCEPT IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS

     

    CONVERTIBLE PROMISSORY
NOTE

     

    
      
        
          	
                  US$580,000.00

                	
                  March 9, 2010 

                
	 	 
	 
      	
                  Hong
      Kong, S.A.R.

                

        

      

    

     

    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.

     

    
      2.    
       All
payments of interest and principal under this Note will be in lawful money of
the United States of
America, in accordance with written payment instructions delivered by Holder to
Payor. All payments will be applied first to accrued interest, and thereafter to
principal.

    

     

    3.      
     The principal and all other amounts outstanding under
this Note will be convertible into shares of the Payor in accordance with this
Section 3.

     

    (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”).

    
      
         

      

      
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    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:

     

    (a)           default
in the payment of all or any part of the principal of any of this Note as and
when the same will become due and payable, at maturity, upon any redemption, by
declaration or otherwise;

     

    (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;

     

    (c)           failure
on the part of Payor duly to observe or perform any other of the covenants or
agreements on the part of Payor contained in this Note or the Note Purchase
Agreement (other than those covered by clauses (a) and (b) above) for a period
of thirty (30) days after the date on which written notice specifying such
failure, stating that such notice is a “Notice of
Default” hereunder and demanding that Payor remedy the same, will have
been given by registered or certified mail, return receipt requested, to
Payor;

     

    (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;

     

    (e)           Payor
pursuant to or within the meaning of any applicable insolvency or bankruptcy law
(“Bankruptcy
Law”): (i)  commences a voluntary case or proceeding, (ii)
consents to the entry of an order for relief against it in an involuntary case
or proceeding, (iii) consents to the appointment of a Custodian of it or for all
or substantially all of its property, (iv) makes a general assignment for the
benefit of its creditors, or (v) admits in writing its inability to pay its
debts as the same become due;

     

    (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

    
      
         

      

      
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    (g)           all
or substantially all of Payor’s assets or business (whether by sale, exclusive
license or otherwise) will have been sold or transferred to any Person who does
not control Payor on the date of this Note;

     

    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.

     

    
      9.           
Payor
hereby waives demand, notice, presentment, protest and notice of
dishonor.

    

     

    10.          All
disputes arising out of or relating to this Note will be resolved in accordance
with the Dispute Resolution provisions of the Note Purchase
Agreement.

     

    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.

     

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    Execution copy

     

    Any term
of this Note may only be amended or waived with the written consent of the
Holder in its sole and absolute discretion.

    

    
      
        
          	 	
                  SEALED
      with the Common Seal of

                
	 	 
      
	 	
                  Sinotop
      Group, Ltd. and

                
	 	 
      
	 	
                  signed
      by

                
	 	 
      
	 	
                  

                
	 	 
      
	 	
                  Name
      : LIU Weicheng

                
	 	 
      
	 	
                  Title
      : Sole Director

                
	 	 
      
	 	
                  in
      the presence of:-

                

        

      

    

    
      
         

      

      
        4Execution
Copy

    SUMMARY
OF TERMS

     

    PURCHASE
OF SINOTOP GROUP, LTD.

     

    This
document (“Term Sheet”)
describes, for negotiation purposes only, some key terms of the proposed
agreement between China Broadband Ltd., a Cayman Islands company, and LIU
Weicheng, an individual, with regard to the proposed purchase of Sinotop Group,
Ltd., a Hong Kong company, by China Broadband Ltd. This document is not intended
to be a binding agreement between China Broadband Ltd. and LIU Weicheng with
respect to the subject matter hereof, except for the provisions under the
headings “Exclusivity,” “Confidentiality,” “Fees and Costs” and “Disputes,”
which will be binding upon the parties when this Term Sheet is executed by both
of them. A binding agreement will not occur unless and until the parties have
executed and delivered the appropriate definitive agreements (the “Definitive
Documentation”). Until execution and delivery of such Definitive
Documentation, both parties will have the absolute rights to terminate all
negotiations for any reason or for no reason.

     

    
      	
              Company

            	
              Sinotop
      Group, Ltd., a Hong Kong company (the “Company”)

            

    

     

    
      	
              Seller

            	
              LIU
      Weicheng, an individual, and/or one or more other persons or entities
      which together hold 100% of the equity interests in the Company
      (collectively, the “Seller”)

            

    

     

    
      	
              Purchaser

            	
              China
      Broadband Ltd., a Cayman Islands company, (the “Buyer”)
      and wholly-owned subsidiary of China Broadband Inc. (“CBBD”)

            

    

     

    
      	
              Transaction;
      Purchase Price

            	
              Buyer
      will purchase 100% of the issued and outstanding shares of the Company
      from the Seller at the Closing, free and clear of any liens or
      encumbrances (the “Transaction”),
      in consideration for a percentage of the common stock of CBBD to be
      agreed upon and specified in the Definitive Documentation (the “Purchase
      Price”).

            

    

     

    
      	
              Conditions
      to Closing

            	
              The
      closing of the Transaction (the “Closing”)
      will be conditioned upon the
following:

            

    

     

    
      	
               
      

            	
              •

            	
              The
      establishment by the Company of a wholly foreign-owned enterprise in the
      People’s Republic of China (the “WFOE”)
      on terms satisfactory to
Buyer;

            

    

     

    
      	
               
      

            	
              •

            	
              The
      execution by the WFOE and by Beijing Sino Top Scope Technology Co., Ltd.,
      a PRC company (“Beijing
      Sinotop”), of one or more agreements pursuant to which the WFOE
      will assume control over, and receive the economic benefit of all
      operations of, Beijing Sinotop, in form satisfactory to Buyer
      (collectively, the “VIE
      Agreements”), or the effective assignment of VIE Agreements already
      executed by the Company to the WFOE with the consent of Beijing
      Sinotop;

            

    

     

    
      	
               
      

            	
              •

            	
              The
      closing and funding of a convertible promissory note in the principal
      amount equal to at least RMB 3,900,000 (about US$573,500) with Buyer as
      lender and the Company as borrower, on terms satisfactory to both parties
      (the “Convertible
      Note”);

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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              •

            	
              At
      or before the Closing, the contribution by Buyer of an amount equal to at
      least RMB 34,000,000 (about US$5,000,000) to the capital of the Company
      (or the purchase by Buyer of newly issues shares of the Company in
      consideration for the same amount);

            

    

     

    
      	
               
      

            	
              •

            	
              As
      of the Closing, each of the Company and the WFOE shall have no debts,
      obligations or encumbrances upon any of its equity or assets of any kind,
      except as created by, or as required by, the Convertible Note and the VIE
      Agreements;

            

    

     

    
      	
               
      

            	
              •

            	
              Such
      other and other customary conditions as may be agreed between the parties
      and included in the Definitive
Documentation.

            

    

     

    
      
        	
                Representations
      and Warranties

              	
                The
      Definitive Documentation will include representations and warranties of
      the Buyer and the Seller customary in transactions of this type, including
      with regard to the WFOE and the VIE
Agreements.

              

      

    

     

    
      	
              
                Closing

              

            	
              It
      is the intention of the parties that the Closing will occur not later than
      March 15, 2010 (the “Anticipated
      Closing Date”).

            

    

     

    
      	
              Exclusivity

            	
              Unless
      earlier agreed in writing between the parties, prior to the Anticipated
      Closing Date, neither Seller nor the Company, nor any of their
      shareholders, agents or representatives, will solicit, initiate,
      entertain, participate in any discussions or negotiations concerning, or
      make or accept any offer or proposed transaction with any third party with
      regard to any of the transactions contemplated in this Term Sheet or any
      similar transaction.

            

    

     

    
      	
              Confidentiality

            	
              Neither
      party will make any public disclosure concerning the matters set forth in
      this Term Sheet or negotiations regarding the Transaction without the
      consent of the other party (which consent shall not be unreasonably
      withheld) unless required by applicable law, in which case the party
      required to make any such public disclosure shall use reasonable efforts
      to give the other party prior notice of such disclosure and an opportunity
      to review any such disclosure in advance of public release. This
      restriction does not prohibit the disclosure of information to employees,
      legal counsels, accountants, and other professional advisors of the
      parties, on a need-to-know basis, provided that the same agree to be bound
      by the same or equivalent requirement of confidentiality as set forth
      herein.

            

    

     

    
      
        
        

      

      
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              Fees
      and Costs

            	
              The
      Buyer and the Seller will each bear its own fees and expenses in
      connection with the Transaction.

            

    

     

    
      	
              Disputes

            	
              Any
      disputes arising under or in connection with this Term Sheet will be
      resolved by mandatory binding arbitration, conducted in English, in Hong
      Kong, pursuant to the Arbitration Rules of the United Nations Commission
      on International Trade Law, by one or more arbitrators appointed in
      accordance with such rules. The arbitration and appointing authority will
      be the Hong Kong International Arbitration Centre. Notwithstanding the
      foregoing, each party will have the right at any time to immediately seek
      injunctive relief, an award of specific performance or any other equitable
      relief against the other party in any court or other tribunal of competent
      jurisdiction.

            

    

     

    
      	
              Governing
      Law

            	
              Hong
      Kong

            

    

     

    
      	
              Non-Binding
      Effect
      

            	
              Except
      for the provisions titled “Exclusivity,” “Confidentiality,” “Fees and
      Costs” and “Disputes,” this Term Sheet does not create any legally binding
      obligations on the parties, and no such obligations will be created unless
      and until definitive documents are executed and delivered by the
      parties.

            

    

     

    AGREED
TO, subject to the provision titled “Non-Binding Effect,” by the following
parties: 
 

    
      
        
          
            
              
                
                  
                    
                      
                        
                          	
                                  “SELLER”

                                	 	“BUYER”
	 	 	 
	LIU
      WEICHENG, an individual    	 	
                                  CHINA
      BROADBAND LTD., a Cayman Islands

                                  company

                                
	 	 	 
	
                                  

                                	 
      	 
	 	 	 
	 
      	 
      	
                                  Name:  
      

                                
	 	 	 
	 
      	 
      	
                                  Title:    
      

                                

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
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Copy

       

      
        	
                Fees
      and Costs

              	
                The
      Buyer and the Seller will each bear its own fees and expenses in
      connection with the Transaction.

              

      

       

      
        	
                Disputes

              	
                Any
      disputes arising under or in connection with this Term Sheet will be
      resolved by mandatory binding arbitration, conducted in English, in Hong
      Kong, pursuant to the Arbitration Rules of the United Nations Commission
      on International Trade Law, by one or more arbitrators appointed in
      accordance with such rules. The arbitration and appointing authority will
      be the Hong Kong International Arbitration Centre. Notwithstanding the
      foregoing, each party will have the right at any time to immediately seek
      injunctive relief, an award of specific performance or any other equitable
      relief against the other party in any court or other tribunal of competent
      jurisdiction.

              

      

       

      
        	
                Governing
      Law

              	
                Hong
      Kong

              

      

       

      
        	
                Non-Binding
      Effect
      

              	
                Except
      for the provisions titled “Exclusivity,” “Confidentiality,” “Fees and
      Costs” and “Disputes,” this Term Sheet does not create any legally binding
      obligations on the parties, and no such obligations will be created unless
      and until definitive documents are executed and delivered by the
      parties.

              

      

       

      AGREED
TO, subject to the provision titled “Non-Binding Effect,” by the following
parties: 
 

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            	
                                    “SELLER”

                                  	 	“BUYER”
	 	 	 
	LIU
      WEICHENG, an individual    	 	
                                    CHINA
      BROADBAND LTD., a Cayman Islands

                                    company

                                  
	 	 	 
	
                                     
      

                                  	 
      	 
      
	 	 	 
	 
      	 
      	
                                    Name: 
      Marc Urbach

                                  
	 	 	 
	 
      	 
      	
                                    Title:   
      Director

                                  

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
          
          

        

        
          3

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