THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO CHINA MEDIA1 CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED.
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Principal Amount: $__________
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Issue Date:
November 1, 2005
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CONVERTIBLE PROMISSORY
NOTE
FOR VALUE RECEIVED, CHINA MEDIA1 CORP., a Nevada
corporation (hereinafter called “Borrower”), hereby
promises to pay to _________________, ________________-,
_____________, Fax: _________________, (the “Holder”)
or its registered assigns or successors in interest or order,
without demand, the sum of [__________________________________]
Dollars ($___________) (“Principal Amount”), with
simple and unpaid interest thereon, on May 1, 2007 (the
“Maturity Date”), if not sooner paid.
This Note has been entered into pursuant to the
terms of a subscription agreement between the Borrower, the Holder
and certain other holders (the “Other Holders”) of
convertible promissory notes (the “Other Notes”), dated
of even date herewith (the “Subscription Agreement”),
and shall be governed by the terms of such Subscription Agreement.
Unless otherwise separately defined herein, all capitalized terms
used in this Note shall have the same meaning as is set forth in
the Subscription Agreement. The following terms shall apply to this
Note:
ARTICLE I
INTEREST; AMORTIZATION
1.1. Interest
Rate . Subject to Section 5.7 hereof, interest payable on this
Note shall accrue at a rate per annum (the “Interest
Rate”) equal to the “prime rate” published in The
Wall Street Journal from time to time, plus four percent (4%). The
interest rate shall be increased or decreased as the case may be
for each increase or decrease in the prime rate in an amount equal
to such increase or decrease in the prime rate; each change to be
effective as of the day of the change in such rate. The Interest
Rate shall not be less than eight percent (8%). Interest shall be
calculated on the basis of a 360-day year. Interest on the
Principal Amount shall accrue from the date of this Note and be
payable quarterly, in arrears, commencing on January 1, 2006 and on
the first business day of each consecutive calendar quarter
thereafter (each, a “Repayment Date”) and on the
Maturity Date, whether by acceleration or otherwise.
1.2. Minimum
Monthly Principal Payments . Amortizing payments of the
outstanding Principal Amount of this Note shall commence on the
seven month anniversary date of this Note and on the same day of
each month thereafter (each a “Repayment Date”) until
the Principal Amount and interest have been repaid in full, whether
by the payment of cash or by the conversion of such Principal
Amount and interest into Common Stock pursuant to the terms hereof.
Subject to Section 2.1 and Article 3 below, on each Repayment Date,
the Borrower shall make payments to the Holder in an amount equal
to one-twelfth of the initial Principal Amount, and any other
amounts (other than regular interest) which are then owing under
this Note that have not been paid (collectively, the “Monthly
Amount”). Amounts of conversions of Principal Amount and
interest made by the Holder or Borrower pursuant to Section 2.1 or
Article III, amounts redeemed pursuant to Section 2.3 of this Note
shall be applied first against outstanding fees and damages, then
against accrued interest on the Principal Amount and then to
Monthly Amounts commencing with the Monthly Amount first payable
and then Monthly Amounts thereafter in chronological order. Any
Principal Amount, interest and any other sum arising under this
Note and the Subscription Agreement that remains outstanding on the
Maturity Date shall be due and payable on the Maturity
Date.
1.3. Default
Interest Rate . Following the occurrence and during the
continuance of an Event of Default (as defined in Article IV),
which, if susceptible to cure is not cured within twenty (20) days,
otherwise then from the first date of such occurrence, the annual
interest rate on this Note shall (subject to Section 5.7)
automatically be increased to fifteen percent (15%).
ARTICLE
II
CONVERSION
REPAYMENT
2.1. Payment
of Monthly Amount in Cash or Common Stock . Subject to Section
3.2 hereof, if the Market Price (as defined below) is less than
200% of the Fixed Conversion Price (as defined in Section 3.1), the
Borrower, at the Borrower’s election, shall pay the Monthly
Amount (i) in cash in an amount equal to 110% of the Principal
Amount component of the Monthly Amount and 100% of all other
components of the Monthly Amount, within three (3) business days
after the applicable Repayment Date, or (ii) in registered Common
Stock at an applied conversion rate equal to the lesser of (A) the
Fixed Conversion Price (as defined in section 3.1 hereof), or (B)
eighty percent (80%) of the average of the five lowest closing bid
prices of the common stock as reported by Bloomberg L.P. for the
Principal Market for the twenty trading days preceding such
Repayment Date. Unless waived by the Holder, the Borrower may not
elect to pay a Monthly Amount due on a Repayment Date in Common
Stock in an amount of shares of Common Stock which would exceed in
the aggregate for all Holders of Notes similar to this Note,
thirty-five percent (35%) of the aggregate daily trading volume for
the twenty trading days preceding the Repayment Date as reported by
Bloomberg L.P. for the Principal Market multiplied by the VWAP (as
defined below) for such twenty day period. Amounts paid with shares
of Common Stock must be delivered to the Holder not later than
three (3) business days after the applicable Repayment Date. The
Borrower must send notice to the Holder by confirmed telecopier not
later than 6:00 PM, New York City time on the tenth (10
th ) business day preceding a Repayment Date notifying
Holder of Borrower’s election to pay the Monthly Redemption
Amount in cash or Common Stock. Elections by the Borrower must be
made to all Other Holders in proportion to the relative Note
principal held by the Holder and the Other Holders. If such notice
is not timely sent or if the Monthly Amount is not timely
delivered, then Holder shall have the right, instead of the
Company, to elect within five trading days after the applicable
Repayment Date whether to be paid in cash or Common Stock. Such
Holder’s election shall not be construed to be a waiver of
any default by Borrower relating to non-timely compliance by
Borrower with any of its obligations under this Note. Subject to
Section 3.2 hereof, if the Market Price is equal to or greater than
200% of the Fixed Conversion Price, then the Monthly Amount must be
paid with Common Stock valued at the Fixed Conversion Price.
“Market Price” shall mean the average of the closing
bid prices of the Common Stock as reported by Bloomberg L.P. for
the Principal Market for the five trading days preceding the
relevant Repayment Date. “VWAP” shall mean the sum of
the dollars traded for every purchase and sale of the Common Stock
on the Principal Market (determined as the price per share of
Common Stock at which such purchase and sale occurred multiplied by
the number of shares of Common Stock so purchased and sold) divided
by the total shares of Common Stock traded during the
period.
2.2. No
Effective Registration . Notwithstanding anything to the
contrary herein, no amount payable hereunder may be paid in shares
of Common Stock by the Borrower without the Holder’s consent
unless (a) either (i) an effective current Registration Statement
covering the shares of Common Stock to be issued in satisfaction of
such obligations exists, or (ii) an exemption from registration of
the resale of shares of Common Stock to be issued in satisfaction
of such obligations is available pursuant to Rule 144(k) of the
1933 Act exists, and (b) no Event of Default hereunder (or an event
that with the passage of time or the giving of notice could become
an Event of Default), exists and is continuing, unless such event
or Event of Default is cured within any applicable cure period or
is otherwise waived in writing by the Holder in whole or in part at
the Holder’s option.
2.3. Optional
Redemption of Principal Amount . Provided an Event of Default
or an event which with the passage of time or the giving of notice
could become an Event of Default has not occurred, whether or not
such Event of Default has been cured, the Borrower will have the
option of prepaying the outstanding Principal Amount of this Note
(“Optional Redemption”), in whole or in part, by paying
to the Holder a sum of money equal to one hundred and twenty
percent (120%) of the Principal amount to be redeemed, together
with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Holder arising under this Note or
any Transaction Document through the Redemption Payment Date as
defined below (the “Redemption Amount”).
Borrower’s election to exercise its right to prepay must be
by notice in writing (“Notice of Redemption”). The
Notice of Redemption shall specify the date for such Optional
Redemption (the “Redemption Payment Date”), which date
shall be twenty (20) days after the date of the Notice of
Redemption (the “Redemption Period”). A Notice of
Redemption shall not be effective with respect to any portion of
the Principal Amount for which the Holder has a pending election to
convert, or for conversions initiated or made by the Holder during
the Redemption Period. On the Redemption Payment Date, the
Redemption Amount, less any portion of the Redemption Amount
against which the Holder has exercised its conversion rights, shall
be paid in good funds to the Holder. In the event the Borrower
fails to pay the Redemption Amount on the Redemption Payment Date
as set forth herein, then such Notice of Redemption will be null
and void, (ii) Borrower will have no right to deliver another
Notice of Redemption, and (iii) Borrower’s failure may be
deemed by Holder to be a non-curable Event of Default. A Notice of
Redemption may not be given, nor may the Borrower effectuate a
Redemption, without the consent of the Holder if, at any time
during the Redemption Period, an Event of Default or an Event which
with the passage of time or giving of notice could become an Event
of Default (whether or not such Event of Default has been cured)
has occurred or the Registration Statement registering the
Registrable Securities is not effective each day during the
Redemption Period.
ARTICLE
III
CONVERSION
RIGHTS
3.1.
Holder’s Conversion Rights . Subject to Section 3.2,
the Holder shall have the right, but not the obligation, to convert
all or any portion of the then aggregate outstanding Principal
Amount of this Note, together with interest and fees due hereon,
and any sum arising under the Subscription Agreement, and the
Transaction Documents, including but not limited to Liquidated
Damages, into shares of Common Stock, subject to the terms and
conditions set forth in this Article III, at the rate of $0.35 per
share of Common Stock (“Fixed Conversion Price”), as
the same may be adjusted pursuant to this Note and the Subscription
Agreement. The Holder may exercise such right by delivery to the
Borrower of a written Notice of Conversion pursuant to Section 3.3.
After the occurrence of an Event of Default, the Fixed Conversion
Price shall be 80% of the VWAP for the five trading days prior to a
Conversion Date.
3.2.
Conversion Limitation . The Holder shall not be entitled to
convert on a Conversion Date that amount of the Note in connection
with that number of shares of Common Stock which would be in excess
of the sum of (i) the number of shares of Common Stock beneficially
owned by the Holder and its affiliates on a Conversion Date, (ii)
any Common Stock issuable in connection with the unconverted
portion of the Note, and (iii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the
determination of this provision is being made on a Conversion Date,
which would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the outstanding shares of Common
Stock of the Borrower on such Conversion Date. For the purposes of
the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Subject to the foregoing, the Holder shall not be
limited to aggregate conversions of only 4.99% and aggregate
conversion by the Holder may exceed 4.99%. The Holder shall have
the authority and obligation to determine whether the restriction
contained in this Section 3.2 will limit any conversion hereunder
and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which
portion of the Notes are convertible shall be the responsibility
and obligation of the Holder. The Holder may waive the conversion
limitation described in this Section 3.2, in whole or in part, upon
and effective after 61 days prior written notice to the Borrower.
The Holder may allocate decide whether to convert a Note or
exercise Warrants to achieve an actual 4.99% ownership
position.
3.3.
Mechanics of Holder’s Conversion .
(a) In the event
that the Holder elects to convert any amounts outstanding under
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 interest and amounts being
converted. The original Note is not required to be surrendered to
the Borrower until all sums due under the Note have been paid. On
each Conversion Date (as hereinafter defined) and in accordance
with its Notice of Conversion, the Hol
