Exhibit 10
ELEPHANT TALK COMMUNICATIONS, INC.
Convertible Promissory Note
Original Principal Amount
December 15, 2005
US$3,500,000.00
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ELEPHANT TALK
COMMUNICATIONS,
INC., a California corporation (the
"Company"), for value received, promises to pay to Rising Water
Capital AG, a
company registered in Zug, Switzerland (the
"Holder"), located at
Baarerstrasse
12, 6300 Zug, or its registered
assigns, the principal sum of US$3,500,000.00
(the "Principal Amount"). The Company will pay to the Holder
Payments (defined
below) of principal and accrued
interest thereon at
the Interest Rate described
in Section 1 below from the date of
receipt of funds under this Note, and to
which interest will be paid (computed daily on the basis of a year of
360 days
and the actual number of days elapsed),
until the entire
Principal Amount and
accrued interest have been paid, or until
the Maturity Date
described below.
Payment shall be in the coin or currency of
the United State of America which at
the time of payment is legal tender for the
payment of public and private debts.
The Company may, at its option, prepay this Note in whole or in
part, at any
time and from time to time, without premium
or penalty. All
amounts received by
Holder hereunder from the Company shall be applied
first to accrued
interest
and, upon the payment of all accrued and
unpaid interest,
thereafter
shall be
applied against outstanding principal. The
Company may borrow under the terms of
this Note, from time to time, from the
Holder up to a maximum of US$3,500,00.00.
The Company will not enter into any
additional
financing without the prior
written approval of the Holder,
and will provide to
the Holder any
reasonable
detailed reporting and access to all
Company information.
1. Term; Interest Rate. This Note shall have a term of thirty (30) months,
during which time interest on the Principal
Amount will accrue
from the date of
this Note at an annual interest rate of 10%. The Note will be paid in full
at
the end of the thirty month term with a balloon payment of principal and
interest accrued.
2. Payments. The person in whose name the Note
is registered
at the close of
business on the last day of the calendar
month preceding a Payment Date shall be
entitled to receive the Payment on the
Payment Date. Payments
shall be applied
first to accrued interest and, upon the payment of all accrued and unpaid
interest, thereafter shall be applied
against the outstanding Principal Amount.
On the Maturity Date, the Company shall pay
the Holder the entire unpaid portion
of the Principal Amount of this Note and all accrued and unpaid interest
thereon. Subject to the provisions set forth in Section 3 with
respect to the
conversion of the Note into common stock of
the Company, the
Company may prepay
or redeem the Note at any time, in whole or
in part, prior to the Maturity Date.
In case the Company desires to prepay the Note,
Holder will have the
option to
convert the full or partial amount of Note into Common Shares of the Company
during a thirty day period after being
informed of the
Company's intention of
prepayment of the Note. This Note does not entitle the
Holder to any voting or
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other rights as a shareholder of the
Company, or to any
other rights whatsoever
except those expressly set forth herein. No
dividends are payable or will accrue
on this Note.
3. Conversion. This Note shall be convertible
during the term, in whole
or in part, into shares of common stock, no
par value (the "Common
Stock"), at
the conversion price of three and one-half cents
(US$0.035) per share of Common
Stock (the "Conversion Price");
provided, however, that this Note shall not
be
convertible during the term when the
Company has insufficient authorized common
stock to issue to the Holder when a demand for conversion is made. In this
regard, the Company has agreed in Section 10
hereof to take certain
steps as
promptly as practicable to assure that sufficient shares of common stock are
authorized to permit the full exercise of
the Holder's conversion rights.
4.
Security. The Note
will be secured by
shares owned or to be
owned by
the Company in the entities Beijing Chinawind Communications Information
Technology Co. Ltd., ET Middle East and ETC
Holding.
5.
Default.
(a) Events of
Default. Each of the
following shall constitute an
event of default (an "Event of Default")
under this Note:
(1) The
failure to make any Payment to the Holder, as
required by Section 2
above, when the same
becomes due and
payable, and the
continuance of such
failure for a period of
thirty (30) days after such payment becomes due.
(2) The
failure to pay the portion of the Principal Amount
of this Note remaining
unpaid on the
Maturity Date and all
accrued and unpaid interest thereon, as required by Section 2
above, when
the same becomes due and payable, and the
continuance of such
failure for a period
of thirty (30) days
after such payment becomes due.
(3) The
failure on the part of the Company duly to perform
or observe any other
agreement, covenant,
term or condition
hereof which nonperformance or nonobservance has continued for
a period of ninety (90) days after written notice specifying
the nonperformance or nonobservance is received by the Company
from the holder of the Note.
(4) Commencement
by the Company of a voluntary case or other
proceeding seeking
liquidation,
reorganization,
or other
relief with
respect
to itself or its debts under any
bankruptcy, insolvency, or other similar laws now or hereafter
in effect seeking
the appointment of a trustee, receiver,
liquidator, custodian,
or other similar official of it or any
substantial part of its property, or consent by the Company to
any such relief or to the appointment of or taking possession
by any such official in an involuntary case or other
proceeding commenced
against it, or the making of a general
assignment for
the benefit of creditors, or a failure
generally to pay its debts as they become due.
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(5) An
involuntary
case or other proceeding shall be
commenced
against the
Company
seeking
liquidation,
reorganization, or
other relief
with respect to it or its
debts under any bankruptcy, insolvency, or other similar
laws
now or hereafter
in effect or seeking
the appointment
of a
trustee, receiver,
liquidator,
custodian,
or other similar
official of it or any
substantial part of
its property, and
such involuntary
case or other proceeding shall remain
undismissed and
unstayed
for a period of ninety (90)
consecutive days.
(6) The Company
shall have, after three months from the date
of this Note,
failed to file with
