Exhibit 10.47

AGREEMENT AND PLAN OF MERGER
By and Among
I-55 INTERNET SERVICES, INC.,
XFONE, INC. AND XFONE USA, INC.
Dated August 18, 2005

 

 
ARTICLE I
     THE MERGER
 
1.01
The Merger; Effective Time
1
1.02
Effect of the Merger
2
1.03
Consideration; Conversion of Shares
2
1.04
Dissenting Shares
3
1.05
Surrender of Certificates
4
1.06
Value of Parent Common Stock
5
1.07
Treatment of the Company Options and Warrants
5
1.08
No Further Ownership Rights in the Company Capital Stock
5
1.09
Lost, Stolen or Destroyed Certificates
6
1.1
Taking of Necessary Action; Further Action
6
1.11
Tax Consequences
6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPALS
 
2.01
Corporate Organization
6
2.02
Subsidiaries
6
2.03
Capital Structure
7
2.04
Authority
7
2.05
No Conflict
8
2.06
Consents
8
2.07
The Company Financial Statements
8
2.08
No Undisclosed Liabilities
9
2.09
No Changes
9
2.1
Tax Matters
11
2.11
Restrictions on Business Activities
12
2.12
Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment
12
2.13
Material or Significant Agreements, Contracts and Commitments
13
2.14
Interested Party Transactions
15
2.15
Governmental Authorization
15
2.16
Litigation
15
2.17
Accounts Receivable
16
2.18
Assets Necessary to Business
16
2.19
Minute Books
16
2.2
Environmental Matters
16
2.21
Brokers' and Finders' Fees
17
2.22
Employee Benefit Plans and Compensation
17
2.23
Compliance with Laws; Relations with Governmental Entities
21
2.24
Merger Tax Matters
21
2.25
Intellectual Property
22
2.26
Customer Contracts
22
2.27
Relationships with Suppliers
22
2.28
Investment Representation; Legends
22
2.29
Stockholder Matters
23
2.3
Banking and Insurance
23
2.31
Representations Complete
23
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
 
3.01
Organization and Standing
24
3.02
Authorization
24
3.03
Binding Obligation
25
3.04
Issuance of Parent Common Stock and Parent Stock Warrants
25
3.05
Litigation
25
3.06
Securities and Exchange Commission Filings
25
ARTICLE IV
COVENANTS OF PARTIES PRIOR TO THE EFFECTIVE TIME
 
4.01
Preparation of Proxy Statement
25
4.02
Restrictions on Transfer; Legends
26
4.03
Access to Information
26
4.04
Public Disclosure
27
4.05
Conduct Business in Ordinary Course
27
4.06
Consents and Approvals
28
4.07
Financial Statements
28
4.08
Notification of Certain Matters
29
4.09
Additional Documents and Further Assurances
29
4.1
Federal and State Securities Exemptions
29
4.11
Shareholder List
29
4.12
Non-Competition and Non-Solicitation
30
4.13
Approval of Shareholders
31
4.14
No Shop
31
ARTICLE V
CONDITIONS TO THE MERGER
 
5.01
Conditions to Obligations of Each Party to Effect the Merger
31
5.02
Conditions to the Obligations of Parent and Subsidiary
32
5.03
Conditions to Obligations of the Company and the Principals
35
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; POST-CLOSING  
COVENANTS
 
6.01
Survival of Representations, Warranties and Covenants
36
6.02
Indemnification by the Principals; Escrow Fund
37
6.03
Indemnification Procedures
39
6.04
No Contribution
40
6.05
Benefit Plans
40
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
 
7.01
Termination
41
7.02
Effect of Termination
41
7.03
Expenses; Termination Fees.
41
7.04
Amendment
42
7.05
Extension; Waiver
42
ARTICLE VIII
GENERAL PROVISIONS
 
8.01
Notices
42
8.02
Interpretation
43
8.03
Counterparts
44
8.04
Entire Agreement; Assignment
44
8.05
No Third Party Beneficiaries
44
8.06
Severability
44
8.07
Other Remedies
44
8.08
Governing Law; Dispute Resolution
44
8.09
Rules of Construction
44
8.1
Attorneys' Fees
45
8.11
Shareholder's Post Closing Sale Restrictions
45
8.12
Xfone USA, Inc. Board Appointments
45

Exhibits
Exhibit A - Articles of Merger
Exhibit B - Escrow Agreement
Exhibit C - McAllister Employment Agreement
Exhibit D - Acosta Employment Agreement
Exhibit E - Release
Exhibit F - Restricted Area

Schedules

Schedule 2.03
Capital Structure
Schedule 2.07
The Company Financial Statements
Schedule 2.08
No Undisclosed Liabilities
 
Schedule 2.09
No Changes
 
 
Schedule 2.10
Tax Matters
 
 
Schedule 2.12(b)
Properties
 
 
Schedule 2.13
Agreements, Contracts, Commitments
Schedule 2.15
Governmental Authorization
 
Schedule 2.16
Litigation
 
 
 
Schedule 2.22
Employee Benefit Plans and Compensation
Schedule 2.25
Intellectual Property
 
 
Schedule 2.26
Customer Contracts
 
 
Schedule 2.29
Stockholder Matters
 
Schedule 2.30
Banking and Insurance
 
Schedule 5.02(b)
Third Party Consents Required
 

 
 
 

AGREEMENT AND PLAN OF MERGER
 
This AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of August 18, 2005 by
and among I-55 INTERNET SERVICES, INC., a corporation organized under the laws
of the State of Louisiana (“I-55” or the “Company”), XFONE, INC., a corporation
organized under the laws of the State of Nevada ("Parent"), XFone USA, Inc.
(“Subsidiary”), a corporation organized under the laws of the State of
Mississippi, a wholly owned subsidiary of Parent , and Hunter McAllister, Brian
Acosta (the "Principals").
 
BACKGROUND
 
A. The Board of Directors of each of Parent, Subsidiary, and the Company believe
it is in the best interests of their respective companies and their respective
shareholders that Parent acquire the Company through the statutory merger of the
Company with and into the Subsidiary (the "Merger") and, in furtherance thereof,
have approved the Merger.
 
B. Pursuant to the Merger, among other things, all of the issued and outstanding
capital stock of the Company shall be acquired and converted into the right to
receive the consideration upon the terms and conditions set forth herein.
 
C. The Company and each of the Principals, on the one hand, and Parent and
Subsidiary, on the other hand, desire to make certain representations,
warranties, covenants and other agreements in connection with the Merger.
 
D. Concurrently with the execution and delivery of this Agreement, as material
inducements to Parent and Subsidiary to enter into this Agreement: (i) Parent,
the Subsidiary, the Escrow Agent (as defined herein) and the Principals are
entering into an Escrow Agreement, in the form attached as Exhibit B (the
"Escrow Agreement"); (ii) Subsidiary and Hunter McAllister are entering into an
Employment Agreement in the form attached as Exhibit C (the "McAllister
Employment Agreement") and (iii) Subsidiary and Brian Acosta are entering into
an Employment Agreement in the form attached as Exhibit D ("Acosta Employment
Agreement" and together with the McAllister Employment Agreement, the
"Principals Employment Agreements").
 
NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth in this Agreement, the parties agree as follows:
 
ARTICLE I  
THE MERGER
 
1.01  The Merger; Effective Time. The Company shall be merged with and into
Subsidiary, and Subsidiary shall be the surviving corporation (sometimes
referred to herein as the "Surviving Corporation"). The Merger shall be
consummated effective at the time Articles of Merger attached hereto as Exhibit
A, are completed, executed and filed with the later of the Mississippi and
Louisiana Secretaries of State. The date and time of such consummation are
referred to as the "Closing Date" and the "Effective Time," respectively.
 
1.02  Effect of the Merger. At the Effective Time, (i) the separate existence of
the Company shall cease and the Company shall be merged with and into
Subsidiary, (ii) Subsidiary shall continue to possess all of the rights,
privileges and franchises possessed by it and shall, at the Effective Time,
become vested with and possess all property, rights, privileges, powers and
franchises possessed by and all the property, real or personal, causes of action
and every other asset of the Company, (iii) Subsidiary shall be responsible for
all of the liabilities and obligations of the Company in the same manner as if
Subsidiary had itself incurred such liabilities or obligations, and the Merger
shall not affect or impair the rights of the creditors or of any persons dealing
with the Company, (iv) the Articles of Incorporation and the Bylaws of
Subsidiary shall become the Articles of Incorporation and the Bylaws of the
Company, (v) the existing officers and directors of Subsidiary shall remain in
such offices, and (vi) the Merger shall have all the effects provided by
applicable Mississippi law.
 
1.03  Consideration; Conversion of Shares.
 
(a) Definitions. For all purposes of this Agreement, the following terms shall
have the following respective meanings:
 
(i) "Aggregate Merger Consideration" shall mean the: (1) the Parent Stock
Consideration, and (2) the Parent Warrant Consideration.
 
(1) "Parent Stock Consideration" shall mean a number of shares of the common
stock of the Parent Common Stock with an agreed market value of $2,569,445
determined using the weighted average price as reported on the website of the
American Stock Exchange of the Parent Common Stock for the ten (10) trading days
preceding the trading day immediately prior to the Closing Date (which weighted
average price shall in no event be less than $2.70 per share or greater than
$3.70 per share).
 
(2) "Parent Warrant Consideration" shall mean a number of Parent Stock Warrants
with a value of $1,284,722 with the value calculated as of the Closing Date
assuming 90% volatility of the underlying Parent Common Stock pursuant to the
Black Scholes option - pricing model.
 
(ii) "Company Common Stock" shall mean shares of the Company's common stock.
 
(iii) "Company Stockholders" or "Company Shareholders" shall mean the holders of
the Total Company Common Stock at the Effective Time.
 
(iv) "Escrow Agent" shall mean Trustmark National Bank or such other person or
entity mutually agreed to by the parties to serve as an escrow agent under the
Escrow Agreement.
 
(v) "GAAP" shall mean U.S. generally accepted accounting principles.
 
(vi) "Knowledge" shall mean (i) with respect to the Company, the actual
knowledge of any of the Company's officers or directors or either of the
Principals and the knowledge that such persons would have obtained of the matter
represented after reasonable inquiry thereof under the circumstances; and (ii)
with respect to the Parent and Subsidiary, the actual knowledge of the Parent's
and Subsidiary’s Chairman, President or any Executive Vice President and the
knowledge that such person would have obtained of the matter represented after
reasonable inquiry thereof under the circumstances.
 
(vii) "Material Adverse Effect" shall mean any change, event or effect that is
materially adverse to the business, assets, financial condition, prospects or
results of operations of the Company and its Subsidiaries, taken as a whole.
 
(viii) "Parent Common Stock" shall mean shares of the common stock of Parent.
 
(ix) "Parent Stock Warrants" shall mean warrants convertible on a one to one
basis into Parent Common Stock with a term of five (5) years, a strike price
that is 10% above the closing price of the Parent Common Stock on the Closing
Date with the Parent Common Stock into which the warrant is convertible is
restricted stock.
 
(x) "SEC" shall mean the U.S. Securities and Exchange Commission.
 
(xi) "Total Company Common Stock" shall be the aggregate number of all shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time.
 
(b) The Aggregate Merger Consideration shall be allocated among the Company
Stockholders as of the Effective Date as follows:
 
(c)  Each share of Company Common Stock issued and outstanding immediately prior
to the Effective Time (other than Dissenting Shares as defined in Section 1.04)
will be canceled and extinguished and be converted automatically into the right
to receive upon surrender of certificate(s) representing Company Common Stock
(i) an amount of the Parent Stock Consideration equal to the product of one
times the Parent Stock Consideration divided by the Total Company Common Stock;
and (ii) an amount of the Parent Warrant Consideration equal to the product of
one times the Parent Warrant Consideration divided by the Total Company Common
Stock.
 
1.04  Dissenting Shares.
 
(a) Notwithstanding any other provisions of this Agreement to the contrary, any
shares of Company Common Stock held by a Company Shareholder who has exercised
and perfected appraisal rights for such Company Common Stock, if available
because this Agreement and Plan of Merger was not approved by at least eighty
percent (80%) of the total voting power of the Shareholders of the Company in
accordance with the Business Corporation Law of Louisiana, and who has not
effectively withdrawn or lost such appraisal rights ("Dissenting Shares"), shall
not be converted into or represent a right to receive the consideration set
forth in Section 1.03, but the holder shall only be entitled to such rights as
are provided by the Business Corporation Law of Louisiana.
 
(b) Notwithstanding the provisions of Section 1.04(a) hereof, if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to perfect
or otherwise) such holder's appraisal rights under the Business Corporation Law
of Louisiana, then, as of the later of the Effective Time and the occurrence of
such event, such holder's shares shall automatically be converted into and
represent only the right to receive the consideration set forth in Section 1.03
hereof, without interest thereon, upon surrender of the certificate(s)
representing such shares.
 
(c) The Company shall give Parent (i) prompt notice of any written demand for
appraisal received by the Company pursuant to the applicable provisions of the
Business Corporation Law of Louisiana; and (ii) the opportunity to participate
in all negotiations and proceedings with respect to such demands. The Company
shall not, except with the prior written consent of Parent or as required by
law, including the Business Corporation Law of Louisiana, make any payment with
respect to any such demands or offer to settle or settle any such demands. To
the extent that Parent or the Company makes any payment or payments to any
Dissenting Shares, Parent shall be entitled to recover under the terms of
Article VI hereof the aggregate amount by which such payment or payments exceed
the aggregate consideration that otherwise would have been payable in respect of
the stock of any Dissenting Shares.
 
1.05  Surrender of Certificates.
 
(a) Exchange Agent. Transfer Online, Inc. shall serve as the exchange agent (the
"Exchange Agent") for the Merger.
 
(b) Parent to Provide Parent Common Stock and Parent Stock Warrants. Upon the
terms and subject to the conditions of Section 1.03, promptly after the
Effective Time, in exchange for outstanding Company Common Stock, Parent shall
make available to the Exchange Agent for exchange in accordance with this
Article I, the Aggregate Consideration issuable pursuant to Section 1.03, less
the Parent Common Stock and Parent Stock Warrants being escrowed in accordance
with Section 6.02(b) hereof (the "Escrow Shares"), which Parent shall deposit
into the Escrow Fund as defined in Section 6.02(b) hereof.
 
(c) Exchange Procedures. As promptly as practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record of a
certificate(s) which, immediately prior to the Effective Time, represented
outstanding Company Common Stock(the "Certificates"), whose Company Common Stock
was converted into the right to receive shares of Parent Common Stock and Parent
Stock Warrants pursuant to Section 1.03: (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Parent may
reasonably specify); and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificate(s) representing shares of Parent
Common Stock and for the Parent Stock Warrants. Upon surrender of Certificates
for cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor
certificate(s) representing the number of whole shares of Parent Common Stock
and Parent Stock Warrants, and the Certificates so surrendered shall forthwith
be canceled. Until so surrendered, outstanding Certificates will be deemed from
and after the Effective Time, for all corporate purposes other than the payment
of dividends, to evidence the ownership of the number of full shares of Parent
Common Stock and Parent Stock Warrants into which such Company Common Stock
shall have been so converted.
 
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Stock with a record date after the Effective Time will be paid to the
holder of any unsurrendered Certificate with respect to the Parent Common Stock
represented thereby until the holder of record of such Certificates shall
surrender such Certificates. Subject to applicable law, as promptly as
practicable following surrender of any such Certificates, the Exchange Agent
shall deliver to the record holder thereof, without interest, (i) certificate(s)
representing whole shares of Parent Common Stock and Parent Stock Warrants
issued in exchange therefore, and (ii) the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
payable with respect to such whole shares of Parent Common Stock.
 
(e) No Liability. Notwithstanding anything to the contrary in this Section 1.05,
neither the Exchange Agent, the Surviving Corporation nor any party hereto shall
be liable to a holder of shares of Company Common Stock or Company Preferred
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
 
1.06  Value of Parent Common Stock. For purposes of the indemnification
obligations described in Article VI hereof, the parties hereto agree that the
Parent Common Stock shall be deemed to have a value determined using the
weighted average price as reported on the website of the American Stock Exchange
for the ten (10) trading days preceding the date on which a claim for
indemnification is made, and Parent Stock Warrants issued in the Merger shall be
deemed to have a value per share equal to the value per share determined in
accordance with Section 1.03.
 
1.07  Treatment of the Company Options and Warrants. All outstanding options,
warrants and other rights to purchase Company Common Stock or any other equity
interest in the Company as set forth in Section 2.03 that remain unexercised as
of the Effective Time will be terminated, and the rights granted thereunder will
be forfeited. Prior to the Closing Date, the Company shall provide all necessary
notifications, and obtain all necessary consents, releases or cancellation
agreements from the holders of such options, warrants and other rights as Parent
may reasonably require.
 
1.08  No Further Ownership Rights in the Company Capital Stock. The shares of
Parent Common Stock and Parent Stock Warrants paid in respect of the surrender
for exchange of Company Common Stock in accordance with the terms hereof
(including any cash paid with respect to fractional shares of Parent Common
Stock or Parent Stock Warrants) shall be deemed to be in full satisfaction of
all rights pertaining to such Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
capital stock that was outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
 
1.09  Lost, Stolen or Destroyed Certificates. In the event any certificates
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Parent Common Stock, Parent Stock Warrants or
such cash consideration as may be required pursuant to Section 1.03 hereof;
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificates to deliver a bond in such amount as it may reasonably
direct against any claim that may be made against Parent or the Exchange Agent
with respect to the certificates alleged to have been lost, stolen or destroyed.
 
1.10  Taking of Necessary Action; Further Action. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company, then the officers, directors and employees of the
Company, Parent and Subsidiary are fully authorized in the name of their
respective companies or otherwise to take, and will take, all such lawful and
necessary action.
 
1.11  Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a)(1)(A), by reason of Section
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), and
that this Agreement shall constitute a "plan of reorganization" within the
meaning of Section 368 of the Code.
 
ARTICLE II  
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPALS
 
The Company, and each of the Principals, hereby represent and warrant to Parent
and Subsidiary that on the date hereof and as of the Effective Time as though
made on the Effective Date as follows:
 
2.01  Corporate Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Louisiana.
The Company has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which its ownership
or leasing of its properties or the nature of the business conducted by the
Company makes such licensing or qualification necessary. The copies of the
Articles of Incorporation of the Company and the Bylaws of the Company,
certified by its Secretary as of the date of this Agreement, which are being
delivered to Parent and Subsidiary herewith, are complete and correct copies of
such documents in effect as of the date of this Agreement. The minute books of
the Company contain true and complete records of all meetings and other
corporate actions of its shareholders and their Boards of Directors (including
all committees of their Boards of Directors).
 
2.02  Subsidiaries. There is no other corporation, limited liability company,
partnership, association, joint venture or other business entity that the
Company owns or controls, directly or indirectly.
 
2.03  Capital Structure.
 
(a) The authorized capital stock of the Company consists of (i) 100,000,000
shares of Company Common Stock, 11,110,000 shares of which are issued and
outstanding. The capitalization of the Company is as set forth on Schedule
2.03(a) hereto. The names, addresses, number of shares held and domiciles of
each of the Company Shareholders are set forth on Schedule 2.03(a) hereto.
Except as set forth on Schedule 2.03(a) hereto, there are no shares of capital
stock of the Company authorized, issued or outstanding. Except for Company
Common Stock set forth on Schedule 2.03(a) hereto, there are no classes or
series of ownership interests of the Company of any kind authorized, outstanding
or issuable. All outstanding shares of Company Common Stock are duly authorized,
validly issued, fully paid and non-assessable, and are not subject to preemptive
rights created by statute, the Articles of Incorporation or Bylaws of the
Company, or any agreement to which the Company is a party or by which it is
bound. All shares of Company Common Stock have been issued in compliance with
all applicable federal and state securities laws. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
Company Common Stock are as set forth in Schedule 2.03(a) hereto. There are no
declared or accrued but unpaid dividends with respect to any shares of the
Company capital stock and none of the Company capital stock is held in treasury.
 
(b) As of the date hereof, except for the 5,982,307.69 warrants issued in favor
of MCG Capital Finance, Inc. (“MCG”), there are no other options, warrants or
similar rights outstanding. Of the 5,982,307.69 warrants issued to MCG,
2,777,500 are currently vested. Schedule 2.03(b) sets forth the full name of MCG
and the domicile address of MCG, the number of shares of Company Common Stock
issuable upon the exercise of such warrants, the exercise price of such
warrants, the vesting schedule for such warrants (including any vesting
acceleration triggered by this Agreement, upon events following the Closing, or
the transactions contemplated hereby), and whether such right is intended to
qualify as an incentive stock option as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). As of the Closing Date, all such
warrants, written or unwritten, to purchase any of the Company's authorized or
unissued capital stock shall have been exercised or will have terminated. There
are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
Company Common Stock of which the Company or any Principal has knowledge. To the
Company’s and the Principals’ knowledge, the shareholders of the Company have
good, valid and marketable title to Company Common Stock free and clear of any
claim, lien, pledge, charge, security interest options, charges, assessments or
other encumbrance of any nature whatsoever.
 
(c) The requisite vote required to approve the Merger under Louisiana law, the
Company's Articles of Incorporation, Bylaws and any other agreement to which the
Company or any Shareholder of the Company is two-thirds of the Company Common
Stock voting as a class.
 
2.04  Authority. The Company and each of the Principals have all requisite power
and authority to enter into this Agreement and any Related Agreement (as defined
below) to which they are party and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement, any Related
Agreement to which the Company is party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to the approval of the
Company Shareholders. No further action is required on the part of any of the
Principals to authorize the Agreement, any Related Agreement to which they are a
party and the transactions contemplated hereby and thereby. This Agreement, any
Related Agreement to which the Company is a party and the Merger have been
unanimously approved by the board of directors of the Company, and the Board of
Directors will recommend to the Company Shareholders to vote in favor of this
Agreement, the Merger and the transactions contemplated thereby. This Agreement
and any Related Agreement to which the Company and/or any of the Principals is a
party has been duly executed and delivered by the Company and/or the Principals,
as the case may be, and constitute the valid and binding obligations of the
Company and each of the Principals, enforceable against each such party in
accordance with their respective terms, except as such enforceability may be
subject to the laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. For the purposes of this
Agreement, the term "Related Agreements" shall mean the Escrow Agreement, the
McAllister Employment Agreement, the Acosta Employment Agreement, the Articles
of Merger, and any other agreements to which the Company and/or the Principals
is a party that is entered into in order to consummate the transactions
contemplated hereby or thereby.
 
2.05  No Conflict. The execution and delivery by the Company and each of the
Principals of this Agreement and any Related Agreement to which the Company
and/or any Principal is a party, and the consummation of the transactions
contemplated hereby and thereby, will not conflict with or result in any
violation of or default under (with or without notice or lapse of time, or both)
or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict"): (i) any provision of the Articles of Incorporation or Bylaws of the
Company, each as amended to date; (ii) any contract to which the Company is a
party, or to which any of the Principals, is subject; or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or any respective properties or assets, or applicable to any of the
Principals.
 
2.06  Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency, commission, military division or department,
inspectorate, minister, ministry or public or statutory person (whether
autonomous or not) thereof (or of any political subdivision thereof) (each, a
"Governmental Entity"), is required by or with respect to the Company, or any of
the Principals in connection with the execution and delivery of this Agreement,
any of the Related Agreements to which the Company, or any Principal is a party,
or the consummation of the transactions contemplated hereby or thereby, except
for: (i) the filing of the Articles/Certificate of Merger with the Secretary of
State of the State of Mississippi and Louisiana; (ii) the approval of this
Agreement and the transactions contemplated hereby by the Company Shareholders;
(iii) the consents as set forth in Section 5.02(b); and (iv) such other
consents, filings, approvals, registrations or declarations, the failure of
which to make or obtain is not reasonably likely, individually, or in the
aggregate, to have a Material Adverse Effect.
 
2.07  The Company Financial Statements. Attached as Schedule 2.07 are the (i)
audited balance sheet as of December 31, 2002, 2003 and 2004, and the Profit and
Loss Statement for the Company for the years ended December 31, 2002, 2003 and
2004 and (ii) the unaudited balance sheet as of June 30, 2005 and the
consolidated Profit and Loss Statement for the Company for the three months
ending June 30, 2005 (collectively, the "Financials"). The Financials are true,
correct and accurate and have been based upon the information contained in the
books and records of the Company and have been prepared in accordance with GAAP
except that the June 30, 2005 Financials do not have notes thereto and may be
subject to normal and recurring year end adjustments consistently applied
throughout the periods covered thereby. The Financials present fairly the
financial condition, operating results and cash flows of the Company (and their
predecessors) as of the dates and during the periods indicated therein. The
Company's unaudited balance sheet as of June 30, 2005 is referred to hereinafter
as the "Current Balance Sheet." The Company maintains and will continue, prior
to the Effective Time, to maintain a standard system of accounting established
and administered in accordance with GAAP. The Parent, Subsidiary, and the
Company acknowledge that the Financials do not reflect receivables owed to the
Company by I-55 Telecommunications, L.L.C. and that the representations of this
paragraph are limited by this acknowledgement.
 
2.08  No Undisclosed Liabilities. Except as and to the extent reflected or
reserved against in the Financials or as disclosed on Schedule 2.08, which shall
include all the Company's accounts payable and other accrued expenses as of the
date of this Agreement, and subject to the thresholds set forth in Section 2.13
of this Agreement (except that the thresholds of Section 2.13 shall not apply if
the cumulative undisclosed liabilities based on such threshold exceed $50,000),
the Company has no liabilities, claims or obligations (whether accrued,
absolute, contingent, unliquidated or otherwise, whether or not known to the
Company or Principals or any directors, officers or employees of the Company,
whether due to become payable and regardless of when or by whom asserted) or any
unrealized or anticipated losses from any unrealized or anticipated losses of a
contractual nature.
 
2.09  No Changes. Except as set forth on Schedule 2.09, since the Current
Balance Sheet Date, there has not been, occurred or arisen any of the following
with respect to the Company:
 
(a) material transaction by the Company except in the ordinary course of
business consistent with past practices;
 
(b) amendments or changes to the organizational documents of the Company;
 
(c) capital expenditure or capital expenditure commitment exceeding $5,000
individually or $20,000 in the aggregate;
 
(d) payment, discharge or satisfaction, in any amount in excess of $5,000 in any
one case, or $20,000 in the aggregate, of any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
payments, discharges or satisfactions made or given in the ordinary course of
business consistent with past practices;
 
(e) destruction of, damage to or loss of any material assets or material
business or loss of any material customer (whether or not covered by insurance);
 
(f) claim of wrongful discharge or other unlawful labor practice or action;
 
(g) material change in accounting methods or practices (including any change in
depreciation or amortization policies or rates by the Company) other than as
required by GAAP;
 
(h) change in any election in respect of Taxes (as defined below), adoption or
change in any accounting method in respect of Taxes, agreement or settlement of
any claim or assessment in respect of Taxes, or extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
 
(i) revaluation by the Company of any of their respective assets;
 
(j) declaration, setting aside or payment of a dividend or other distribution
(whether in cash, stock or property) in respect of any share of capital stock,
or any split, combination or reclassification in respect of any share of capital
stock, or any issuance or authorization of any issuance of any other securities
in respect of, in lieu of or in substitution for any share of capital stock, or
any direct or indirect repurchase or redemption of any share of capital stock
(or options or other rights convertible into, exercisable or exchangeable
therefor);
 
(k) increase in the salary or other compensation (cash, equity or otherwise)
payable by the Company to any officers, directors, employees or advisors, or the
declaration, or commitment or obligation of any kind for the payment by the
Company of a severance payment, termination payment, bonus or other additional
salary or compensation (cash, equity or otherwise) to any such person;
 
(l) sale, lease or other disposition of any of the material assets or material
properties or any creation of any security interest in such material assets or
material properties;
 
(m) loan by the Company to any person or entity, incurring by the Company of any
indebtedness, guaranteeing of any indebtedness (in each case, except in the
ordinary course of business and consistent with past practice, including,
without limitation, travel and related expenses advanced to employees), issuance
or sale of any debt securities or guaranteeing of any debt securities of others,
except for advances to employees for travel and business expenses in the
ordinary course of business consistent with past practices;
 
(n) waiver or release of any material or valuable right or claim of the Company
, including any write-off or other compromise of any account receivable of the
Company ;
 
(o) the commencement, settlement, notice or threat of any lawsuit or proceeding
or other investigation against the Company or its affairs, or any reasonable
basis for any of the foregoing;
 
(p) notice to the Company, or their respective directors, officers or managers
or advisors of any claim of ownership by any person other than the Company of
the intellectual property owned by or developed or created by the Company or of
infringement by the Company of any other person's intellectual property;
 
(q) issuance or sale, or contract to issue or sell, by the Company of any
capital stock, or any securities, warrants, options or rights to purchase any of
the foregoing (other than a transfer of capital stock occasioned by the exercise
of the MCG Warrants);
 
(r) agreement or modification to any agreement pursuant to which any other party
was granted marketing, distribution, development or similar rights of any type
or scope with respect to any products or technology of the Company;
 
(s) hiring or termination of any employee of the Company;
 
(t) event or condition of any character that has had or is reasonably likely to
have a Material Adverse Effect; or
 
(u) agreement by the Company, or any officer, manager or employee thereof on
behalf of the Company to do any of the things described in the preceding clauses
(a) through (t) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
 
2.10  Tax Matters.
 
(a) Definition of Taxes. For the purposes of this Agreement, the term "Tax" or,
collectively, "Taxes" shall mean: (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, capital gains, capital stock, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, stamp, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts (whether payable
directly or by withholding, and whether or not requiring the filing of a Return
(defined below)); (ii) any liability for the payment of any amounts of the type
described in clause (i) above as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clauses (i) or (ii)
above as a result of any express or implied obligation to indemnify any other
person or as a result of any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
 
(b) Taxes. All Taxes which are due and payable by the Company and any interest
or penalties thereon have been paid in full or accrued on the balance sheets
included in the Financials. All federal, state and other tax returns of the
Company required by law to be filed have been timely filed, and Company has paid
or accrued on the balance sheets included in the Financials (including taxes on
properties, income, franchises, licenses, sales and payrolls) all taxes which
have become due pursuant to such returns or pursuant to any assessment. All such
tax returns have been prepared in compliance with all applicable laws and
regulations and are true and accurate in all material respects. The amounts set
up as provisions for Taxes (including provision for deferred income taxes) on
the Financials are sufficient for the payment of all unpaid federal, state,
county and local taxes accrued for or applicable to all periods (or portions
thereof) ending on or before the Effective Date. There are no tax liens on any
of the property of the Company except those with respect to taxes not yet due
and payable. There are no pending tax examinations nor has the Company received
a revenue agent's report asserting a tax deficiency. The Company does not expect
any taxing authority to claim or assess any amount of additional taxes against
it. No claim has ever been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company is or may be subject to
taxes assessed by such jurisdiction.
 
Copies of Company’s last three federal, state and local income tax returns are
included as Schedule 2.10(b). No waivers of any statute of limitations relating
to the payment of taxes have been given by the Company and no waivers therefor
have been requested by the Internal Revenue Service from the Company . No
extensions have been obtained to file any tax return which has not heretofore
been filed. The Company has withheld from each payment made to employees of the
Company the amount of all taxes (including, but not limited to, federal, state
and local income taxes, Federal Insurance Contribution Act taxes and
Unemployment Tax Act taxes) required to be withheld therefrom and all amounts
customarily withheld therefrom, and have set aside all other employee
contributions or payments customarily set aside with respect to such wages and
have paid or will pay the same to, or have deposited or will deposit such
payment with, the proper tax receiving officers or other appropriate
authorities. All Taxes and other amounts required to be collected and paid to a
third party as required by law from customers' payments have been timely
withheld and paid by the Company.
 
2.11  Restrictions on Business Activities. There is no agreement (noncompete or
otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company , which has or may
reasonably be expected to have the effect of prohibiting or impairing in any
material respect any business practice, any acquisition of property, the conduct
of business as currently conducted or otherwise materially limiting the freedom
of the Company to engage in any line of business or to compete with any person.
 
2.12  Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
 
(a) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its properties and
assets, real, personal and mixed, used or held for use in its business, free and
clear of any Liens, except: (i) as reflected in the Financials; (ii) Liens for
Taxes not yet due and payable; and (iii) such imperfections of title and
encumbrances, if any, which do not detract materially from the value of, or
interfere materially with the present use of, the property subject thereto or
affected thereby.
 
(b) Schedule 2.12(b) contains an accurate and complete list and description of
all real property owned by the Company or in which the Company has a leasehold
or other interest or which is used by the Company in connection with the
operation of its business, together with a description of each lease, sublease,
license, or any other instrument under which the Company claims or holds such
leasehold or other interest or right to the use thereof or pursuant to which the
Company has assigned, sublet or granted any rights therein, identifying the
parties thereto, the rental or other payment terms, expiration date and
cancellation and renewal terms thereof, and all machinery, tools, equipment,
motor vehicles, rolling stock and other tangible personal property (other than
inventory and supplies), owned, leased or used by the Company except for items
having a value of less than $2,000 which do not, in the aggregate, have a total
value of more than $10,000, setting forth with respect to all such listed
property a summary description of all leases, liens, claims, encumbrances,
charges, restrictions, covenants and conditions relating thereto, identifying
the parties thereto, the rental or other payment terms, expiration date and
cancellation and renewal terms thereof.
 
(c) The Company has not granted to any third party any right or license to use
the Company's customer lists, customer contact information, customer
correspondence or customer licensing and purchasing histories relating to its
current and former customers.
 
2.13  Material or Significant Agreements, Contracts and Commitments.
 
(a) Except as set forth on Schedule 2.13(a), the Company is not presently a
party to or bound by:
 
(i) any employment, consulting or sales agreement with any employee, consultant
or salesperson of the Company that is not otherwise terminable without penalty
upon no more than 30 days notice or involves payments of more than $10,000 per
annum;
 
(ii) any agreement or plan relating to employee benefits or compensation
involving payments of more than $10,000 per annum, including without limitation
any option plan or purchase plan with respect to Equity Interests of the Company
, any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
 
(iii) any material fidelity or surety bond or completion bond;
 
(iv) any lease of personal property having an annual rental rate in excess of
$2,000 individually or $20,000 in the aggregate;
 
(v) any agreement, contract or commitment relating to capital expenditures and
involving future payments in excess of $5,000 individually or $20,000 in the
aggregate;
(vi) any agreement, contract or commitment relating to the disposition or
acquisition of assets or any interest in any business enterprise outside the
ordinary course of the Company's business that involves future payments of more
than $10,000;
 
(vii) any payables, mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit or evidencing any debt or any
payable, debt or agreement which is secured by any assets of the Company and has
a balance of more than $5,000.00;
 
(viii) any purchase order or contract for the purchase of materials or services
involving in excess of $2,000 individually or $20,000 in the aggregate;
 
(ix) any material construction contracts;
 
(x) any dealer, distribution, joint marketing or development agreement or
agreements relating to territorial arrangements, sales representation, operating
or consulting agreements that is not otherwise terminable without penalty upon
no more than 30 days notice or involves payments of more than $10,000 per annum;
 
(xi) any remarketer, reseller or other agreement for use or distribution of the
Company's products, technology or services that may not be cancelled without
penalty upon no more than 30 days notice;
 
(xii) any supplier or third party provider agreements that involves future
payments in excess of $10,000 per annum and is not cancelable without penalty
within 30 calendar days;
 
(xiii) any joint venture, partnership or other management agreements that
involves future payments of more than $10,000;
 
(xiv) any advertising, marketing, telemarketing or promotional agreements that
involves future payments of more than $5,000;
 
(xv) any material tax sharing agreement with any other party;
 
(xvi) any non-compete or other agreements restricting the business in any way;
 
(xvii) any independent agent or independent contractor agreements that is not
cancelable without penalty within 30 calendar days;
 
(xviii) any agreements for the discount of the services or products offered by
the Company that involve discounts of more than $5,000 per annum;
 
(xix) any material agreements pursuant to which the Company is obligated to
indemnify any party;
 
(xx) any agreements that involves future payments of more than $5,000 or which
is not otherwise cancelable without penalty within 30 calendar days with any
current or former officer, director, employee, consultant or equity holder or
any partnership, corporation, joint venture or other entity in which any such
person has an interest;
 
(xxi) any irrevocable right of use or similar agreements that is not cancelable
without penalty within 30 calendar days;
 
(xxii) any agreement providing for the purchase of telecommunications minutes,
services or traffic that involves future payments of more than $5,000 or which
is not otherwise cancelable without penalty within 30 calendar days; or
 
(xxiii) any other agreement, contract or commitment that involves $2,000
individually or $20,000 in the aggregate or more and is not cancelable without
penalty within thirty (30) calendar days.
 
The undisclosed liabilities based on the thresholds as provided in this Section
2.13(a) do not exceed in the aggregate $50,000.
 
(b) The Company is in compliance with and has not breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, any of the terms or conditions of any agreement, contract, lease, license
or commitment to which it is a party or by which it is bound, including those
included on Schedule 2.13(a) (collectively, the "Contracts"), nor does the
Company have knowledge of any event that would constitute such a material
breach, violation or default with the lapse of time, giving of notice or both.
Each Contract is in full force and effect and is not subject to any material
default thereunder, nor, to the Knowledge of the Company, is any party obligated
to the Company pursuant thereto subject to any material default thereunder.
 
(c) The Company has obtained, or will obtain prior to the Effective Time, all
necessary consents, waivers and approvals of parties to any Contract as are
required thereunder in connection with the Merger or for such Contracts to
remain in effect without modification, limitation or alteration after the
Effective Date. Following the Effective Date, the Company will be permitted to
exercise all of its rights under the Contracts without the payment of any
additional amounts or consideration other than amounts or consideration which
the Company would otherwise be required to pay had the transactions contemplated
by this Agreement not occurred.
 
2.14  Interested Party Transactions. No officer, director, employee,
shareholder, manager or member of the Company (nor any ancestor, sibling,
descendant or spouse of any such person, or trust, partnership or corporation in
which any such person has or has had an interest) has or has had, directly or
indirectly: (i) an interest in any entity which furnished or sold, or furnishes
or sells, services, products or technology that the Company furnishes or sells;
(ii) any interest in any entity that purchases from or sells or furnishes to the
Company, any goods or services; or (iii) a beneficial interest in any Contract
to which the Company is a party; provided, however, that ownership of no more
than 1% of the outstanding voting stock of a publicly traded corporation shall
not be deemed to be an "interest in any entity" for purposes of this Section
2.14.
 
2.15  Governmental Authorization.
 
(a) Each consent, license, permit, grant, certificate, approval or other
authorization (i) pursuant to which the Company currently operates or holds any
interest in any of its properties, or (ii) which is required for the operation
of its business as currently conducted or the holding of any such interest has
been issued or granted and is listed on Schedule 2.15 (collectively, the "the
Company Authorizations"). The Company is operating in compliance with all
Company Authorizations. Each Company Authorization has been lawfully and validly
issued and no proceeding or investigation is currently pending or threatened,
and the Company has received no notice of any investigation, revocation,
cancellation or modification with respect to any Company Authorization and knows
of no basis therefor. The Company has timely filed all reports, data and other
information required to be filed with any governmental entity or as required to
maintain the Company Authorizations. The Company Authorizations are in full
force and effect, and, shall remain in full force and effect without
modification after the Effective Time.
 
2.16  Litigation. Except as set forth on Schedule 2.16, there is no action,
suit, claim or proceeding of any nature pending or threatened against the
Company or any Principal or their respective properties or any person or entity
whose liability the Company or any Principal may have retained or assumed,
either contractually or by operation of law, nor, to the Knowledge of the
Company or Principals, is there any reasonable basis therefor. There is no
investigation or other proceeding pending or threatened against the Company or
any Principal, any of their respective properties or any person or entity whose
liability the Company or any Principal may have retained or assumed, either
contractually or by operation of law, by or before any Governmental Entity, nor,
to the Knowledge of the Company or Principals, is there any reasonable basis
therefor. Except as set forth on Schedule 2.16, no Governmental Entity has at
any time challenged or questioned the legal right of the Company to conduct
their respective operations as presently or previously conducted.
 
2.17  Accounts Receivable. Except for any receivables owed to the Company by
I-55 Telecommunications, L.L.C., all receivables of the Company (including
accounts receivable, loans receivable and advances) which are reflected in the
Balance Sheet, and all such receivables which will have arisen since the date
thereof, shall have arisen only from bona fide transactions in the ordinary
course of the business of the Company and shall be (or have been) fully
collected when due, or in the case of each account receivable within 90 days
after it arose, without resort to litigation and without offset or counterclaim,
in the aggregate face amounts thereof except to the extent of the normal
allowance for doubtful accounts with respect to accounts receivable computed as
a percentage of sales consistent with the Company's prior practices as reflected
on the Financials.
 
2.18  Assets Necessary to Business. The Company presently has and at Closing
will have title to all property and assets, real, personal and mixed, tangible
and intangible, and all leases, licenses and other agreements, necessary to
permit Subsidiary to carry on the business of the Company, as currently
conducted.
 
2.19  Minute Books. The minutes of the Company made available to counsel for
Parent are the only minutes of the Company and contain substantially accurate
summaries of all material meetings of the board of directors (or committees
thereof), the board of managers (or committees thereof), the shareholders (or
committees thereof), the members (or committees thereof) of the Company , as
applicable, and each action by written consent since the inception of each such
entity.
 
2.20  Environmental Matters.
 
(a) Hazardous Material. The Company has not: (i) operated any underground
storage tanks at any property that the Company has at any time owned, operated,
occupied or leased; or (ii) illegally released any amount of any substance that
has been designated by any Governmental Entity or by applicable federal, state
or local law to be radioactive, toxic, hazardous or otherwise a danger to health
or the environment, including without limitation PCBs, asbestos, petroleum, and
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a "Hazardous Material"). To the Knowledge of
the Company, no Hazardous Materials are present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company or any Subsidiary has at any time owned, operated, occupied or
leased.
 
(b) Hazardous Materials Activities. The Company has not transported, stored,
used, manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Effective
Time, nor has the Company or any Subsidiary disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to herein as "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Permits. The Company currently holds all environmental approvals, permits,
licenses, clearances and consents (the "Environmental Permits") necessary for
the conduct of Hazardous Material Activities by them, respectively, and other
businesses of the Company as such activities and businesses are currently being
conducted.
 
(d) Environmental Liabilities. No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending or, to the Knowledge
of the Company, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company or any Subsidiary.
The Company has no Knowledge of any fact or circumstance that is reasonably
likely to involve the Company in any environmental litigation or impose upon the
Company any environmental liability.
 
2.21  Brokers' and Finders' Fees. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
 
2.22  Employee Benefit Plans and Compensation.
 
(a) Definitions. For all purposes of this Agreement, the following terms shall
have the following respective meanings:
 
(i) "Affiliate" shall mean any other person or entity under common control with
the Company or Parent, as applicable, within the meaning of Section 414(b), (c),
(m) or (o) of the Code, and the regulations issued thereunder.
 
(ii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
 
(iii) "the Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other material arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation.
 
(iv) "DOL" shall mean the United States Department of Labor.
 
(v) "Employee" shall mean any current or former employee, consultant or director
of the Company or any Affiliate.
 
(vi) "Employment Agreement" shall mean each management, employment, severance,
consulting, relocation, repatriation, expatriation, visas, work permit or other
agreement, or contract between the Company or any Affiliate and any Employee.
 
(vii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
 
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as amended.
 
(ix) "IRS" shall mean the United States Internal Revenue Service.
 
(x) "Pension Plan" shall mean each the Company Employee Plan, which is an
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
 
(b) Schedule. Schedule 2.22(b) contains an accurate and complete list of each
the Company Employee Plan and each Employment Agreement. The Company has no plan
or commitment to establish any new the Company Employee Plan or Employment
Agreement, to modify any the Company Employee Plan or Employment Agreement
(except to the extent required by law), or to enter into any the Company
Employee Plan or Employee Agreement.
 
(c) Documents. The Company has provided to Parent correct and complete copies
of: (i) all documents embodying each the Company Employee Plan and each
Employment Agreement including (without limitation) all amendments thereto and
all related trust documents, administrative service agreements, group annuity
contracts, group insurance contracts, and policies pertaining to fiduciary
liability insurance covering the fiduciaries for each Plan; (ii) the most recent
annual actuarial valuations, if any, prepared for each the Company Employee
Plan; (iii) the three (3) most recent annual reports (Form Series 5500 and all
schedules and financial statements attached thereto), if any, required under
ERISA or the Code in connection with each the Company Employee Plan; (iv) if the
Company Employee Plan is funded, the most recent annual and periodic accounting
of the Company Employee Plan assets; (v) the most recent summary plan
description together with the summary(ies) of material modifications thereto, if
any, required under ERISA with respect to each the Company Employee Plan; (vi)
all IRS determination, opinion, notification and advisory letters, and all
applications and correspondence to or from the IRS or the DOL with respect to
any such application or letter; (vii) all communications material to any
Employee or Employees relating to any the Company Employee Plan and any proposed
the Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company; (viii) all correspondence to or from any
governmental agency relating to any the Company Employee Plan; (ix) all COBRA
forms and related notices (or such forms and notices as required under
comparable law); (x) the three (3) most recent plan years discrimination tests
for each the Company Employee Plan; and (xi) all registration statements, annual
reports (Form 11-K and all attachments thereto) and prospectuses prepared in
connection with each Company Employee Plan.
 
(d) Employee Plan Compliance. Except as set forth on Schedule 2.22(d), (i) the
Company has performed in all material respects all obligations required to be
performed by it under, is not in material default or violation of, and has no
knowledge of any material default or violation by any other party to each the
Company Employee Plan, and each the Company Employee Plan has been established
and maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each the Company Employee
Plan intended to qualify under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code has either received a
favorable determination, opinion, notification or advisory letter from the IRS
with respect to each such Company Employee Plan as to its qualified status under
the Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has remaining a period of time under
applicable Treasury regulations or IRS pronouncements in which to apply for such
a letter and make any amendments necessary to obtain a favorable determination
as to the qualified status of each such Company Employee Plan; (iii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of
the Code or Section 408 of ERISA (or any administrative class exemption issued
thereunder), has occurred with respect to any the Company Employee Plan; (iv)
there are no actions, suits or claims pending, or, to the Knowledge of the
Company, threatened or reasonably anticipated (other than routine claims for
benefits) against any the Company Employee Plan or against the assets of any the
Company Employee Plan; (v) each Company Employee Plan can be amended, terminated
or otherwise discontinued after the Effective Time, without material liability
to the Parent, the Subsidiary, or the Company (other than ordinary
administration expenses); (vi) there are no audits, inquiries or proceedings
pending or, to the Knowledge of the Company , threatened by the IRS or DOL with
respect to any Company Employee Plan; and (vii) the Company is not subject to
any penalty or tax with respect to any the Company Employee Plan under Section
502(i) of ERISA or Sections 4975 through 4980 of the Code.
 
(e) No Pension Plans. The Company has not ever maintained, established,
sponsored, participated in, or contributed to, any (i) Pension Plans subject to
Title IV of ERISA or Section 412 of the Code; (ii) "multiemployer plan" within
the meaning of Section (3)(37) of ERISA; or (iii) multiemployer plan, or to any
plan described in Section 413 of the Code.
 
(f) No Post-Employment Obligations. No Company Employee Plan provides, or
reflects or represents any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
 
(g) Health Care Compliance. The Company has not , prior to the Effective Time
and in any material respect, violated any of the health care continuation
requirements of COBRA, the requirements of FMLA, the requirements of the Health
Insurance Portability and Accountability Act of 1996, the requirements of the
Women's Health and Cancer Rights Act of 1998, the requirements of the Newborns'
and Mothers' Health Protection Act of 1996, or any amendment to each such act,
or any similar provisions of state law applicable to its Employees.
 
(h) Effect of Transaction.
 
(i) Execution of this Agreement and the consummation of the transactions
contemplated hereby will not constitute an event under any Company Employee
Plan, Employment Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
 
(ii) No payment or benefit which will or may be made by the Company with respect
to any Employee or any other "disqualified individual" (as defined in Code
Section 280G and the regulations thereunder) will be characterized as a
"parachute payment," within the meaning of Section 280G(b)(2) of the Code.
 
(i) Employment Matters. The Company : (i) is in compliance with all applicable
foreign, federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld and
reported all amounts required by law or by agreement to be withheld and reported
with respect to wages, salaries and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending or, to the knowledge of the Company or
Principals, threatened or reasonably anticipated claims or actions against the
Company under any worker's compensation policy or long-term disability policy.
 
(j) Labor. No work stoppage or labor strike against the Company is pending, or,
to the knowledge of the Company or Principals, threatened or reasonably
anticipated. To the knowledge of the Company or Principals, there are neither
any activities nor proceedings of any labor union to organize any Employees, nor
have there ever been. There are no actions, suits, claims, labor disputes or
grievances pending, or, to the knowledge of the Company or Principals,
threatened or reasonably anticipated relating to any labor, safety or
discrimination matters involving any Employee, including without limitation
charges of unfair labor practices or discrimination complaints. The Company has
not has engaged in any unfair labor practices within the meaning of the National
Labor Relations Act. The Company is not presently, or has been in the past, a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
 
(k) Employees. Schedule 2.22(k) contains a true and complete list of the names
and current salary rates and bonus commitments to all present employees of the
Company and Schedule 2.22(k) or other Schedules attached as part of Section 2.22
contains a list of all contracts, agreements, Company Employee Plans,
arrangements, commitments and understanding (formal and informal) pertaining to
terms of employment, compensation, bonuses, profit sharing, stock purchases,
stock repurchases, stock options, commissions, incentives, loans or loan
guarantees, severance pay or benefits, change in control payments, use of the
Company's property and related matters of the Company with any current or former
officer, director, employee or consultant, and true and complete copies of all
such contracts, agreements, plans, arrangements and understandings have been
delivered to Parent heretofore.
 
(l) Except for the Principals, the Company will not have any responsibility for
continuing any person in the employ (or retaining any person as a consultant) of
the Subsidiary from and after the Effective Time or have any liability for any
severance payments to or similar arrangements with any such person who shall
cease to be an employee or consultant of the Company at or prior to the
Effective Time.
 
(m) No facts or circumstances are known to exist that could provide a reasonable
basis for a claim of wrongful termination or employment discrimination by any
current or former employee of the Company against the Company.
 
2.23  Compliance with Laws; Relations with Governmental Entities. The Company
has complied in all respects with, is not in violation of, and has not received
any notices of violation with respect to, any foreign, federal, state or local
statute, law or regulation. Neither the Company nor any Principal, nor, to the
Knowledge of the Company or any Principal, any of the Company's officers,
directors, employees or agents (or shareholders, distributors, representatives
or other persons acting on the express, implied or apparent authority of the
Company) have paid, given or received or have offered or promised to pay, give
or receive, any bribe or other unlawful payment of money or other thing of
value, any unlawful discount, or any other unlawful inducement, to or from any
person or Governmental Entity in the United States or elsewhere in connection
with or in furtherance of the business of the Company (including any offer,
payment or promise to pay money or other thing of value (a) to any foreign
official, political party (or official thereof) or candidate for political
office for the purposes of influencing any act, decision or omission in order to
assist the Company in obtaining business for or with, or directing business to,
any person or entity, or (b) to any person or entity, while knowing that all or
a portion of such money or other thing of value will be offered, given or
promised to any such official or party for such purposes. To the knowledge of
the Company or any Principal, the business of the Company is not in any manner
dependent upon the making or receipt of such payments, discounts or other
inducements. The Company nor any Principal has otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any applicable Laws of similar effect.
 
2.24  Merger Tax Matters. The Company and each Principal represents that each of
them and the Company Shareholders understands that he or she must rely solely on
his or her advisors and not on any statements or representations by Parent, or
its agents, with respect to Tax consequences of the Merger and that the Company
is relying on its own advisors as to such matters. No tax opinions are being
required under Article V of this Agreement.
 
2.25  Intellectual Property. Schedule 2.25 contains a true, correct and complete
listing of all Intellectual Property owned or licensed by or registered in the
name of the Company and used or held for use in operations of the Business, all
of which are transferable to Buyer by the sole act and deed of the Company , and
no consent on the part of any other person is necessary to effectuate the
transfer to Buyer of such Intellectual Property. The Company pays no royalty to
anyone with respect to the Intellectual Property and has the right to bring
action for the infringement thereof. The Company owns or possesses all rights to
use all such Intellectual Property necessary to or useful for the conduct of the
Business. The Company has not received any notice to the effect that any service
rendered by the Company relating to the Business may infringe on any
Intellectual Property right or other legally protectable right of another, nor
does the Company or any Principal otherwise have any knowledge of any such
infringement.
 
2.26  Customer Contracts. The contracts, agreements, understandings and
commitments set forth and described in Schedule 2.26 (the "Customer Contracts")
are the current forms of all of the types of customer contracts, agreements,
commitments or understandings relating to the business and operations thereof to
which the Company is a party. Separately described in Schedule 2.26 are all
Customer Contracts of the Company that have generated $2,000 or more in revenue
in any month since June 1, 2004 ("Significant Customer Contracts") and a list of
all current customers of the Company.
 
The Company has not entered into any binding agreement with respect to any
Customer Contract that could adversely affect the Company’s ability to enforce
its rights under such Customer Contract. The Company has delivered true and
complete copies of all written Significant Customer Contracts (and all
amendments and modifications thereto) to Parent and Subsidiary prior to the
execution of this Agreement, and each Significant Customer Contract represents
the entire agreement between the Company and any other party to such Significant
Customer Contract.
 
Since 120 days prior to the date of this Agreement, (i) no customer (or group of
related customers) purchasing in the aggregate $25,000 in products and services
over the past twelve (12) months-has terminated its relationship with the
Company , and (ii) the Company has not received any written or oral
communication from any customer (or group of related customers) purchasing in
the aggregate $25,000 in products and services over the past twelve (12) months
to the effect that such customer (or group of related customers) is experiencing
financial difficulties which reasonably could be expected to affect adversely
full and timely payment by such customer for services rendered by the Company.
 
2.27  Relationships with Suppliers. The Company or any Principal does not know
of any written or oral communication, fact, event or action which exists or has
occurred within 120 days prior to the date of this Agreement which would
indicate that any current supplier to the Company or its Subsidiaries of items
or services essential to the conduct of the business of the Company and its
Subsidiaries may terminate or materially reduce its business with the Company.
 
2.28  Investment Representation; Legends.
 
(a) The Company understands that the Parent Common Stock and the Parent Stock
Warrants to be issued pursuant to the terms of this Agreement have not been
registered under the Securities Act of 1933 as amended (the "Securities Act")
and the Parent Common Stock and Parent Stock Warrants are "restricted
securities" as the term is defined in Rule 144 promulgated by the Securities and
Exchange Commission (the "SEC") under the Securities Act and the Company
shareholders cannot transfer any of such Parent Common Stock and Parent Stock
Warrants unless such shares are subsequently registered under the Securities Act
or in a transfer that, in the opinion of legal counsel to Parent, is exempt from
such registration.
 
(b) Each Company shareholder has been advised that the Parent Company Stock and
the Parent Stock Warrants issued hereunder have not been and are not being
registered under the Securities Act or under the Blue Sky laws of any
jurisdiction, and that Parent in issuing such shares is relying upon, among
other things, the representations and warranties of the Company and Principals
contained in this Section including that such issuance is a "private offering"
and does not require compliance with the registration provisions of the
Securities Act.
 
2.29  Stockholder Matters. Set forth on Schedule 2.29 is a list of all holders
of the Company's capital stock as of the date hereof and Schedule 2.29
identifies each holder of the Company's capital stock that is an accredited
investor as defined in Rule 501(a) under the Securities Act of 1933, as amended.
 
2.30  Banking and Insurance.
 
(a) Schedule 2.30(a) contains a true and complete list of the names and
locations of all financial institutions at which the Company maintains a
checking account, deposit account, securities account, safety deposit box or
other deposit or safekeeping arrangement, the number or other identification of
all such accounts and arrangements and the names of all persons authorized to
draw against any funds therein.
 
(b) Schedule 2.30(b) contains a true and complete list of all insurance policies
and bonds and self insurance arrangements currently in force that cover or
purport to cover risks or losses to or associated with the Company's business,
operations, premises, properties, assets, employees, agents and directors and
sets forth, with respect to each such policy, bond and self insurance
arrangement, a description of the insured loss coverage, the expiration date and
time of coverage, the dollar limitations of coverage, a general description of
each deductible feature and principal exclusion and the premiums paid and to be
paid prior to expiration. The Company has no obligation, liability or other
commitment relating to any contract of insurance containing a provision for
retrospective rating or adjustment of the Company's premium obligation. To the
Company’s knowledge, no facts or circumstances exist that would cause the
Company to be unable to renew its existing insurance coverage as and when the
same shall expire other than possible increases in premiums that do not result
from any act or omission of the Company.
 
2.31  Representations Complete. None of the representations or warranties made
by the Company or any Principal in this Agreement, or to be furnished in or in
connection with documents mailed or delivered to the Company Shareholders for
use in soliciting their consent to this Agreement and the Merger, contains or,
with respect to documents to be mailed to the Company Shareholders, will when
mailed contain, any untrue statement of a material fact or omits or, with
respect to documents to be mailed to the Company Shareholders, will when mailed
omit, to state any material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading. No representations and warranties by the Company and
Principals in this Agreement and no statement in this Agreement or any document
or certificate furnished or to be furnished to Parent or Subsidiary pursuant
hereto contains or will contain any untrue statement or omits or will omit to
state a fact necessary in order to make the statements contained therein not
misleading. The Company and Principals have disclosed to Parent and Subsidiary
all facts known to any of them material to the assets, liabilities, business,
operation and property of the Company or its Subsidiaries. There are no facts
known to the Company or Principals not yet disclosed which would adversely
affect the Company's business, financial condition or future operations of the
Company's business. All facts of material importance to the assets and to the
business have been fully and truthfully disclosed to Parent and Subsidiary in
this Agreement.
 
ARTICLE III  
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
 
Parent and Subsidiary represent and warrant to the Company that on the date
hereof and as of the Effective Date as though made at the Effective Time as
follows:
 
3.01  Organization and Standing. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Mississippi. Each of Parent and Subsidiary has the full and
unrestricted corporate power and authority to carry on its business as currently
conducted. Each of Parent and Subsidiary has the full and unrestricted corporate
power and authority to execute and deliver this Agreement, the Related
Agreements and each other document required hereunder and to carry out the
transactions contemplated hereby and thereby. Parent has the full and
unrestricted corporate power and authority to issue the Parent Common Stock and
Parent Stock Warrants hereunder and to carry out the transactions to be carried
out by it as contemplated by this Agreement and all other Related Agreements.
 
3.02  Authorization. The execution, delivery and performance by each of Parent
and Subsidiary of this Agreement and each other Related Agreement, the
fulfillment of and compliance with the respective terms and provisions hereof
and thereof, and the consummation by each of Parent and Subsidiary of the
transactions contemplated hereby and thereby have been duly authorized by their
respective Board of Directors and subject to the approval of the shareholders of
the Parent and shareholders of the Subsidiary (a) will not conflict with, or
violate any term or provision of (i) any law having applicability to each of
Parent and Subsidiary, the effect of which would have an adverse material effect
on the business of Parent or Subsidiary, or (ii) any provision of the
certificate of incorporation or bylaws of Parent or Subsidiary; (b) will not
conflict with, or result in any material breach of, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, any material agreement to which Parent or Acquisition Sub is a party or
by which it is bound; or (c) will not result in or require the creation or
imposition of or result in the acceleration of any indebtedness, or of any
encumbrance of any nature upon, or with respect to, Parent or Subsidiary. No
other corporate action on the part of Parent or Subsidiary is necessary for
Parent or Subsidiary to enter into this Agreement and all other Related
Agreements and to consummate the transactions contemplated hereby and thereby,
other than the approval of the Parent as the sole shareholder of the Subsidiary.
The issuance by Parent of the Parent Common Stock and Parent Stock Warrants
hereunder and the performance by Parent or Subsidiary of the terms and
provisions of this Agreement and each other Related Agreements required to be
performed by it have been duly authorized by all necessary corporate action of
Parent (which authorization has not been modified or rescinded and is in full
force and effect) other than the approval of the Parent as sole shareholder of
the Subsidiary.
 
3.03  Binding Obligation. This Agreement and each other agreement to be executed
by Parent or Subsidiary hereunder constitutes a valid and binding obligation of
the Parent or Subsidiary, as applicable, enforceable against the Parent or
Subsidiary, as applicable, in accordance with its terms, except as such
enforceability may be subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
 
3.04  Issuance of Parent Common Stock and Parent Stock Warrants. All of the
Parent Common Stock and Parent Stock Warrants to be issued pursuant to this
Agreement have been duly authorized by Parent and, when issued in accordance
with the terms of this Agreement, shall be validly issued, fully paid and
nonassessable.
 
3.05  Litigation. There are no actions, suits, claims, arbitrations, proceedings
or investigations pending, threatened or reasonably anticipated against, or
involving Parent or Subsidiary or the transactions contemplated by this
Agreement or any other Related Agreement, at law or in equity, or before or by
any arbitrator or governmental authority, domestic or foreign, which could
reasonably be expected to have a material adverse effect on the Parent or
Subsidiary. Neither Parent nor Subsidiary is operating under, subject to or in
default with respect to any order, award, writ, injunction, decree or judgment
of any arbitrator or governmental authority relating to Parent or Subsidiary or
their respective employees.
 
3.06  Securities and Exchange Commission Filings. Parent and Subsidiary have
furnished the Company and the Principals with a true and complete copy of each
final annual, quarterly and current report and each final prospectus filed by
Parent with the SEC since January 1, 2002. No such filing with the SEC by Parent
contained to Parent's Knowledge, as of the time of such filing, any untrue
statement of a material fact or omitted a material fact necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading.
 
ARTICLE IV  
COVENANTS OF PARTIES PRIOR TO THE EFFECTIVE TIME
 
4.01  Preparation of Proxy Statement.
 
(a) Immediately after the execution of this Agreement, the Company shall
prepare, with the cooperation of Parent and Subsidiary, a Proxy Statement for
the Company Shareholders to approve this Agreement, the Merger and the
transactions contemplated hereby and thereby. The Proxy Statement shall include
a disclosure document for the offer and issuance of the shares of Parent Common
Stock and Parent Stock Warrants to be received by the holders of Company Common
Stock in the Merger. Parent and the Company shall each use commercially
reasonable efforts to cause the Proxy Statement to comply with applicable
federal and state securities laws requirements. Each of Parent and the Company
agrees to provide promptly to the other such information concerning its business
and financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for inclusion in
the Proxy Statement, or in any amendments or supplements thereto, and to cause
its counsel, accountants and auditors to cooperate with the other's counsel,
accountants and auditors in the preparation of the Proxy Statement. The Company
will promptly advise Parent, and Parent will promptly advise the Company, in
writing if at any time prior to the Effective Date either the Company or Parent
shall obtain Knowledge of any facts that might make it necessary or appropriate
to amend or supplement the Proxy Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. The Proxy Statement shall contain the recommendation of the
Board of Directors of the Company that the Company Shareholders approve the
Merger and this Agreement and the conclusion of the Board of Directors that the
terms and conditions of the Merger are fair and reasonable to the Company
Shareholders, unless the Company's Board of Directors shall have determined in
good faith that the failure to do so would violate the Board of Directors'
fiduciary duties to the Company Shareholders under applicable law. Anything to
the contrary contained herein notwithstanding, the Company shall not include in
the Proxy Statement any information with respect to Parent, the Subsidiary or
their affiliates or associates, the form and content of which information shall
not have been approved by Parent prior to such inclusion.
 
4.02  Restrictions on Transfer; Legends. The Parent Common Stock and all the
Parent Stock Warrants to be issued in the Merger shall be characterized as
"restricted securities" for purposes of Rule 144 under the Securities Act, and
each certificate representing any of such shares shall bear a legend identical
or similar in effect to the following legend (together with any other legend or
legends required by applicable state securities laws or otherwise):
 
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED THE "ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT AND SUCH LAWS OR IN
COMPLIANCE WITH AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. IN ADDITION,
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN SALE RESTRICTIONS AS
PROVIDED IN SECTION 8.11 OF THAT CERTAIN AGREEMENT AND PLAN OF MERGER BY AND
AMONG I-55 INTERNET SERVICES, INC., XFONE, INC. AND XFONE USA, INC. DATED AS OF
AUGUST ___, 2005.
 
4.03  Access to Information.
 
(a) The Company shall afford Parent, Subsidiary and its accountants, counsel and
other representatives, reasonable access during the period prior to the
Effective Date and during normal business hours upon reasonable advance notice
to (i) all of the Company's properties, books, contracts, commitments and
records; (ii) all other information concerning the business, properties and
personnel (subject to restrictions imposed by applicable law) of the Company as
Parent may reasonably request; and (iii) all employees of the Company as
identified by Parent. The Company agrees to provide to Parent and its
accountants, counsel and other representatives copies of internal financial
statements (including Tax returns and supporting documentation) promptly upon
request.
 
(b) No information or knowledge obtained in any investigation pursuant to this
Section 4.03 shall affect or be deemed to modify: any representation or warranty
contained herein, the conditions to the obligations of the parties to consummate
the Merger in accordance with the terms and provisions hereof, or the
indemnification obligations of the Company and the Principals.
 
(c) All information furnished by one party to another pursuant hereto shall be
treated as the sole property of the party furnishing the information until
consummation of the Merger contemplated hereby and, if such Merger shall not
occur, the party receiving the information shall retrieve, if necessary, and
return to the party which furnished such information all documents or other
materials containing, reflecting or referring to such information, shall use its
best efforts to keep confidential all of such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purpose. If the Merger is not consummated, the obligation to keep
such information confidential shall continue for two (2) years from the date the
proposed Merger is abandoned and shall not apply to (i) any information which
(a) the party receiving the information can establish by convincing evidence was
already in its possession prior to the disclosure thereof by the party
furnishing the information, (b) was then generally known to the public or set
forth in public records, (c) became known to the public through no fault of the
party receiving the information, or (d) was disclosed to the party receiving the
information by a third party not bound by an obligation of confidentiality, or
(ii) disclosures in accordance with an order of a court of competent
jurisdiction.
 
4.04  Public Disclosure. The parties hereto agree that prior to the Effective
Time, none of them will make or engage in any press release, publicity or other
public disclosure of the matters which are the subject of this Agreement without
the prior written consent of Parent and the Company, unless such party believes
in good faith upon consultation with counsel that such press release, publicity
or other public disclosure is required by law or legal process, in which event
such party will give Parent and the Company as much advance notice thereof as is
practicable under the circumstances and will give good faith consideration to
any comments made with respect thereto by the other parties hereto prior to the
time when such press release, publicity or other public disclosure is made.
 
4.05  Conduct Business in Ordinary Course. The Company shall, through the
Closing Date, use its best efforts to preserve its business and the assets and
maintain its existing contracts and licenses and to preserve for the Subsidiary
the present relationships with customers, employees, lessors and any other
persons having business relations with the Company. Except as contemplated by
this Agreement or as reasonably required to carry out its obligations hereunder,
the Company shall, through the Closing Date, maintain and service the business
and the assets only in the ordinary course of business and, in addition, shall
not (except to the extent that Parent has consented in advance in writing
thereto: (i) enter into any agreement in connection with the business or assets
that may not be terminated on less than thirty (30) days' notice or that may
reasonably be expected to have a Material Adverse Effect on the business or
assets, (ii) make any capital purchases or commitments relating to the Assets
that exceed, individually or in the aggregate, $10,000; (iii) place, or allow to
be placed, an Encumbrance on any of the assets, (iv) sell, assign, lease or
otherwise transfer or dispose of any interest in any asset (other than in the
ordinary course of business), (v) commit any act or omit to do any act, or
engage in any activity or transaction or incur any obligation (by conduct or
otherwise), that (individually or in the aggregate) reasonably could be expected
to have a Material Adverse Effect on the business or assets; (vi) do or omit to
do any act (or permit such action or omission) which reasonably could be
expected to cause a breach of any contract or Governmental Authorizations, or
(vii) take any action or fail to take any action that would reasonably be
expected to cause any of the representations, warranties or covenants contained
herein to be untrue or incorrect or incapable of being performed or satisfied on
the Closing Date. Through the Closing Date, the Company shall not (except to the
extent that Parent has consented in advance in writing thereto): (i) provide
service or agree to provide service to any customer at rates that are different
than those that were in effect for such customer (or would have been in effect
for any new customer) as of June 23, 2005, (ii) offer any promotions or special
incentives or arrangements to customers that were not being offered to all
customers at June 23, 2005, including, but not limited to, any promotions or
special incentives or arrangements with respect to pricing or usage, or (iii)
amend or modify any Customer Contract. Prior to and through the day following
the Closing Date, the Company and its Subsidiaries shall maintain in full force
and effect all of its existing casualty, liability, and other insurance in
amounts not less than those in effect on the date hereof, except for changes in
such insurance that are made in the Ordinary Course of Business.
 
4.06  Consents and Approvals. The Company shall use its best efforts to obtain,
prior to the Closing, all waivers, consents and approvals including those as
provided in Schedule 5.02(b), that are required in order to effect the Merger so
as to preserve all rights of and benefits of the Company thereunder for the
Subsidiary. Parent and Subsidiary shall use commercially reasonable efforts to
assist the Company in the Company's efforts to obtain such waivers, consents and
approvals. In addition, the Company and Parent and Subsidiary shall use their
commercially reasonable efforts to obtain all other waivers, consents and
approvals of all Governmental Authorities that are required in order for them to
consummate the transactions contemplated by this Agreement or to perform the
other obligations of the Company and Parent and Subsidiary hereunder. The
Company and Parent and Subsidiary shall: (i) cooperate in the filing of all
forms, notifications, reports and information, if any, required or reasonably
deemed advisable pursuant to applicable statutes, rules, regulations or orders
of any Governmental Authority or supra-governmental authority in connection with
the transactions contemplated by this Agreement; and (ii) use their respective
best efforts to cause any applicable waiting periods thereunder to expire and
any objections to the transactions contemplated hereby to be withdrawn before
the Effective Date. All expenses incurred in obtaining the waivers, consents and
approvals described in this Section 4.06 shall be paid by the Company.
 
4.07  Financial Statements. The Company shall provide Parent with unaudited
statements of assets and liabilities of the Company , and statements of revenues
and expenses reflecting the results of operations of the Company for each month
beginning with August 2005 within twenty (20) days of the end of each such
month. All of the foregoing financial statements shall comply with the
requirements concerning financial statements set forth in Section 2.07.
 
4.08  Notification of Certain Matters.
 
(a) The Company and each of the Principals, as the case may be, shall give
prompt written notice to Parent of: (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of the Company or any of the Principals, respectively
and as the case may be, contained in this Agreement to be untrue or inaccurate
in any material respect at or prior to the Effective Date; and (ii) any failure
of the Company or any of the Principals, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 4.08(a) shall not constitute an acknowledgment or admission of a
breach of this Agreement. No disclosure by the Company or any of the Principals
pursuant to this Section 4.08(a) shall be deemed to have cured any breach of any
representation or warranty made in this Agreement for purposes of determining
whether or not the conditions set forth in Article V have been satisfied, or be
deemed to have cured any such breach of a representation or warranty in this
Agreement and to have been disclosed as of the date of this Agreement for
purposes of Article VI hereof.
 
(b) The Parent and Subsidiary shall give prompt written notice to the Company
of: (i) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause any representation or warranty of the
Parent and Subsidiary contained in this Agreement to be untrue or inaccurate in
any material respect at or prior to the Effective Time; and (ii) any failure of
the Parent and Subsidiary to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 4.08(b) shall not
constitute an acknowledgment or admission of a breach of this Agreement. No
disclosure by the Company or any of the Principals pursuant to this Section
4.08(b) shall be deemed to have cured any breach of any representation or
warranty made in this Agreement for purposes of determining whether or not the
conditions set forth in Article VI have been satisfied, or be deemed to have
cured any such breach of a representation or warranty in this Agreement and to
have been disclosed as of the date of this Agreement for purposes of Article VI
hereof.
 
4.09  Additional Documents and Further Assurances. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of the Merger and the
transactions contemplated hereby.
 
4.10  Federal and State Securities Exemptions. The parties agree to use
commercially reasonable efforts to ensure that the issuance of the Parent Stock
Consideration will be exempt from registration under the Securities Act by
reason of Section 4(2) and/or Regulation D thereof (the "Private Placement
Exemption").
 
4.11  Shareholder List. As of a date which is two (2) calendar days prior to the
Effective Date, the Company shall provide Parent and its counsel with a
statement certified by the principal executive officer of the Company and
Principals setting forth any changes which would have been required to be set
forth on Schedule 2.03 or Schedule 2.29 as if such had been made and
certification that there are no outstanding options or other rights to any
equity interest in the Company (the "Updated Capitalization Certificate").
 
4.12  Non-Competition and Non-Solicitation.
 
(a) As a material inducement to Parent and Subsidiary to enter into and perform
their obligations under this Agreement, and in order to preserve and protect the
trade secrets and proprietary, confidential information of Parent and Subsidiary
after the Closing, during the period of employment and for a period of two (2)
years following the date that the employment by the Subsidiary (or an affiliate
thereof) of the Principal ends (the "Noncompetition Period"), no Principal will,
directly or indirectly, either for themselves or for any partnership, limited
liability company, individual, corporation, joint venture or any other entity
"participate in" (as defined below) any business (including, without limitation,
any division, group or franchise of a larger organization) which engages in any
"Internet Services and Telecommunications Business" in the parishes and counties
listed on Exhibit “F” (the "Restricted Area"). For purposes of this Agreement,
"Internet Services and Telecommunications Business" shall mean the business of
providing any type of telecommunication services or internet access services to
any person or customer within the Restricted Area, including, without
limitation, local, long distance, broadband, dial up data services, wireless,
DSL, Voice-over-Internet Protocol (VoIP) and any other service or product being
offered or provided by the Parent or Subsidiary or any of its affiliates. For
purposes of this Agreement, the term "participate in" shall include, without
limitation, having any direct or indirect interest in any corporation,
partnership, limited liability company, joint venture or other entity, whether
as a sole proprietor, owner, shareholder, partner, member, manager, joint
venturer, creditor or otherwise, or rendering any direct or indirect service or
assistance to any individual corporation, partnership, limited liability
company, joint venture and other business entity (whether as a director,
officer, manager, supervisor, employee, agent, consultant or otherwise).
Notwithstanding the foregoing, nothing in this Section 4.12 shall prohibit any
Principal or any other Non-Compete Party from owning not more than five percent
(5%) of the debt or equity securities of a publicly traded corporation which may
compete with Parent.
 
(b) During the Noncompetition Period, and in order to preserve and protect the
trade secrets and proprietary, confidential information of Parent and the
Subsidiary after the Effective Date, no Principal or any Non-Compete Party shall
(i) induce or attempt to induce any employee of Parent or the Subsidiary to
leave the employ of Parent or the Subsidiary, or in any way interfere with the
relationship between Parent or Subsidiary or any employee thereof, (ii) hire
directly or through another entity any individual employed by Parent or the
Subsidiary who was previously employed by the Company, or (iii) induce or
attempt to induce any customer, supplier, licensee, distributor or other
business relation of Parent or the Subsidiary to cease doing business with
Parent or the Subsidiary, or in any way interfere with the relationship between
any such customer, supplier, licensee, distributor or business relation and
Parent or the Subsidiary (including, without limitation, making any negative
statements or communications concerning Parent or the Subsidiary).
 
(c) If, at the time of enforcement of this Section 4.12, a court shall hold that
the duration, scope or area restrictions stated herein are unreasonable under
circumstances then existing, the parties hereto agree that the maximum duration,
scope or area reasonable under such circumstances shall be substituted for the
stated duration, scope or area and that the court shall be allowed to revise the
restrictions contained herein to cover the maximum period, scope and area
permitted by law. Each of the Principals with respect to the terms of this
Section 4.12 agrees (and each other Non-Compete Party shall agree) that the
restrictions contained in this Section 4.12 are reasonable.
 
(d) If at any time during the Noncompetition Period a Principal or any other
Non-Compete Party desires to participate in an activity that he or she believes
might be prohibited by this Section 4.12, such person may request in writing (a
"Clarification Request") a determination by Parent as to whether such proposed
activity would violate this Section 4.12. Parent shall respond in writing to
such Clarification Request (a "Clarification Response") within thirty (30) days
of receipt thereof from the requesting person.
 
(e) Each Principal by execution of this Agreement agrees to the terms of this
Section 4.12 as to himself.
 
(f) The non-competition and non-solicitation obligations of each Principal shall
be set forth more fully in the Employment Agreements to be executed between each
Principal, respectively, and Subsidiary, on the forms attached to this Agreement
as Exhibits “C” and “D.”
 
4.13  Approval of Shareholders. The Company will (i) take all steps necessary to
call, give notice of, convene and hold a special meeting of its shareholders as
soon as practicable for the purpose of approving and adopting this Agreement and
the transactions contemplated thereby and for such other purposes as may be
necessary or desirable, (ii) recommend to its shareholders the approval of this
Agreement and the transactions contemplated thereby and such other matters as
may be submitted to its shareholders in connection with this Agreement, and
(iii) cooperate and consult with Parent and Subsidiary with respect to each of
the foregoing matters. The Principals agree to vote all of their Company Common
Stock in favor of the Merger.
 
4.14  No Shop. Until such time, if any, as this Agreement is terminated pursuant
to Article VII, neither the Company or any of the Principals will not and each
of their representatives will not directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, any person (other than Parent)
relating to any transaction involving the sale of the business or assets of the
Company, or any of the capital stock of the Company (other than a transfer of
Capital Stock caused by the exercise of the MCG Warrants), or any merger,
consolidation, business combination, or similar transaction involving the
Company.
 
ARTICLE V  
CONDITIONS TO THE MERGER
 
5.01  Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of the Company, Parent and Subsidiary to effect the
Merger shall be subject to the satisfaction at or prior to the Effective Date of
the following conditions:
 
(a) Shareholder Approval. This Agreement and the Merger shall be approved and
adopted (i) by the Company Shareholders by the requisite vote under applicable
law and the Company's Articles of Incorporation, (ii) by the shareholders of
Subsidiary by the requisite vote under applicable law and the Subsidiary’s
Certificate of Incorporation, and (iii) by the shareholders of the Parent by the
requisite vote under applicable law and the Parent's Certificate of
Incorporation.
 
(b) No Order. No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
in effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
 
(c) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by an administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
 
(d) Articles of Merger. The Articles of Merger shall have been filed with the
Secretary of State of the State of Mississippi and the Certificate of Merger
shall have been filed with the Louisiana Secretary of State.
 
(e) MCG Debt and Warrants. MCG shall have been paid in full for the MCG Debt,
and all obligations owed by Company to MCG under the MCG Credit Facility shall
have been extinguished, including, but not limited to, the MCG Warrants.
 
(f) Tax-Free Merger. The Merger and the proposed transaction among Parent,
Subsidiary and I-55 Telecommunications, L.L.C., taken individually or together,
shall have no adverse tax consequences to Company, I-55 Telecommunications,
L.L.C., or either of their shareholders.
 
(g) Acquisition of I-55 Telecommunications, L.L.C. Parent and Subsidiary shall
have executed a definitive agreement for the acquisition of I-55
Telecommunications, L.L.C. by the Subsidiary.
 
5.02  Conditions to the Obligations of Parent and Subsidiary. The obligation of
Parent and Subsidiary to effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, exclusively by Parent:
 
(a) Representations, Warranties and Covenants.
 
(i) The representations and warranties of the Company and the Principals in this
Agreement (other than the representations and warranties of the Company and the
Principals as of a specified date, which will be true and correct as of such
date) shall be true and correct on and as of: (A) the date of this Agreement and
(B) the Effective Time as though such representations and warranties were made
on and as of the Effective Time (it being understood that, for purposes
determining the accuracy of each such representation and warranty pursuant to
clauses (A) and (B), any update of or modification to the Disclosure Schedule
made or purported to have been made after the date of this Agreement shall be
disregarded).
 
(ii) Each of the Company and the Principals shall have performed and complied
with all covenants and obligations under this Agreement required to be performed
and complied with by such parties as of the Effective Time.
 
(b) Third Party Consents. Parent shall have been furnished with evidence
satisfactory to it that the Company has obtained all consents, waivers,
approvals, and assignments listed in Schedule 5.02(b).
 
(c) No Material Adverse Change. There shall not have occurred any event or
condition of any character since the date of this Agreement that has had or is
reasonably likely to have a material adverse effect on the Company or its
business, assets or prospects.
 
(d) Company Shareholder Approval. No holder of capital stock of the Company
shall have exercised or given notice of their intent to exercise appraisal
rights in accordance with Louisiana Law.
 
(e) Certificate of the Company and the Principals. Parent shall have received a
certificate, validly executed by each of the Principals and the principal
executive officer of the Company for and on its behalf, to the effect that, as
of the Closing:
 
(i) all representations and warranties made by the Company and the Principals in
this Agreement (other than the representations and warranties of the Company and
the Principals as of a specified date, which will be true and correct as of such
date) were true and correct on and as of: (A) the date of this Agreement and (B)
the Effective Date as though such representations and warranties were made on
and as of the Effective Time;
 
(ii) all covenants and obligations under this Agreement to be performed by the
Company or the Principals on or before the Closing have been so performed; and
 
(iii) the conditions to the obligations of Parent and Subsidiary set forth in
Section 5.02 have been satisfied (unless otherwise waived in accordance with the
terms hereof).
 
(f) Certificate of Secretary of the Company. Parent shall have received a
certificate, validly executed by the Secretary of the Company, certifying as to
(i) the correct form and effectiveness of the Articles of Incorporation and the
Bylaws of the Company, including all amendments thereto; and (ii) the valid
adoption of resolutions of the board of directors of the Company and the Company
Shareholders approving this Agreement and the consummation of the transactions
contemplated hereby.
 
(g) Certificate of Good Standing. Parent shall have received certificates of
good standing of the Company from the Secretary of State of the State of
Mississippi and Louisiana and any other jurisdiction where the Company is
required to qualify to do business, each dated within ten (10) business days
prior to the Closing.
 
(h) Working Capital Requirement. The Company’s "Working Capital" (as defined
herein) as of the Closing Date shall not be more than a deficit of $400,000
("Working Capital Requirement"), as shown on a balance sheet and Profit and Loss
Statement and combining worksheet (prepared in accordance with GAAP and
consistent with the December 31, 2004 Financials) as of the Closing Date
("Closing Date Financials"). "Working Capital" shall mean the current assets
(excluding receivables due from I-55 Telecommunications, L.L.C. to the Company)
less the total liabilities (excluding the MCG debt and payables owed by the
Company to I-55 Telecommunications, L.L.C.) as determined in accordance with
GAAP. In the event that the Working Capital Requirement is not met, the Parent
and Acquisition Sub may nevertheless elect to close and reduce the Parent Stock
Consideration by an amount equal to the difference between the Working Capital
Requirement and the actual Working Capital Deficit. In the event that the
Working Capital deficit is less than the Working Capital Requirement, then the
Parent Stock Consideration shall be increased by an amount equal to the amount
by which the Working Capital Deficit is less than the Working Capital
Requirement.
 
(i) MCG Finance Corporation Debt/Warrants. The only debt of the Company (other
than current liabilities for accounts payable, accrued liabilities and deferred
revenue reported consistent with the December 31, 2004 Financials and in
accordance with GAAP) shall be the debt to MCG Finance Corporation (“MCG”)
pursuant to that certain Credit Facility Agreement dated October 29, 1999 as
amended by the First through Fourth Amendments thereto (the “MCG Credit
Facility”). In the event that the total amounts due under the MCG Credit
Facility (the “MCG Debt”) which the Parent or Subsidiary assumes or pays or
restructures at the option of the Parent on the Effective Date is greater than
$1,763,000 (the “MCG Assumed Debt Amount”), then in such event the Parent and
Subsidiary may nevertheless proceed to close and reduce the Parent Stock
Consideration by an amount equal to the amount by which the MCG Debt exceeds the
MCG Assumed Debt Amount. In the event that the MCG Debt is less than $1,763,000,
then in such event, then the Parent Stock Consideration shall be increased by an
amount equal to the amount by which the MCG Debt is less than the MCG Assumed
Debt Amount. The agreement that MCG entered in favor of the Parent and
Subsidiary on or before the date of this Agreement in which MCG agreed (i) to
exercise its 2,777,585 vested warrants immediately prior to the Effective Date
in accordance with that certain Second Amended and Restated Warrant Agreement
dated May 31, 2005 (“MCG Warrant Agreement”); (ii) to the cancellation of any
other warrants, options or rights for Company Common Stock or any other equity
in the Company under the MCG Warrant Agreement or otherwise; and (iii)
cancellation of the MCG Warrant Agreement or any rights thereunder at the
Effective Date shall remain in full force and effect as of the Effective Date.
 
(j) Shareholder List. Parent shall have received from the principal executive
officer of the Company the Updated Capitalization Certificate.
 
(k) Employment Agreements. Subsidiary shall have received from Hunter McAllister
and Brian Acosta an executed Employment Agreement substantially in the form
attached hereto as Exhibits C and D.
 
(m) Amendments to Certain Documents. The Parent shall have received a duly
executed amendment or restated agreement on terms satisfactory to the Parent for
the following agreements: An interconnection agreement between Intercosmos and
Company.
 
(n) Escrow Agreement. The Principals and Escrow Agent shall have entered into
the Escrow Agreement in the form of Exhibit B hereto.
 
(o) Irrevocable Proxy from Principals. Each of the Principals shall have entered
into an Irrevocable Proxy in form reasonably satisfactory to Parent in which
each Principal agrees to irrevocably appoint Guy Nissenson or such other party
designated by Parent as proxy to vote the Principal's Parent Common Stock or any
Parent Common Stock issued to or acquired hereafter by the Principal whether
from the exercise of any of the Parent Stock Warrants or any other stock options
or warrants granted hereafter or otherwise until such time as the Principal
sells all of his Parent Common Stock, subject to the condition that if at any
time, Guy Nissenson and Abraham Keinan together command less than 50% of the
voting rights of Parent, then such proxies shall automatically terminate.
 
(p)  Funding. The Parent and Subsidiary shall have obtained on terms and
conditions satisfactory to it such financing or funds it needs in order to pay
in full the MCG Debt at Closing.
 
(q) Non-Compete Agreements. The Subsidiary shall have received from each
Principal a Non-Compete Agreement in the form attached hereto as Exhibits “C”
and “D.”
 
(r) Releases. Each officer and director shall have executed and delivered a
Release in substantially the form attached hereto as Exhibit “E.”
 
5.03  Conditions to Obligations of the Company and the Principals. The
obligations of the Company and the Principals to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
 
(a) Representations, Warranties and Covenants.
 
(i) The representations and warranties of Parent and Subsidiary in this
Agreement (other than the representations and warranties of Parent as of a
specified date, which will be true and correct as of such date) shall be true
and correct on and as of: (A) the date of this Agreement and (B) the Effective
Time as though such representations and warranties were made on and as of the
Effective Time (it being understood that, for purposes determining the accuracy
of each such representation and warranty pursuant to clauses (A) and (B), any
update of or modification to the Parent Disclosure Schedule made or purported to
have been made after the date of this Agreement shall be disregarded).
 
(ii) Each of Parent and Subsidiary shall have performed and complied with all
covenants and obligations of this Agreement required to be performed and
complied with by it as of the Effective Time.
 
(b) Certificate of Parent. The Company shall have received a certificate
executed on behalf of Parent and Subsidiary by the Chief Executive Officer of
each to the effect that, as of the Closing:
 
(i) all representations and warranties made by the Parent and Subsidiary in this
Agreement (other than the representations and warranties of the Parent and
Subsidiary as of a specified date, which will be true and correct as of such
date) were true and correct on and as of: (A) the date of this Agreement and (B)
the Effective Time as though such representations and warranties were made on
and as of the Effective Time;
 
(ii) all covenants and obligations under this Agreement to be performed by
Parent and Subsidiary on or before the Closing have been so performed; and
 
(iii) the conditions to the obligations of the Company and the Principals set
forth in Section 5.03 have been satisfied (unless otherwise waived in accordance
with the terms hereof).
 
(c) No Material Adverse Change. There shall not have occurred any event or
condition of any character since the date of this Agreement that has had or is
reasonably likely to have a Parent Material Adverse Effect.
 
(d) Principals Employment Agreements. Hunter McAllister and Brian Acosta shall
have received from Subsidiary an executed Employment Agreement substantially in
the form attached hereto as Exhibits C and D and such agreement shall be in full
force and effect.
 
ARTICLE VI  
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; POST-CLOSING
COVENANTS
 
6.01  Survival of Representations, Warranties and Covenants.
 
(a) The representations and warranties of the Company and each of the Principals
contained in this Agreement, or in any certificate or other instrument delivered
pursuant to this Agreement, shall remain in effect until, and will expire upon
the second year following the Closing Date (the "Termination Date"), except for
the representations and warranties set forth in Section 2.10 (Tax Matters) which
shall survive the Termination Date until the expiration of the applicable
statute of limitations. The representations and warranties of the Parent and the
Subsidiary contained in this Agreement, or in any certificate or other
instrument delivered pursuant to this Agreement will expire upon the Termination
Date, provided that the maximum liability of the Parent and Subsidiary for any
breach of a representation or warranty shall be twenty percent of the Aggregate
Merger Consideration, and any liability shall be satisfied by the issuance of a
number of shares of Parent Common Stock and Parent Stock Warrants in a ratio of
2/3 Parent Common Stock and 1/3 Parent Stock Warrants with a value equal to the
amount of such liability as established at the time of payment using the same
formula as in the definition of such terms as provided in Section 1.03 hereof.
Notwithstanding the foregoing:
 
(i) the Termination Date or limitation or indemnification as set forth in 6.2(e)
shall not apply to claims based upon intentional fraud; and
 
(ii) the representation, warranty, covenant or obligation that is the subject
matter of a timely submitted Claim Notice (as defined in Section 6.01(c)) shall
not so expire with respect to such Claim Notice or any subsequent Claim Notice
that is reasonably related to the subject matter of such Claim Notice, but
rather shall remain in full force and effect until such time as each and every
claim that is based upon, or that reasonably relates to, any breach or alleged
breach of such representation, warranty, covenant or obligation and that is
reasonably related to the subject matter of such Claim Notice or any such
subsequent Claim Notice has been fully and finally resolved, either by means of
a written settlement agreement executed by the Principals and the Parent and
Subsidiary or by means of a final, non-appealable judgment issued by a court of
competent jurisdiction.
 
(b) No disclosure in any Schedule referred to in Article II will be deemed
adequate to disclose an exception to a representation or warranty made in this
Agreement unless the applicable disclosure schedule identifies the exception.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item will not be deemed adequate to disclose
an exception to a representation or warranty made in this Agreement (unless the
representation or warranty regards the existence of the document or other item
itself).
 
(c) For purposes of this Agreement, a "Claim Notice" relating to a particular
representation, warranty, covenant or obligation shall be deemed to have been
given if the Parent or Subsidiary, acting in good faith, delivers within the
time periods provided in Section 6.01(a) to the Principals and the Escrow Agent
a written notice stating that such Indemnified Party believes that there is or
has been a possible breach of such representation, warranty, covenant or
obligation and containing (i) a brief description of the circumstances
supporting such Indemnified Party's belief that there is or has been such a
possible breach; and (ii) a non-binding, preliminary estimate of the aggregate
dollar amount of the actual and potential damages that have arisen and may arise
as a direct or indirect result of such possible breach. For purposes of this
Agreement, "Parent Indemnified Parties" shall mean the following persons and
entities: (a) Parent; (b) Parent's current and future affiliates Subsidiary; (c)
the respective officers, directors, employees and agents of the persons and
entities referred to in clauses "(a)" and "(b)" above; and (d) the respective
successors and assigns of the persons and entities referred to in clauses "(a)"
and "(b)" above; provided, however, that none of Hunter McAllister or Brian
Acosta or any of the Company Shareholders shall be deemed to be a Parent
Indemnified Party.
 
6.02  Indemnification by the Principals; Escrow Fund.
 
(a) The Principals, jointly and severally, agree that, subject to the limits of
Sections 6.01 and 6.02(b)-(e), from and after the Effective Date, the Principals
shall indemnify and hold the Parent Indemnified Parties harmless against all
claims, losses, liabilities, damages, lawsuits, administrative proceedings,
investigations, audits, demands, assessments, adjustments, judgments, settlement
payments, penalties, fines, interest, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses of investigation and defense
(individually a "Loss" and collectively "Losses") incurred by the Parent
Indemnified Parties directly or indirectly as a result of:
 
(i) any inaccuracy or breach of a representation or warranty of the Company or
any Principal contained in: (A) this Agreement both as of the date of this
Agreement and as of the Effective Time as if made on and as of the Effective
Time; (B) any of the agreements executed in connection with this Agreement; or
(C) or in any certificate, instrument or other document delivered by the Company
or any Principal pursuant to the terms of this Agreement; or
 
(ii) any failure by the Company or any of the Principals to perform or comply
with any covenant contained in this Agreement or in any of the agreements
executed in connection with this Agreement.
 
(b) (i) As security for the indemnity provided to the Parent Indemnified Parties
in this Article VI and by virtue of this Agreement and the Articles of Merger,
the Principals agree that an amount of the Parent Company Stock and Parent Stock
Warrants to which they are entitled at the Effective Date of the Merger equal to
twenty percent (20%) of the Aggregate Merger Consideration (the "Escrow Shares")
shall be deposited with the Escrow Agent and held in the name of the Escrow
Agent pursuant to the Escrow Agreement and the Principals direct the Parent to
deposit the Escrow Shares (plus any additional shares as may be issued in
respect of any stock split, stock dividend or recapitalization effected by
Parent after the Effective Time with respect to the Escrow Shares) with the
Escrow Agent, without any act of the Principals, such deposit to constitute an
escrow fund (the "Escrow Fund"). Each Principal shall be required to contribute
the Principal's Pro Rata Portion (as defined herein) of the Escrow Shares with
the escrow to be funded in the same proportions of Parent Company Stock to
Parent Stock Warrant that each Principal received in connection with the Merger.
It is understood and agreed that the portion of the Aggregate Merger
Consideration deposited into the Escrow Fund by each of the Principals shall be
issued and outstanding on the books of Parent, and the Principals shall be the
owners thereof, but registered in the Escrow Agent's name until the Escrow
Agreement is terminated.
 
Any cash dividends paid on Parent Common Stock in the Escrow Fund shall be
deposited with the Escrow Agent and become part of the Escrow Fund. Each
Principal shall have voting rights with respect to the shares of Parent Common
Stock contributed to the Escrow Fund on behalf of such Principal (and on any
voting securities added to the Escrow Fund in respect of such shares of Parent
Common Stock) so long as such shares of Parent Common Stock or other voting
securities are held in the Escrow Fund. The Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
Central Time, on the second year from the Effective Date, unless sooner
terminated due to the distribution of the Escrow Fund at an earlier date or
unless the termination date is extended due to pending Claims Notice(s) for
indemnification in accordance with this Section 6.03. For purposes of satisfying
the indemnification obligations of this Section 6.02, the shares of Parent
Common Stock and Parent Stock Warrants in the Escrow Fund shall be valued as of
(i) the date that the Parent Indemnified Party sends notice to release a portion
of the Escrow Fund in satisfaction of a Loss as determined in accordance with
this Article VI or (ii) the date that the Principals request a release of a
portion of the Escrow Fund in accordance with Section 6.02(b); provided if there
is a counter-notice to the requested release from the Escrow given disputing the
requested release from the Escrow, then the date for valuation shall be
suspended until such time as the Escrow Agent is requested to make payment upon
a joint instruction or the date of a final non-appealable order of a court of
competent jurisdiction is entered as to the disputed release. The Parent Common
Stock shall be valued at the closing trading price for the ten trading days
immediately preceding the valuation date and the Parent Stock Warrants shall be
valued at the price at which they were valued and issued on the Effective Date
in connection with the Merger. The Escrow Agent shall satisfy any
indemnification obligations first with the Parent Common Stock and then with the
Parent Stock Warrants. The Escrow Fund shall be governed by the terms of this
Agreement and the Escrow Agreement. The Parent Indemnified Parties' right to
recover any property held pursuant to the Escrow Agreement shall be in addition
to and not in limitation of any other rights or remedies of the Parent
Indemnified Parties at law or in equity.
 
"Principal's Pro Rata Portion" shall mean, with respect to each Principal, an
amount equal to the quotient obtained by dividing (x) the number of shares of
the Parent Common Stock which the Principal is entitled to receive in connection
with the Merger by (y) the total number of shares of the Parent Common Stock
that all Principals are entitled to receive in connection with the Merger.
 
(ii) The percentage set forth below of each Principal's Pro Rata Share of the
Escrow Fund shall be released upon the happening of the following events
provided that at the date of the required release that there remains sufficient
Escrow Funds to cover the maximum amount of any pending Claims Notice(s) as
provided in this Article VI: (1) one-half (1/2) shall be released within 60 days
after the end of the first full 12 month period following the Effective Date
("Post Close Year 1" and each succeeding 12 month period is hereinafter referred
to as Post Close Year 2, etc.); and (2) one-half (1/2) shall be released within
60 days after the end of Post Close Year 2. If there are any Pending Claims
outstanding at the second anniversary of the Effective Date, the Escrow
Agreement shall continue until final resolution of any such Pending Claims in
accordance with this Article VI.
 
(iii) The Parent Indemnified Party agrees that each Principal shall only be
responsible for such Principal's Pro Rata Portion of such Loss and each
Principal's Escrowed Shares in an amount equal to the Principal's Pro Rata Share
of such Loss shall be subject to release to the Parent Indemnified Party to
satisfy such Principal's Pro Rata Share of the Loss.
 
(c) For purposes of quantifying the amount owing to any Parent Indemnified Party
under this Section 6.02 resulting from a Loss or Losses caused by a breach of
any representation or warranty given in Article II hereof, the term material
adverse effect or other materiality qualification or any similar qualification
contained or incorporated directly or indirectly in such representation or
warranty shall be disregarded.
 
(d) For purposes of this Agreement and without limitation, a breach of the
representations and warranties included in Sections 2.01, 2.02 and 2.03 hereof
will be deemed a "willful misrepresentation."
 
(e) Limitation on Indemnification. Notwithstanding any provision of this
Agreement to the contrary, after the Effective Time, no Parent Indemnified Party
shall be entitled to indemnification until such Parent Indemnified Parties
suffer Losses in excess of $60,000 in the aggregate (the "Basket Amount"), in
which case the Parent Indemnified Parties shall be entitled to recover all
Losses including the Basket Amount; provided, however, any amounts required to
be paid resulting from any failure by the Company or any of the Principals to
perform or comply with any covenant contained in this Agreement or any Related
Agreement shall not be subject to such Basket Amount; and provided further,
however, that any amounts required to be paid by the Parent or the Surviving
Corporation as a result of the Company's breach of, or any inaccuracy contained
in, Section 2.21 herein shall not be subject to such Basket Amount. The total
liability of each Principal shall be limited to his Escrow Shares then remaining
in the escrow and no Principal shall not have any personal liability beyond his
Escrow Shares unless the claim is based upon intentional fraud by such
Principal.
 
6.03  Indemnification Procedures. All claims for indemnification under Section
6.02 shall be asserted and resolved as follows:
 
(a) Third-Party Claims. In the event any Parent Indemnified Party becomes aware
of a third-party claim that such Parent Indemnified Party believes may result in
a demand under Section 6.02, such Parent Indemnified Party shall notify the
Principals of such claim, and the Principals shall be entitled, at its expense,
to participate in, but not to determine or conduct, the defense of such claim.
The Parent Indemnified Party shall have the right in its sole discretion to
conduct the defense of and settle any such claim; provided, however, that except
with the written consent of the Principals, no settlement of any such claim with
third-party claimants shall alone be determinative of the amount of Losses
relating to such matter. In the event that any of the Principals have consented
to any such settlement, then such Principals shall not have the power or
authority to object to the amount of any claim by any Parent Indemnified Party
with respect to such settlement.
 
(b) Non-Third Party Claims. In the event a Parent Indemnified Party has a claim
hereunder that does not involve a claim being asserted against or sought to be
collected by a third party, the Parent Indemnified Party shall with reasonable
promptness send a Claim Notice with respect to such claim to the Principals and
the Escrow Agent (if applicable). If both the Principals do not notify the
Parent Indemnified Party within ten (10) calendar days from the date of receipt
of such Claim Notice that indemnifying party disputes such claim, the amount of
such claim shall be conclusively deemed a liability of the indemnifying party
hereunder. In case the Principals shall object in writing to any claim made in
accordance with this Section 6.03(b), the Parent Indemnified Party shall have
fifteen (15) calendar days to respond in a written statement to the objection of
the Principals. If after such fifteen (15) calendar day period there remains a
dispute as to any claim, the parties shall attempt in good faith for sixty (60)
calendar days to agree upon the rights of the respective parties with respect to
each of such claims. If the parties should so agree, a memorandum setting forth
such agreement shall be prepared and signed by all parties. If the parties do
not so agree, and a claim has been made against the Escrow Fund, the Escrow
Agent shall refrain from disbursing any portion of the Escrow Fund until
resolution of such dispute in the form of (i) a final written decision of an
arbitrator or (ii) a final non-appealable order of a court of competent
jurisdiction.
 
(c) The Parent Indemnified Party's failure to give reasonably prompt notice to
the Shareholder Representative of any actual, threatened or possible claim or
demand which may give rise to a right of indemnification hereunder shall not
relieve any indemnifying party of any liability which the indemnifying party may
have to the Parent Indemnified Party unless the failure to give such notice
materially and adversely prejudiced the indemnifying party.
 
6.04  No Contribution. Each Principal waives, and acknowledges and agrees that
it shall not have and shall not exercise or assert (or attempt to exercise or
assert), any right of contribution, right of indemnity or other right or remedy
against the Subsidiary in connection with any indemnification or other rights
any Indemnified Party may have under or in connection with this Agreement.
 
6.05  Benefit Plans. Each former Company employee who is offered and accepts
employment with Subsidiary shall be entitled to credit for time served with the
Company for any purpose relating to the Subsidiary’s or Parent’s plans,
including the amount of any benefits, whether such benefits are available, and
the vesting of any benefits. Nothing in this Section 6.05 obligates Subsidiary
to offer employment to any Company employee.
 
ARTICLE VII  
TERMINATION, AMENDMENT AND WAIVER
 
7.01  Termination. Except as provided in Section 7.02 hereof, this Agreement may
be terminated and the Merger abandoned at any time prior to the Effective Time:
 
(a) by mutual agreement of the Company and Parent;
 
(b) by Parent or the Company if the Effective Time has not occurred by October
31, 2005; provided, however, that the right to terminate this Agreement under
this Section 7.01(b) shall not be available to any party whose action or failure
to act has been a principal cause of the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a breach of this
Agreement.
 
Where action is taken to terminate this Agreement pursuant to this Section 7.01,
it shall be sufficient for such action to be authorized by the Board of
Directors of the party taking such action.
 
7.02  Effect of Termination.
 
(a) In the event of termination of this Agreement as provided in Section 7.01
hereof, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Parent, Subsidiary, the Company, the
Principals, or their respective officers, directors or shareholders; provided,
however, that each party shall remain liable for any breaches of this Agreement
prior to its termination and the Break-Up Fee as set forth in 7.02(b) hereof for
any such breach; and provided further, however, that, the provisions of Sections
4.03(c), 4.04, 7.03 and Article VIII hereof and this Section 7.02 shall remain
in full force and effect and survive any termination of this Agreement.
 
(b) Break-Up Fee. In the event that Company does not close the Merger as a
result of the receipt, consideration or acceptance of an offer relating to any
transaction involving the sale of the business or the assets of the Company, or
any of the Capital Stock of the Company, or any merger, consolidation, business
combination, or similar transaction involving the Company, then Company shall
pay to Parent a Break-Up Fee equal to $500,000, payable immediately.
 
7.03  Expenses; Termination Fees.
 
(a) Except as set forth in Section 7.03(b), all fees and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement (i) by the Company and the Principals shall be paid by the Company and
the Principals and (ii) by the Parent and Subsidiary shall be paid by the
Parent, whether or not the Merger is consummated.
 
(b) Parent, on the one hand, and the Company, on the other hand, agree that in
the event either party terminates this Agreement prior to the Effective Time for
any reason other than those allowable under Section 7.01, then the terminating
party shall pay to the other party the amount of actual fees and expenses
incurred by such party in connection with this transaction.
 
7.04  Amendment. This Agreement may be amended by the parties at any time by
execution of an instrument in writing signed on behalf of each of the parties
hereto.
 
7.05  Extension; Waiver. At any time prior to the Effective Time, Parent and
Acquisition Sub, on the one hand, and the Company, on the other hand, may, to
the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto; (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
 
ARTICLE VIII  
GENERAL PROVISIONS
 
8.01  Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
 

 
(a) if to Parent or Subsidiary, to:
 
XFone, Inc.
 
Britannia House
 
960 High Road
 
London, N129RY
 
United Kingdom USA
 
Attention: Guy Nissenson
 
Telephone: +44 208-446-9494
 
Facsimile: +44 208-446-7010
 
Email: guy@xfone.com
   
 
and
   
 
Xfone USA, Inc.
 
2506 Lakeland Drive
 
Suite 100
 
Jackson, Mississippi 39232
 
Attention: Wade Spooner
 
Telephone: 601-420-6500
 
Facsimile: 509-271-7741
 
Email: wspooner@expetel.com
 
 
 
with a copy to:
   
 
Oberon Securities, LLC
 
79 Madison Ave., 6th Floor
 
New York, NY 10016
 
Attention: Adam Breslawsky
 
Telephone: 212-386-7052
 
Facsimile: 212-447-7212
 
Email: adam@oberonsecurities.com
   
 
and
   
 
Watkins Ludlam Winter & Stennis, P.A.
 
633 North State Street (39202)
 
P. O. Box 427
 
Jackson, MS 39205-0427
 
Attention: Gina M. Jacobs
 
Telephone: 601-949-4705
 
Facsimile: 601-949-4804
 
Email: gjacobs@watkinsludlam.com
   
 
(b) if to the Company or the Principals, to:
   
 
Hunter McAllister
 
Brian Acosta
 
211 E. Thomas Street
 
Hammond, Louisiana 70401
 
Telephone: 985-345-1170
 
Facsimile: 985-345-0723
 
Email: hunter@I-55.com
 
bja@I-55.com
   
 
With a copy to:
   
 
David Kurtz
 
Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.
 
201 St. Charles Ave., Suite 3600
 
New Orleans, Louisiana 70170
 
Telephone: (504) 566-5259
 
Facsimile: (504) 636-3959
 
Email: dkurtz@bakerdonelson.com

8.02  Interpretation. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." References to "property" includes both intangible and tangible
property. References to "assets" includes both intangible and tangible assets.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
 
8.03  Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall constitute an original and all of which, when taken
together, shall be considered one and the same agreement.
 
8.04  Entire Agreement; Assignment. This Agreement and the documents and
instruments and other agreements among the parties hereto referenced herein: (i)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings both written
and oral, among the parties with respect to the subject matter hereof; and (ii)
shall not be assigned by operation of law or otherwise.
 
8.05  No Third Party Beneficiaries. This Agreement, the schedules and exhibits
hereto and the documents and instruments and other agreements among the parties
hereto referenced herein are not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
 
8.06  Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to
persons or circumstances other than those with respect to which it is deemed
void will be interpreted so as reasonably to effect the intent of the parties
hereto within the boundaries of applicable law. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent practicable within
applicable law, the economic, business and other purposes of such void or
unenforceable provision.
 
8.07  Other Remedies. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
 
8.08  Governing Law; Dispute Resolution. This Agreement shall be governed by and
construed in accordance with the laws of the State of Mississippi, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
 
8.09  Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
 
8.10  Attorneys' Fees. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the prevailing
party may be entitled).
 
8.11  Shareholder's Post Closing Sale Restrictions. Each shareholder of the
Company by submission of its Company Common Stock in exchange for the Parent
Common Stock and Warrants agrees that the total shares of common stock of the
Parent sold by him/her in any one month period shall not exceed 2.5% of the
average monthly trading volume of the Parent Common Stock for the month prior to
the date in which sale takes place. Each shareholder of the Company agrees that
this Parent Common Stock sales restriction shall apply to any Parent Common
Stock, whether owned as a result of the Merger or thereafter acquired for as
long as either owns any Parent Common Stock and that this provision shall
survive the consummation of the Merger.
 
8.12  Xfone USA, Inc. Board Appointments. The Parent as the sole shareholder of
Xfone USA, Inc. agrees to appoint each of the Principals to the Xfone USA, Inc.
board of directors immediately following the Effective Time. Parent and
Subsidiary agree to indemnify and/or insure against claims commonly covered by
directors’ and officers’ insurance to the same extent as such indemnities or
insurance are given to other officers or directors of Parent or Subsidiary, from
time to time.

 
 
 

IN WITNESS WHEREOF, Parent, Subsidiary, the Company, each of the Principals and
the Shareholder Representative have caused this Agreement to be signed, all as
of the date first written above.

XFONE, INC.
By: /s/ Guy Nissenson   
Name: Guy Nissenson
Title: President and CEO
I-55 INTERNET SERVICES, INC.
By: /s/ Hunter McAllister   
Name: Hunter McAllister
Title: President and CEO
 
By: /s/ Brian Acosta   
Name: Brian Acosta
Title: Chairman
   
XFONE USA, INC.
By: /s/ Wade Spooner   
Name: Wade Spooner
Title: President
PRINCIPALS
/s/ Hunter McAllister 
Hunter McAllister, Individually
/s/ Brian Acosta 
Brian Acosta, Individually
   

 
 
 

EXHIBIT "A"
Form of

(a) Articles of Merger for Mississippi
(b) Certificate of Merger for Louisiana

 
 
 

CERTIFICATE OF MERGER
OF
I-55 INTERNET SERVICES, INC., A Louisiana Corporation,
INTO
XFONE USA, INC., A Mississippi Corporation
 
In accordance with the Louisiana Business Corporation Law, the undersigned
hereto certifies as follows in order to effect the merger of I-55 Internet
Services, Inc., a Louisiana Corporation (“Constituent Corporation”), with and
into XFone USA, Inc., a Mississippi Corporation (“Surviving Corporation”), to
wit:
 
1.  An Agreement and Plan of Merger by and among I-55 Internet Services, Inc.,
XFone, Inc. and XFone USA, Inc., dated as of ____________, 2005 (the “Merger
Agreement”), has been approved, adopted, certified, executed, and acknowledged
by the Constituent Corporation, the Surviving Corporation and XFone, Inc. in
accordance with the Louisiana Business Corporation Law, and in particular,
Section 112 thereof.
 
2.  Under the terms of the Merger Agreement, the Constituent Corporation is
merged with and into the Surviving Corporation.
 
3.  The name of the Surviving Corporation is XFone USA, Inc. a Mississippi
Corporation.
 
4.  The Merger Agreement does not amend or change the Articles of Incorporation
of the Surviving Corporation, and the Articles of Incorporation of the Surviving
Corporation shall continue to be its the Articles the Incorporation.
 
5.  The executed Merger Agreement is on file at the principal place of business
of the Surviving Corporation, _________________________, Jackson, Mississippi
______.
 
6.  A copy of the Merger Agreement will be furnished by the Surviving
Corporation upon request and without cost to any shareholder of any corporation
that is a party to the Merger or consolidation.
 
WITNESS my signature on the ____ day of ___________, 2005.
 
XFone USA, Inc.

By:                                                  
Its: President

(Acknowledgement)

 
 
 

EXHIBIT "B"
Form of Escrow Agreement

 
ESCROW AGREEMENT
This Escrow Agreement, dated as of ____________, 2005 (the "Closing Date"),
among I-55 Internet Services, Inc., a Louisiana corporation (“I-55” or the
Company”), XFone, Inc., a Nevada corporation, and XFone USA, Inc., a Mississippi
corporation (collectively "Buyer"), Hunter McAllister, an individual resident of
Louisiana ("McAllister"), and Brian Acosta, an individual resident of Louisiana
("Acosta" and collectively with McAllister, "Principals" or each as
"Principal"), and Trustmark National Bank, a national banking association as
escrow agent ("Escrow Agent").
 
This is the Escrow Agreement referred to in the Agreement and Plan of Merger
Agreement dated August ___, 2005 (the "Merger Agreement") among Buyer, the
Company and the Principals. Capitalized terms used in this agreement without
definition shall have the respective meanings given to them in the Merger
Agreement.
 
In order to provide Buyer security for certain rights of indemnification that
the Buyer possesses under the Merger Agreement in the event of a breach of the
representations, warranties or agreements by the Company or the Principals
thereunder, or otherwise pursuant to the terms of the Merger Agreement, the
Principals and the Buyer have agreed that the number of shares of XFone, Inc.
Common Stock (the "XFone Common Stock") and the number of XFone, Inc. Stock
Warrants ("XFone Stock Warrants") as set forth in Exhibit "A", which constitutes
part of the purchase price under the Merger Agreement, shall be deposited with
the Escrow Agent by the Principals and Buyer to be held and handled by Escrow
Agent in accordance with the terms and conditions herein set forth.
 
The XFone, Inc. Common Stock is currently traded under the symbol AMEX:XFN and
the Buyer shall notify the Escrow Agent of any change in the market on which the
stock is listed or the symbol under which it is traded.
 
The parties, intending to be legally bound, hereby agree as follows:
 
7.  ESTABLISHMENT OF ESCROW
 
(a)  Deposit of XFone Common Stock and XFone Stock Warrants. The Principals
hereby deposit in escrow the number of shares of XFone Common Stock and XFone
Common Stock Warrants set out opposite their names on Exhibit "A" attached to
this Agreement ("Escrow Shares"), registered in the name of the Escrow Agent or
its nominee. As used herein, the "Pro-Rata Share" refers to a fraction of which
the numerator is the number of Escrow Shares deposited by such Principal and the
denominator is the total number of Escrow Shares deposited by both Principals.
 
(b)  Escrow Fund. The Escrow Shares, all dividends and distributions thereon,
and all income and property resulting therefrom ("Escrow Fund") shall be held by
the Escrow Agent for the benefit of the Principals and Buyer on the terms set
out herein.
 
(c)  Voting Rights of Shares in Escrow. All voting rights with respect to the
XFone Common Stock composing a part of the Escrow Fund may be exercised by the
Principal who deposited such XFone Common Stock in escrow, and the Escrow Agent
shall from time to time execute and deliver to each Principal such proxies,
consents, or other documents as may be necessary to enable each Principal to
exercise such rights with respect to any XFone Common Stock deposited by such
Principal which remains a part of the Escrow Fund.
 
(d)  Distributions on Escrow Fund. All dividends and other distributions
(whether in cash, securities, or other property) paid or made on the Escrow Fund
shall be deemed to have been paid or made to the Principals, in accordance with
their respective Pro-Rata Share in the Escrow Fund, for income tax purposes, but
shall be received by the Escrow Agent and constitute part of the Escrow Fund.
 
(e)  Taxes and Charges on Escrow Fund. The Principals, with respect to their
respective Pro-Rata Share of the Escrow Fund, shall maintain the Escrow Fund
free and clear of all liens and encumbrances and shall, promptly upon request by
the Escrow Agent, pay and discharge all taxes, assessments, and governmental
charges imposed on or with respect to the Escrow Fund.
 
(f)  Acceptance of Escrow. Escrow Agent hereby agrees to act as escrow agent and
to hold, safeguard and disburse the Escrow Fund pursuant to the terms and
conditions hereof.
 
(g)  Notice of Claim. Buyer shall be entitled to recover under this Escrow
Agreement in respect of any Loss (as defined in Section 6.2 of the Merger
Agreement) and may give notice in writing in the form attached hereto as
Appendix A ("Pending Claims Notice") to the Escrow Agent and the Principals of
any claim on which a Loss may be based, which Pending Claims Notice shall
include a brief description of the nature of the claim, the identity of the
party by whom it is being asserted, and an estimate of the amount of loss that
may be sustained by Buyer (the "Estimated Loss").
 
8.  DISTRIBUTIONS FROM ESCROW FUND
 
(a)  Buyer Request. If Buyer (or either of them) submits a notice and request to
the Principals and Escrow Agent in substantially the form attached as Appendix B
stating that a Loss (as defined in the Merger Agreement) has been determined in
accordance with Section 6.2 of the Merger Agreement and specifying the dollar
amount of the Loss and the property from the Escrow Fund to be released to the
Buyer in satisfaction of the Loss (including specifying the number of shares of
the XFone Common Stock and the XFone Stock Warrants of each Principal to be
released to the Buyer or its designee from the Escrow Fund), then on the 15th
business day following such notice, Escrow Agent shall release the number of
shares of the XFone Common Stock and XFone Stock Warrants as directed in said
notice, unless the Escrow Agent has received a Counter-Notice (as defined
herein) from any Principal that it disputes the requested release from the
Escrow Fund for the Loss.
 
(b)  Request by Principals. If the Principals give a notice in substantially the
form attached as Appendix C to the Escrow Agent and Buyer stating that they are
entitled to a distribution from their respective Pro-Rata Share of the Escrow
Fund as required under Section 6.2(b)(ii) of the Merger Agreement specifying the
number of XFone Common Stock and XFone Stock Warrants to be distributed to each
Principal, then on the 15th business day following such notice, the Escrow Agent
shall release the XFone Common Stock and XFone Stock Warrants pursuant to the
directions given by the Principals in the notice, unless the Escrow Agent shall
have received from Buyer a Counter-Notice (as defined herein) that it disputes
the requested release from the Escrow Fund requested by the Principals.
 
(c)  If a counter-notice ("Counter-Notice") is given with respect to a request
for distributions from the Escrow Fund, then the Escrow Agent shall make a
distribution from the Escrow Fund only in accordance with (i) joint written
instructions of Buyer and the Principals or (ii) a final non-appealable order of
a court of competent jurisdiction. Any court order shall be accompanied by legal
opinion by counsel for the presenting party satisfactory to the Escrow Agent to
the effect that the order is final and non-appealable. Escrow Agent shall act on
such court order and legal opinion without further question.
 
(d)  Notwithstanding anything to the contrary contained in this Agreement, the
Escrow Agent shall make distributions from the Escrow Fund in accordance with
the joint written instructions of Buyer and Principals.
 
9.  DURATION AND TERMINATION OF ESCROW
 
(a)  On the second anniversary date of this Agreement, the Escrow Agent shall
retain an amount of the Escrow Fund (taken on a pro-rata basis from each
Principal's portion of the Escrow Fund) equal to the aggregate dollar value of
the Estimated Losses for all outstanding Pending Claims Notices and the
remainder of each Principal's portion of the Escrow Fund shall be disbursed to
each Principal. For these purposes, the value of the Parent Common Stock and the
Parent Stock Warrants shall be determined in accordance with Exhibit "A."
 
(b)  The Escrow Agreement shall continue in full force and effect until the
first to occur of the close of business on the last day during which there is
any Escrow Fund remaining with the Escrow Agent or December 31, 2020, at which
time this Escrow shall terminate and any Escrow Fund remaining shall be
interpled with the registry or custody of any court of competent jurisdiction
and thereupon the Escrow Agent shall be discharged of all further duties under
this Agreement.
 
10.  DUTIES OF ESCROW AGENT
 
(a)  Escrow Agent shall not be under any duty to give the Escrow Fund held by it
hereunder any greater degree of care than it gives its own similar property and
shall not be required to invest any funds held hereunder except as directed in
this Agreement. Uninvested funds held hereunder shall not earn or accrue
interest.
 
(b)  Escrow Agent shall not be liable, except for its own gross negligence or
willful misconduct and, except with respect to claims based upon such gross
negligence or willful misconduct that are successfully asserted against Escrow
Agent, the others hereto shall jointly and severally indemnify and hold harmless
Escrow Agent (and any successor Escrow Agent) from and against any and all
losses, liabilities, claims, actions, damages and expenses, including reasonable
attorneys' fees and disbursements, arising out of and in connection with this
Agreement.
 
(c)  Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that the person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so. Escrow
Agent may conclusively presume that the undersigned representative of any party
hereto which is an entity other than a natural person has full power and
authority to instruct Escrow Agent on behalf of that party unless written notice
to the contrary is delivered to Escrow Agent.
 
(d)  Escrow Agent may act pursuant to the advice of counsel with respect to any
matter relating to this Agreement and shall not be liable for any action taken
or omitted by it in good faith in accordance with such advice.
 
(e)  Escrow Agent does not have any interest in the Escrow Fund deposited
hereunder but is serving as escrow holder only and having only possession
thereof. Any payments of income from this Escrow Fund shall be subject to
withholding regulations then in force with respect to United States taxes. The
parties hereto will provide Escrow Agent with appropriate Internal Revenue
Service Forms W-9 for tax identification number certification, or non-resident
alien certifications. This Section 5(e) and Section 5(b) shall survive
notwithstanding any termination of this Agreement or the resignation of Escrow
Agent.
 
(f)  Escrow Agent makes no representation as to the validity, value, genuineness
or the collectibility of any security or other document or instrument held by or
delivered to it.
 
(g)  Escrow Agent (and any successor Escrow Agent) may at any time resign as
such by delivering the Escrow Fund to any successor Escrow Agent jointly
designated by the other parties hereto in writing, or to any court of competent
jurisdiction, whereupon Escrow Agent shall be discharged of and from any and all
further obligations arising in connection with this Agreement. The resignation
of Escrow Agent will take effect on the earlier of (a) the appointment of a
successor (including a court of competent jurisdiction) or (b) the day which is
30 days after the date of delivery of its written notice of resignation to the
other parties hereto. If at that time Escrow Agent has not received a
designation of a successor Escrow Agent, Escrow Agent's sole responsibility
after that time shall be to retain and safeguard the Escrow Fund until receipt
of a designation of successor Escrow Agent or a joint written disposition
instruction by the other parties hereto or a final non-appealable order of a
court of competent jurisdiction.
 
(h)  In the event of any disagreement between the other parties hereto resulting
in adverse claims or demands being made in connection with the Escrow Fund or in
the event that Escrow Agent is in doubt as to what action it should take
hereunder, Escrow Agent shall be entitled to retain the Escrow Fund until Escrow
Agent shall have received (i) a final non-appealable order of a court of
competent jurisdiction directing delivery of the Escrow Fund or (ii) a written
agreement executed by the other parties hereto directing delivery of the Escrow
Fund, in which event Escrow Agent shall disburse the Escrow Fund in accordance
with such order or agreement. Any court order shall be accompanied by a legal
opinion by counsel for the presenting party satisfactory to Escrow Agent to the
effect that the order is final and non-appealable. Escrow Agent shall act on
such court order and legal opinion without further question.
 
(i)  Buyers and Principals shall pay Escrow Agent compensation (as payment in
full) for the services to be rendered by Escrow Agent hereunder in the amount of
[$1,000.00] at the time of execution of this Agreement and [$1,000.00] annually
thereafter and agree to reimburse Escrow Agent for all reasonable expenses,
disbursements and advances incurred or made by Escrow Agent in performance of
its duties hereunder (including reasonable fees, expenses and disbursements of
its counsel). Any such compensation and reimbursement to which Escrow Agent is
entitled shall be borne 50% by Buyer, ____% by McAllister and ____% by Acosta.
Any fees or expenses of Escrow Agent or its counsel that are not paid as
provided for herein may be taken from any property held by Escrow Agent
hereunder.
 
(j)  No printed or other matter in any language (including, without limitation,
prospectuses, notices, reports and promotional material) that mentions Escrow
Agent's name or the rights, powers, or duties of Escrow Agent shall be issued by
the other parties hereto or on such parties' behalf unless Escrow Agent shall
first have given its specific written consent thereto.
 
11.  LIMITED RESPONSIBILITY
 
This Agreement expressly sets forth all the duties of Escrow Agent with respect
to any and all matters pertinent hereto. No implied duties or obligations shall
be read into this agreement against Escrow Agent. Escrow Agent shall not be
bound by the provisions of any agreement among the other parties hereto except
this Agreement.
 
12.  OWNERSHIP FOR TAX PURPOSES
 
Principals agree that, for purposes of federal and other taxes based on income,
Spooner and Parsons will be treated as the owner of their pro-rata share of the
Escrow Fund, respectively, and that Spooner and Parsons will report all income,
if any, that is earned on, or derived from, the Escrow Fund as their income, in
such proportions, in the taxable year or years in which such income is properly
includible and pay any taxes attributable thereto.
 
13.  NOTICES
 
All notices, consents, waivers and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt) provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
 

IF TO COMPANY OR PRINCIPALS, TO:
 
I-55 Internet Services, Inc.
211 East Thomas Street
Hammond, LA 70401
Attention: Hunter McAllister, President and CEO
    Brian Acosta, Chairman
Telephone: (504) ___________
Facsimile:   (504) ___________
Email:      hunter@i-55.com 
 brian@i-55.com 
 
IF TO PARENT OR SUBSIDIARY, TO:
 
XFone, Inc.
Britannia House
960 High Road
London, N129RY
United Kingdom
Attention: Guy Nissenson
Telephone: +44 208-446-9494
Facsimile: +44 208-446-7010
Email: guy@xfone.com
 
and
 
XFone USA, Inc.
2506 Lakeland Drive, Suite 100
Flowood, MS 39232
Attention: Wade Spooner
Telephone: (601) 664-1108
Facsimile: (601) 664-1190
Email: wspooner@expetel.com
 
with a copy to:
 
The Oberon Group, LLC
79 Madison Ave., 6th Floor
New York, NY 10016
Attention: Adam Breslawsky
Telephone: 212-386-7052
Facsimile: 212-447-7212
Email: adam@oberongroup.com
 
Watkins Ludlam Winter & Stennis, P.A.
633 North State Street (39202)
P. O. Box 427
Jackson, MS 39205-0427
Attention: Gina M. Jacobs
Telephone: 601-949-4705
Facsimile: 601-949-4804
Email: gjacobs@watkinsludlam.com
 
IF TO ESCROW AGENT:
 
Trustmark National Bank
248 East Capitol Street
Jackson, MS 39201
Attention: W. Sanders (“Sandy”) Carter, V.P.
 
14.  JURISDICTION; SERVICE OF PROCESS
 
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Mississippi or, if it has or can acquire
jurisdiction, in the United States District Court for the Southern District of
Mississippi, and each of the parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the
world.
 
15.  COUNTERPARTS
 
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original and all of which, when taken together, will be
deemed to constitute one and the same.
 
16.  SECTION HEADINGS
 
The headings of sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation.
 
17.  WAIVER
 
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
 
18.  EXCLUSIVE AGREEMENT AND MODIFICATION
 
This Agreement supersedes all prior agreements among the parties with respect to
its subject matter and constitutes (along with the documents referred to in this
Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the Buyer, the Principals
and the Escrow Agent.
 
19.  GOVERNING LAW
 
This Agreement shall be governed by the laws of the State of Mississippi,
without regard to conflicts of law principles.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
 
BUYERS:
PRINCIPALS:

 
XFone, Inc.
By:                                                                                                                                    
Guy Nissenson, President and CEO                                 Hunter
McAllister, Individually
 
XFone USA, Inc.                                                         
                                 Brian Acosta, Individually
By:                                                        
Guy Nissenson, President and CEO

ESCROW AGENT:
Trustmark National Bank
By:                                                     
Title:                                                 

 
 
 
 

EXHIBIT "A"
 

 
XFone Common Stock
XFone Stock Warrants
 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Hunter McAllister
________ Shares
________ Warrants
Brian Acosta
________ Shares
________ Warrants

 
VALUATION
 
Parent Stock Warrants - $_______ per warrant
 
Parent Common Stock - the average of the closing price for the ten (10) trading
days immediately preceding the date of valuation.

 
 

APPENDIX A
PENDING CLAIM NOTICE
To:   _______________________, or its successor ("Escrow Agent")
Hunter McAllister ("Principal")
Brian Acosta ("Principal")
 
From:
 
XFone, Inc. and/or XFone USA, Inc. ("XFone")

 
Date:  _____________________
 
Please be advised that, pursuant to Section 1(g) of the Escrow Agreement dated
____________, 2005 by and among the undersigned, the Escrow Agent, and the
Principals, each of you are hereby notified that, Buyer believes that the Buyer
has or may suffer a Loss pursuant to the provisions of Article 6.2 of the Merger
Agreement dated as of _______________, 2005 ("Merger Agreement") by virtue of
 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

  
XFone estimates that the Loss is $_____________ ("Estimated Loss").
 
Signed this _____ day of _________________, 20__.
 

 
XFone, Inc./XFone USA, Inc.
 
By:      
 
Title:      

 
 
 
 
 

APPENDIX B
BUYER DEPOSITION NOTICE REQUEST
 
To:
______________________, or its successor ("Escrow Agent")
 
Hunter McAllister ("Principal")
 
Brian Acosta ("Principal")
From:
XFone, Inc./XFone USA, Inc. ("XFone")
Date:
_______________________
Re:
Escrow Agreement Dated ____________, 2004 Among the Above-referenced Parties
("Escrow Agreement")

 
 

 
 
Please be advised that pursuant to Section 2(a) of the Escrow Agreement you are
hereby notified that a Loss (as defined in the Merger Agreement dated
________________, 2005) has been determined and you are hereby instructed to
deliver to XFone, Inc. the following XFone Common Stock and XFone Stock Warrants
endorsed for transfer to XFone from the Escrow Fund.
 
(1)
_________ total shares XFone Common Stock as follows:

 
(a) ____________ shares of Hunter McAllister's XFone Common Stock deposited in
the Escrow Fund.
 
(b) ____________ shares of Brian Acosta's XFone Common Stock deposited in the
Escrow Fund.
 
(2)
_________ shares XFone Stock Warrants as follows:

 
(a) ____________ XFone Stock Warrants from Hunter McAllister's XFone Stock
Warrants deposited in the Escrow Fund.
 
(b) ____________ XFone Stock Warrants from Brian Acosta's XFone Stock Warrants
deposited in the Escrow Fund.
 
(3)
Cash Dividends $________.

 
Check One:
 
____
This is the Loss as determined for Pending Claims Notice dated
.
____
This notice also constitutes a Pending Claims Notice and the Loss arises out of
the following:

 
Sincerely,
XFone, Inc./XFone USA, Inc.
By:                                                               
Title:                                                           

 

APPENDIX C
PRINCIPALS DEPOSITION NOTICE REQUEST
 
To:
 
______________________, or its successor ("Escrow Agent")

              XFone, Inc./XFone USA, Inc. ("XFone")
From:
 
Hunter McAllister ("Principal")

                      Brian Acosta ("Principal")
Date:
 
_____________________
Re:
 
Escrow Agreement Dated ____________, 2004 Among the Above-referenced Parties
("Escrow Agreement")

 
Please be advised that pursuant to Section 2(b) of the Escrow Agreement you are
hereby notified that each Principal is entitled to a distribution as set forth
below from the Escrow Fund pursuant to Section 6.2(b)(ii) of the Merger
Agreement dated ______________, 2005, and you are hereby requested to deliver to
each Principal the following XFone Common Stock and Parent Stock Warrants
endorsed as follows for transfer from the Escrow Fund:
 
To Hunter McAllister:
 
__________ shares of XFone Common Stock Hunter McAllister deposited in the
Escrow Fund.
__________ XFone Stock Warrants from Hunter McAllister's XFone Stock Warrants
deposited in the Escrow Fund.
 
To Brian Acosta:
 
__________ shares of XFone Common Stock Brian Acosta deposited in the Escrow
Fund.
__________ XFone Stock Warrants from Brian Acosta' XFone Stock Warrants he
deposited in the Escrow Fund.
 
 
 
Sincerely,
 
                                                                
Hunter McAllister
 
                                                               
Brian Acosta

 
 
EXHIBIT "C"
Form of McAllister Employment Agreement

 
 

EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of ________________,
2005 by XFone USA, Inc., a Mississippi corporation (the "Employer"), and Hunter
McAllister, an individual (the "Executive").
RECITALS
 
The Executive is currently the President and Chief Executive Officer and a
principal shareholder of I-55 Internet Services, Inc. (the "Company").
Concurrently with the execution and delivery of this Agreement, the Company is
being merged with and into the Employer pursuant to and in accordance with that
certain Agreement and Plan of Merger dated among the Company, the Employer,
XFone, Inc. (the "Parent") and the Executive and Brian Acosta (the "Merger
Agreement"). The Executive's continued employment with the Employer after the
merger and the Employee's execution of this Agreement is a condition to the
consummation of the merger pursuant to the Merger Agreement by the Employer and
the Parent. The Employer agrees to employ the Executive, and the Executive
wishes to accept such continued employment, upon the terms and conditions set
forth in this Agreement.
 
AGREEMENT
 
The parties, intending to be legally bound, agree as follows:
 
1.  DEFINITIONS
 
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
 
"Agreement"--this Employment Agreement, as amended from time to time.
 
"Basic Compensation"--Salary and Benefits.
 
"Benefits"--as defined in Section 3.1(b).
 
"Confidential Information" means any and all of the following with respect to
the Employer, its Parent, the Company as predecessor to the Employer or any of
their affiliates:
 
(a)  trade secrets concerning the business and affairs of the Employer, its
Parent, the Company as predecessor to the Employer or any of their affiliates,
product specifications, data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions and ideas,
past, current, and planned research and development, current and planned
manufacturing or distribution methods and processes, customer lists, current and
anticipated customer requirements, price lists, market studies, business plans,
computer software and programs (including object code and source code), computer
software and database technologies, systems, structures, and architectures (and
related formulae, compositions, processes, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and information, any
other confidential or proprietary information or data), and any other
information, however documented, that is a trade secret within the meaning of
any applicable federal or state laws; and
 
(b)  information concerning the business and affairs of the Employer, its
Parent, the Company as predecessor to the Employer or any of their affiliates
(which includes but is not limited to historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, personnel
training and techniques and materials, interconnect agreements, supply sources,
marketing, production or merchandising systems or plans), however documented;
and
 
(c)  notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Employer, its Parent, the Company as predecessor to the
Employer or any of their affiliates containing or based, in whole or in part, on
any information included in the foregoing.
 
"Effective Date"--the date stated in the first paragraph of the Agreement.
 
"Executive Invention"--any idea, invention, technique, modification, process, or
improvement (whether patentable or not), any industrial design (whether
registerable or not), any mask work, however fixed or encoded, that is suitable
to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period with Employer or its predecessor, the Company, or a period that includes
a portion of the Employment Period, that relates in any way to, or is useful in
any manner in, the business then being conducted or proposed to be conducted by
the Employer, and any such item created by the Executive, either solely or in
conjunction with others, following termination of the Executive's employment
with the Employer, that is based upon or uses Confidential Information.
 
"Employment Period"--the term of the Executive's employment under this
Agreement, and as used herein the term "Employment Year" means each twelve month
period occurring during the employment period and "Employment Year 1" shall mean
the first twelve months of employment from the Effective Date and "Employment
Year 2" shall mean the 12 month period following Employment Year 1 and
"Employment Year 3" shall mean the 12 month period following Employment Year 2.
 
"For cause"--as defined in Section 6.2.
 
"For good reason"--as defined in Section 6.3.
 
"Parent Common Stock" shall mean shares of the common stock of Parent.
 
"Person"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, or governmental body.
 
"Post-Employment Period"--as defined in Section 8.2.
 
"Proprietary Items"--as defined in Section 7.2(a)(iv).
 
"Salary"--as defined in Section 3.1(a).
 
2.  EMPLOYMENT TERMS AND DUTIES
 
2.1  EMPLOYMENT
 
The Employer hereby employs the Executive, and the Executive hereby accepts
employment by the Employer, upon the terms and conditions set forth in this
Agreement.
 
2.2  TERM
 
Subject to the provisions of Section 6, the term of the Executive's employment
under this Agreement will be three years, beginning on the Effective Date and
ending on the third anniversary of the Effective Date.
 
2.3  DUTIES
 
The Executive will have such duties as are assigned or delegated to the
Executive by the President, and will initially serve as Vice President, of
Operations of the Employer. The Executive will devote his entire business time,
attention, skill, and energy exclusively to the business of the Employer, will
use his best efforts to promote the success of the Employer's business, and will
cooperate fully with the President in the advancement of the best interests of
the Employer. If the Executive is elected as a director of the Employer or as a
director or officer of any of its affiliates, the Executive will fulfill his
duties as such director or officer without additional compensation. The
Executive’s duties shall be commensurate with his title and shall include
managerial responsibility and authority, particularly over the Louisiana
operations of Employer. Executive shall report directly to the President of
Employer.
 
3.  COMPENSATION
 
3.1  BASIC COMPENSATION
 
(a)  Salary. The Executive will be paid an annual salary of $100,000.00 for
Employment Year 1; $103,000 for Employment Year 2 and $106,090.00 for Employment
Year 3 (the "Salary"), which will be payable in equal periodic installments
according to the Employer's customary payroll practices, but no less frequently
than monthly, and shall be subject to all applicable withholding and other
applicable taxes as required by law.
 
(b)  Benefits. The Executive will, during the Employment Period, be permitted to
participate in such life insurance, hospitalization, major medical, and other
Executive benefit plans of the Employer that may be in effect from time to time,
to the extent the Executive is eligible under the terms of those plans
(collectively, the "Benefits"). The Executive shall be entitled to car and cell
phone allowances at least equal in value to those previously provided to
Executive by the Company.
 
3.2  INCENTIVE COMPENSATION
 
Currently the Company does not have an Executive Incentive Compensation Plan;
however, the Executive will participate in such plan when developed.

3.3  PARENT STOCK OPTION COMPENSATION
 
On the first business day of Employment Year 1, the Executive shall be granted
and issued options for 200,000 shares of restricted Parent Common Stock (25,000
of which shall be attributable to Employment Year 1, 50,000 of which shall be
attributable to Employment Year 2, and 125,000 of which shall be attributable to
Employment Year 3) (the "Options"). The Options shall vest as follows: Options
for 25,000 shares of restricted Parent Stock shall vest 3 years from the grant
date, options for 50,000 shares of restricted Parent Stock shall vest 4 years
from the grant date and options for 125,000 shares of restricted Parent Stock
shall vest 5 years from the grant date. The stock options shall provide for a
five (5) year term from the vesting date, a strike price that is 10% above the
closing price of the Parent Common Stock on the date of issue of the Options.
The parties agree that the terms “Options” and “Parent Stock Options” as used in
this Agreement include only those Options granted pursuant to this Agreement.
 
4.  FACILITIES AND EXPENSES
 
The Employer will furnish the Executive office space, equipment, supplies, and
such other facilities and personnel as the Employer deems necessary or
appropriate for the performance of the Executive's duties under this Agreement.
 
5.  VACATIONS AND HOLIDAYS
 
The Executive will be entitled to three weeks' paid vacation each Employment
Year in accordance with the vacation policies of the Employer in effect for its
executive officers from time to time. Vacation must be taken by the Executive at
such time or times as approved by the Chairman of the Board or President. The
Executive will also be entitled to the paid holidays set forth in the Employer's
policies. Up to five vacation days during any Employment Year that are not used
by the Executive during such Employment Year may be used in any subsequent
Employment Year.
 
6.  TERMINATION
 
6.1  EVENTS OF TERMINATION
 
The Employment Period, the Executive's Basic Compensation, Incentive
Compensation, any Parent Stock Options which have not vested, and Parent Stock
Warrants which have not vested and any and all other rights of the Executive
under this Agreement or otherwise as an Executive of the Employer will terminate
(except as otherwise provided in this Section 6):
 
(a)  upon the death of the Executive;
 
(b)  upon termination by Employer for cause (as defined in Section 6.2),
immediately upon notice from the Employer to the Executive, or at such later
time as such notice may specify; or
 
(c)  upon termination by Executive for good reason (as defined in Section 6.3)
upon not less than thirty days' prior notice from the Executive to the Employer.
 
(d)  upon termination of employment by Executive for any reason other than for
good reason (as defined in Section 6.3).
 
6.2  DEFINITION OF "FOR CAUSE"
 
For purposes of Section 6.1, the phrase "for cause" means: (a) the Executive's
breach of this Agreement which remains uncorrected for 30 days following notice
from the Employer; (b) the Executive's failure to adhere to any written Employer
policy if the Executive has been given a reasonable opportunity to comply with
such policy or cure his failure to comply (which reasonable opportunity must be
granted during the ten-day period preceding termination of this Agreement);
(c) the appropriation (or attempted appropriation) of a material business
opportunity of the Employer, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Employer; (d) the misappropriation (or attempted misappropriation) of any of the
Employer's funds or property; or (e) the conviction of, the indictment for (or
its procedural equivalent), or the entering of a guilty plea or plea of no
contest with respect to, a felony, the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment.
 
6.3  DEFINITION OF "FOR GOOD REASON"
 
For purposes of Section 6.1, the phrase "for good reason" means any of the
following: (a) The Employer's material breach of this Agreement which is not
cured within 30 days from the date of notice from the Executive; (b) the
requirement by the Employer that the Executive be based anywhere other than in
the State of Louisiana without the Executive's consent; or (c) the Employer
alters Executive’s duties such that he is stripped of all managerial
authorities.
 
6.4  TERMINATION PAY
 
Effective upon the termination of this Agreement, the Employer will be obligated
to pay the Executive (or, in the event of his death, his designated beneficiary
as defined below) only such compensation as is provided in this Section 6.4, and
in lieu of all other amounts and in settlement and complete release of all
claims the Executive may have against the Employer arising from the employment
relationship. For purposes of this Section 6.4, the Executive's designated
beneficiary will be such individual beneficiary or trust, located at such
address, as the Executive may designate by notice to the Employer from time to
time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
 
(a)  Termination by the Executive for Good Reason. If the Executive terminates
this Agreement for good reason, the Employer will pay the Executive the
Executive's Salary for the remainder of the term of this Agreement (the
"Remainder Term") as and when such salary would otherwise become due and
payable. The Executive shall not have the right to any Incentive Compensation as
provided in Section 3.2 for the Employment Year during which such termination
occurs or any subsequent Employment Year. The Executive shall have the right to
retain the options attributable as provided in Section 3.3 hereof for the
Employment Year during which such termination occurs and any prior year and such
options shall vest immediately, but the Executive shall not be entitled to
retain the options attributable to any Employment Year subsequent to the
Employment Year during which such termination occurred and such options shall
expire.
 
(b)  Termination by the Employer for Cause or Termination by Executive without
Good Reason. If the Employer terminates this Agreement for cause or the
Executive terminates his employment for any reason other than for good reason
(as defined in Section 6.3), the Executive will be entitled to receive his
Salary only through the date such termination is effective, and will not be
entitled to any Incentive Compensation, Parent Stock Options or Parent Stock
Warrants for the Employment Year during which such termination occurs or any
subsequent Employment Year and any Parent Stock Options granted to the Executive
pursuant to Section 3.3 that have not vested.
 
(c)  Termination upon Death. If this Agreement is terminated because of the
Executive's death, the Executive will be entitled to receive his Salary through
the end of the calendar month in which his death occurs, but will not be
entitled to receive any Incentive Compensation or Parent Stock Options pursuant
to Section 3.3 for the Employment Year during which his death occurs or any
subsequent Employment Year and any Parent Stock Options granted to the Executive
pursuant to Section 3.3 that have not vested shall be cancelled except that any
Parent Stock Options attributable to the Employment Year of Executive’s death or
any prior Employment Year shall be deemed to have vested immediately prior to
Executive’s death and may be exercised by Executive’s heirs on the same terms
and conditions that would have applied to Executive.
 
(d)  Benefits. The Executive's accrual of, or participation in plans providing
for, the Benefits will cease at the effective date of the termination of this
Agreement, and the Executive will be entitled to accrued Benefits pursuant to
such plans only as provided in such plans. The Executive will only receive, as
part of his termination pay pursuant to this Section 6, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date the notice of termination is given under this Agreement if the termination
is due to the death of Executive or termination by the Executive for Good Reason
per Section 6.3.
 
6.5  TERMINATION DAMAGES PAYABLE BY EXECUTIVE
 
The Executive and the Employer agree that it is impossible to determine with any
reasonable accuracy the amount of the prospective damages to the Employer if the
Executive's employment is terminated for any reason other than death or for good
reason (as defined in Section 6.3) by the Executive (such termination referred
to in this paragraph as "Executive Termination Without Cause"). In the event of
any Executive Termination Without Cause other than a Termination by the
Executive due to a disability that leaves him unable to work, the Executive
agrees to pay as liquidated damages to the Employer an amount equal as follows:
 
(a)  If the Executive Termination Without Cause occurs during Employment Year 1,
then the Executive shall immediately pay to the Employer an amount equal to
$225,000.00.
 
(b)  If the Executive Termination Without Cause occurs during Employment Year 2,
then the Executive shall immediately pay to the Employer an amount equal to
$150,000.00.
 
(c)  If the Executive Termination Without Cause occurs during Employment Year 3,
then the Executive shall immediately pay to the Employer an amount equal to
$75,000.000.
 
7.  NON-DISCLOSURE COVENANT; EXECUTIVE INVENTIONS; NON-COMPETE
 
7.1  ACKNOWLEDGMENTS BY THE EXECUTIVE
 
The Executive acknowledges that (a) during the Employment Period and his prior
employment period with the Employer's predecessor, the Company, and as a part of
his employment with the Employer and its predecessor, the Company, the Executive
was and will continue to be afforded access to Confidential Information;
(b) public disclosure of such Confidential Information could have an adverse
effect on the Employer and its business; (c) because the Executive possesses
substantial technical expertise and skill with respect to the Employer's
business, the Employer desires to obtain exclusive ownership of each Executive
Invention, and the Employer will be at a substantial competitive disadvantage if
it fails to acquire exclusive ownership of each Executive Invention; (d) the
Parent and Employer have each required that the Executive make the covenants in
this Section 7 as a condition to the merger pursuant to the Merger Agreement;
and (e) the provisions of this Section 7 are reasonable and necessary to prevent
the improper use or disclosure of Confidential Information and to provide the
Employer with exclusive ownership of all Executive Inventions.
 
7.2  AGREEMENTS OF THE EXECUTIVE
 
In consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer under this Agreement, the Executive covenants as
follows:
(a)  Confidentiality.
 
(i)  
During and following the Employment Period, the Executive will hold in
confidence the Confidential Information and will not disclose it to any person
except with the specific prior written consent of the Employer or except as
otherwise expressly permitted by the terms of this Agreement.

(ii)  
Any trade secrets of the Employer will be entitled to all of the protections and
benefits under any applicable federal or state trade secret law and any other
applicable law. If any information that the Employer deems to be a trade secret
is found by a court of competent jurisdiction not to be a trade secret for
purposes of this Agreement, such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement. The Executive hereby
waives any requirement that the Employer submits proof of the economic value of
any trade secret or posts a bond or other security.

(iii)  
None of the foregoing obligations and restrictions applies to any part of the
Confidential Information that the Executive demonstrates was or became generally
available to the public other than as a result of a disclosure by the Executive.

(iv)  
The Executive will not remove from the Employer's premises (except to the extent
such removal is for purposes of the performance of the Executive's duties at
home or while traveling, or except as otherwise specifically authorized by the
Employer) any document, record, notebook, plan, model, component, device, or
computer software or code, whether embodied in a disk or in any other form
(collectively, the "Proprietary Items"). The Executive recognizes that, as
between the Employer and the Executive, all of the Proprietary Items, whether or
not developed by the Executive, are the exclusive property of the Employer. Upon
termination of this Agreement by either party, or upon the request of the
Employer during the Employment Period, the Executive will return to the Employer
all of the Proprietary Items in the Executive's possession or subject to the
Executive's control, and the Executive shall not retain any copies, abstracts,
sketches, or other physical embodiment of any of the Proprietary Items.

 
(b)  Executive Inventions. Each Executive Invention will belong exclusively to
the Employer. The Executive acknowledges that all of the Executive's writing,
works of authorship, and other Executive Inventions are works made for hire and
the property of the Employer, including any copyrights, patents, or other
intellectual property rights pertaining thereto. If it is determined that any
such works are not works made for hire, the Executive hereby assigns to the
Employer all of the Executive's right, title, and interest, including all rights
of copyright, patent, and other intellectual property rights, to or in such
Executive Inventions. The Executive covenants that he will promptly:
 
(i)  
disclose to the Employer in writing any Executive Invention;

(ii)  
assign to the Employer or to a party designated by the Employer, at the
Employer's request and without additional compensation, all of the Executive's
right to the Executive Invention for the United States and all foreign
jurisdictions;

(iii)  
execute and deliver to the Employer such applications, assignments, and other
documents as the Employer may request in order to apply for and obtain patents
or other registrations with respect to any Executive Invention in the United
States and any foreign jurisdictions;

(iv)  
sign all other papers necessary to carry out the above obligations; and

(v)  
give testimony and render any other assistance in support of the Employer's
rights to any Executive Invention.

 
7.3  DISPUTES OR CONTROVERSIES
 
The Executive recognizes that should a dispute or controversy arising from or
relating to this Agreement be submitted for adjudication to any court,
arbitration panel, or other third party, the preservation of the secrecy of
Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive, and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
 
8.  NON-COMPETITION AND NON-INTERFERENCE
 
8.1  ACKNOWLEDGMENTS BY THE EXECUTIVE
 
The Executive acknowledges that: (a) the services to be performed by him under
this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the Employer's business is currently regional in
scope and its products are marketed or may be marketed throughout the parishes
and counties indicated on Exhibit “A” hereto (the "Restricted Area"); (c) the
Employer competes with other businesses that are or could be located in any part
of the Restricted Area; (d) the Parent and Employer have each required that the
Executive make the covenants set forth in this Section 8 as a condition to the
merger under the Merger Agreement; and (e) the provisions of this Section 8 are
reasonable and necessary to protect the Employer's business.
 
8.2  COVENANTS OF THE EXECUTIVE
 
In consideration of the acknowledgments by the Executive, and in consideration
of the compensation and benefits to be paid or provided to the Executive by the
Employer, the Executive covenants that he will not, directly or indirectly:
 
(a)  during the Employment Period, except in the course of his employment
hereunder, and during the Post-Employment Period, directly or indirectly, either
for himself or for any partnership, limited liability company, individual,
corporation, joint venture or any other entity or person "participate in" (as
defined below) any business (including, without limitation, any division, group
or franchise of a larger organization) which engages in the "Internet Services
and Telecommunications Business" in the Restricted Area. For purposes of this
Agreement, "Internet Services and Telecommunications Business" shall mean the
business of providing any type of telecommunication services or internet access
services to any person or customer within the Restricted Area, including,
without limitation, local, long distance, broadband, dial up data services,
wireless, DSL, Voice-over-Internet Protocol (VoIP) and any other service or
product being offered or provided by the Employer or the Parent or any of their
respective affiliates. For purposes of this Agreement, the term "participate in"
shall include, without limitation, having any direct or indirect interest in any
corporation, partnership, limited liability company, joint venture or other
entity, whether as a sole proprietor, owner, shareholder, partner, member,
manager, joint venturer, creditor or otherwise, or rendering any direct or
indirect service or assistance to any individual corporation, partnership,
limited liability company, joint venture and other business entity (whether as a
director, officer, manager, supervisor, Executive, agent, consultant or
otherwise). Notwithstanding the foregoing, nothing in this Section 8.2(a) shall
prohibit Executive from owning not more than five percent (5%) of the debt or
equity securities of a publicly traded corporation which may compete with the
Employer or the Parent.
 
(b)  whether for the Executive's own account or for the account of any other
person, at any time during the Employment Period and the Post-Employment Period,
solicit business of the same or similar type being carried on by the Employer or
its Parent or any of their affiliates, from any person known by the Executive to
be a customer of the Employer or its Parent or any of their affiliates, whether
or not the Executive had personal contact with such person during and by reason
of the Executive's employment with the Employer;
 
(c)  whether for the Executive's own account or the account of any other person
(i) at any time during the Employment Period and the Post-Employment Period,
solicit, employ, or otherwise engage as an Executive, independent contractor, or
otherwise, any person who is or was an Executive of the Employer at any time
during the Employment Period or in the period of employment with the Employer's
predecessor or in any manner induce or attempt to induce any Executive of the
Employer to terminate his employment with the Employer; or (ii) at any time
during the Employment Period and for the Post-Employment Period, interfere with
the Employer's relationship with any person, including any person who at any
time during the Employment Period or the period of employment with the
Employer's predecessor was an Executive, contractor, supplier, or customer of
the Employer or its predecessor; or
 
(d)  at any time during or after the Employment Period, disparage the Employer
or its Parent or any of their affiliates or any of their respective
shareholders, directors, officers, Executives, or agents.
 
For purposes of this Section 8.2, the term "Post-Employment Period" means the
two (2) year period beginning on the date of termination of the Executive's
employment with the Employer.
 
If any covenant in this Section 8.2 is held to be unreasonable, arbitrary, or
against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Executive.
 
(e)  If at any time during the Employment Period and the Post-Employment Period,
Executive desires to participate in an activity that he believes might be
prohibited by this Section 8.2, such person may request in writing (a
"Clarification Request") a determination by Employer as to whether such proposed
activity would violate this Section 8.2. Employer shall respond in writing to
such Clarification Request (a "Clarification Response") within thirty (30) days
of receipt thereof.
 
9.  GENERAL PROVISIONS
 
9.1  INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
 
The Executive acknowledges that the injury that would be suffered by the
Employer as a result of a breach of the provisions of this Agreement (including
any provision of Sections 7 and 8) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to any other
rights it may have, to obtain injunctive relief to restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Employer will not be obligated to post bond or other security
in seeking such relief. Without limiting the Employer's rights under this
Section 9 or any other remedies of the Employer, if the Executive breaches any
of the provisions of Section 7 or 8, the Employer will have the right to cease
making any payments otherwise due to the Executive under this Agreement.
 
9.2  COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS
 
The covenants by the Executive in Sections 7 and 8 are essential elements of
this Agreement, and without the Executive's agreement to comply with such
covenants, the Parent and Employer would not have consummated the merger under
the Merger Agreement and the Employer would not have entered into this Agreement
or employed or continued the employment of the Executive. The Employer and the
Executive have independently consulted their respective counsel and have been
advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Employer. Executive agrees to notify Employer if Executive believes that
Employer or Parent have breached this Agreement in such a manner as to excuse
Executive from Executive’s obligations pursuant to the covenants of Sections 7
and 8, at least ten days prior to Executive taking any action inconsistent with
such covenants.
 
If the Executive's employment hereunder expires or is terminated, this Agreement
will continue in full force and effect as is necessary or appropriate to enforce
the covenants and agreements of the Executive in Sections 7 and 8.
 
9.3  REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
 
(a)  The Executive represents and warrants to the Employer that the execution
and delivery by the Executive of this Agreement do not, and the performance by
the Executive of the Executive's obligations hereunder will not, with or without
the giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
 
(b)  The Employer represents and warrants to the Executive that the execution
and delivery by the Employer of this Agreement do not, and the performance by
the Employer of the Employer's obligations hereunder will not, with or without
the giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Employer; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Employer is a party or by which the Employer is or may be
bound.
 
9.4  OBLIGATIONS CONTINGENT ON PERFORMANCE
 
The obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder, and vice versa.
 
9.5  WAIVER
 
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by either party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
 
9.6  BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
 
This Agreement shall inure to the benefit of, and shall be binding upon, the
parties hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
 
9.7  NOTICES
 
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
 
If to Employer:
 
XFone, Inc.
Xfone.USA, Inc.
Britannia House
2506 Lakeland Drive
960 High Road
Suite 100
London, N129RY
Jackson, MS 39232
United Kingdom
USA
Attention: Guy Nissenson
Attention: Wade Spooner
Telephone: +44 208-446-9494
Telephone: 601-420-6500
Facsimile: +44 208-446-7010
Facsimile: 509-271-7741
Email:  guy@xfone.com
 Email:  wspooner@expetel.com
   
with a copy to:
 
The Oberon Group, LLC
 
79 Madison Ave., 6th Floor
 
New York, NY 10016
 
Attention: Adam Breslawsky
 
Telephone: 212-386-7052
 
Facsimile: 212-447-7212
 
Email:  adam@oberongroup.com 
 
Watkins Ludlam Winter & Stennis, P.A.
 
633 North State Street (39202)
 
P. O. Box 427
 
Jackson, MS 39205-0427
 
Attention: Gina M. Jacobs
 
Telephone: 601-949-4705
 
Facsimile: 601-949-4804
 
Email:  gjacobs@watkinsludlam.com 
 
If to the Executive:
 
Hunter McAllister
 
211 E. Thomas Street
 
Hammond, Louisiana 70401
 
Telephone:  (H) 985-370-8904
 
(B) 985-345-1170
 
Facsimile:  985-345-0723
 
Email:  hunter@I-55.com
 
   
With a copy to:
 
David Kurtz
 
Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.
 
201 St. Charles Ave., Suite 3600
 
New Orleans, Louisiana 70170
 
Telephone: (504) 566-5259
 
Facsimile: (504) 636-3959
 
Email:  dkurtz@bakerdonelson.com
 
   

 
 
 
9.8  ENTIRE AGREEMENT; AMENDMENTS
 
This Agreement, the Merger Agreement, and the documents executed in connection
with the Merger Agreement, contain the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, between the parties hereto with respect to the
subject matter hereof. This Agreement may not be amended orally, but only by an
agreement in writing signed by the parties hereto.
 
9.9  GOVERNING LAW
 
This Agreement will be governed by the laws of the State of Louisiana without
regard to conflicts of laws principles.
 
9.10  JURISDICTION
 
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of Louisiana, or, if it has or can acquire
jurisdiction, in any of the United States District Courts in Louisiana, and each
of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on either party anywhere in the world.
 
9.11  SECTION HEADINGS, CONSTRUCTION
 
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement
unless otherwise specified. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
 
9.12  SEVERABILITY
 
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
 
9.13  COUNTERPARTS
 
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
 
9.14  WAIVER OF JURY TRIAL
 
THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO
THIS AGREEMENT.
 
9.15  IRREVOCABLE PROXY FROM EXECUTIVE
 
As a condition to the employment of the Executive, the Executive shall have
entered into an Irrevocable Proxy in form reasonably satisfactory to Parent in
which the Executive agrees to irrevocably appoint Guy Nissenson or such other
party designated by Parent as proxy to vote the Executive's Parent Common Stock
or any Parent Common Stock issued to or acquired hereafter by the Executive
whether from the exercise of any of the Parent Stock Warrants or any other stock
options or warrants granted hereafter or otherwise until such time as the
Executive sells such Parent Common Stock, subject to the condition that if at
any time, Guy Nissenson and Abraham Keinan together command less than 50% of the
voting rights of Parent, then such proxies shall automatically terminate.
 
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date above first written above.
 
EMPLOYER: EXECUTIVE:
 
XFone USA, Inc.
By:                                                                                                                                                        
    Wade Spooner, President/CEO             Hunter McAllister, Individually

EMPLOYER:
EXECUTIVE:
   
XFone USA, Inc.
     
By:       
                                               
                  Wade Spooner, President/CEO
Hunter McAllister, Individually

 

EXHIBIT “A”
Restricted Area
Lousiana

Acadia Parish, Allen Parish, Ascension Parish, Assumption Parish, Avoyelles
Parish, Beauregard Parish, Bienville Parish, Bossier Parish, Caddo Parish,
Calcasieu Parish, Caldwell Parish, Cameron Parish, Catahoula Parish, Claiborne
Parish, Concordia Parish, De Soto Parish, East Baton Rouge Parish, East Carroll
Parish, East Feliciana Parish, Evangeline Parish, Franklin Parish, Grant Parish,
Iberia Parish, Iberville Parish, Jackson Parish, Jefferson Parish, Jefferson
Davis Parish, La Salle Parish, Lafayette Parish, Lafourche Parish, Lincoln
Parish, Livingston Parish, Madison Parish, Morehouse Parish, Natchitoches
Parish, Orleans Parish, Ouachita Parish, Plaquemines Parish, Pointe Coupee
Parish, Rapides Parish, Red River Parish, Richland Parish, Sabine Parish, St.
Bernard Parish, St. Charles Parish, St. Helena Parish, St. James Parish, St.
John the Baptist Parish, St. Landry Parish, St. Martin Parish, St. Mary Parish,
St. Tammany Parish, Tangipahoa Parish, Tensas Parish, Terrebonne Parish, Union
Parish, Vermilion Parish, Vernon Parish, Washington Parish, Webster Parish, West
Baton Rouge Parish, West Carroll Parish, West Feliciana Parish, Winn Parish

Mississippi

Adams County, Alcorn County, Amite County, Attala County, Benton County, Bolivar
County, Calhoun County, Carroll County, Chickasaw County, Choctaw County,
Claiborne County, Clarke County, Clay County, Coahoma County, Copiah County,
Covington County, DeSoto County, Forrest County, Franklin County, George County,
Greene County, Grenada County, Hancock County, Harrison County, Hinds County,
Holmes County, Humphreys County, Issaquena County, Itawamba County, Jackson
County, Jasper County, Jefferson County, Jefferson Davis County, Jones County,
Kemper County, Lafayette County, Lamar County, Lauderdale County, Lawrence
County, Leake County, Lee County, Leflore County, Lincoln County, Lowndes
County, Madison County, Marion County, Marshall County, Monroe County,
Montgomery County, Neshoba County, Newton County, Noxubee County, Oktibbeha
County, Panola County, Pearl River County, Perry County, Pike County, Pontotoc
County, Prentiss County, Quitman County, Rankin County, Scott County, Sharkey
County, Simpson County, Smith County, Stone County, Sunflower County,
Tallahatchie County, Tate County, Tippah County, Tishomingo County, Tunica
County, Union County, Walthall County, Warren County, Washington County, Wayne
County, Webster County, Wilkinson County, Winston County, Yalobusha County,
Yazoo County

 
 

EXHIBIT "D"
Form of Acosta Employment Agreement

 
 

EMPLOYMENT AGREEMENT
 
This Employment Agreement (this "Agreement") is made as of ________________,
2005 by XFone USA, Inc., a Mississippi corporation (the "Employer"), and Brian
Acosta, an individual (the "Executive").
RECITALS
 
The Executive is currently the President and Chief Executive Officer and a
principal shareholder of I-55 Internet Services, Inc. (the "Company").
Concurrently with the execution and delivery of this Agreement, the Company is
being merged with and into the Employer pursuant to and in accordance with that
certain Agreement and Plan of Merger dated among the Company, the Employer,
XFone, Inc. (the "Parent") and the Executive and Hunter McAllister (the "Merger
Agreement"). The Executive's continued employment with the Employer after the
merger and the Employee's execution of this Agreement is a condition to the
consummation of the merger pursuant to the Merger Agreement by the Employer and
the Parent. The Employer agrees to employ the Executive, and the Executive
wishes to accept such continued employment, upon the terms and conditions set
forth in this Agreement.
 
AGREEMENT
 
The parties, intending to be legally bound, agree as follows:
 
10.  DEFINITIONS
 
For the purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1.
 
"Agreement"--this Employment Agreement, as amended from time to time.
 
"Basic Compensation"--Salary and Benefits.
 
"Benefits"--as defined in Section 3.1(b).
 
"Confidential Information" means any and all of the following with respect to
the Employer, its Parent, the Company as predecessor to the Employer or any of
their affiliates:
(a)  trade secrets concerning the business and affairs of the Employer, its
Parent, the Company as predecessor to the Employer or any of their affiliates,
product specifications, data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions and ideas,
past, current, and planned research and development, current and planned
manufacturing or distribution methods and processes, customer lists, current and
anticipated customer requirements, price lists, market studies, business plans,
computer software and programs (including object code and source code), computer
software and database technologies, systems, structures, and architectures (and
related formulae, compositions, processes, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and information, any
other confidential or proprietary information or data), and any other
information, however documented, that is a trade secret within the meaning of
any applicable federal or state laws; and
 
(b)  information concerning the business and affairs of the Employer, its
Parent, the Company as predecessor to the Employer or any of their affiliates
(which includes but is not limited to historical financial statements, financial
projections and budgets, historical and projected sales, capital spending
budgets and plans, the names and backgrounds of key personnel, personnel
training and techniques and materials, interconnect agreements, supply sources,
marketing, production or merchandising systems or plans), however documented;
and
 
(c)  notes, analysis, compilations, studies, summaries, and other material
prepared by or for the Employer, its Parent, the Company as predecessor to the
Employer or any of their affiliates containing or based, in whole or in part, on
any information included in the foregoing.
 
"Effective Date"--the date stated in the first paragraph of the Agreement.
 
"Executive Invention"--any idea, invention, technique, modification, process, or
improvement (whether patentable or not), any industrial design (whether
registerable or not), any mask work, however fixed or encoded, that is suitable
to be fixed, embedded or programmed in a semiconductor product (whether
recordable or not), and any work of authorship (whether or not copyright
protection may be obtained for it) created, conceived, or developed by the
Executive, either solely or in conjunction with others, during the Employment
Period with Employer or its predecessor, the Company, or a period that includes
a portion of the Employment Period, that relates in any way to, or is useful in
any manner in, the business then being conducted or proposed to be conducted by
the Employer, and any such item created by the Executive, either solely or in
conjunction with others, following termination of the Executive's employment
with the Employer, that is based upon or uses Confidential Information.
 
"Employment Period"--the term of the Executive's employment under this
Agreement, and as used herein the term "Employment Year" means each twelve month
period occurring during the employment period and "Employment Year 1" shall mean
the first twelve months of employment from the Effective Date and "Employment
Year 2" shall mean the 12 month period following Employment Year 1 and
"Employment Year 3" shall mean the 12 month period following Employment Year 2.
 
"For cause"--as defined in Section 6.2.
 
"For good reason"--as defined in Section 6.3.
 
"Parent Common Stock" shall mean shares of the common stock of Parent.
 
"Person"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, or governmental body.
 
"Post-Employment Period"--as defined in Section 8.2.
 
"Proprietary Items"--as defined in Section 7.2(a)(iv).
 
"Salary"--as defined in Section 3.1(a).
 
11.  EMPLOYMENT TERMS AND DUTIES
 
11.1  EMPLOYMENT
 
The Employer hereby employs the Executive, and the Executive hereby accepts
employment by the Employer, upon the terms and conditions set forth in this
Agreement.
 
11.2  TERM
 
Subject to the provisions of Section 6, the term of the Executive's employment
under this Agreement will be three years, beginning on the Effective Date and
ending on the third anniversary of the Effective Date.
 
11.3  DUTIES
 
The Executive will have such duties as are assigned or delegated to the
Executive by the President, and will initially serve as Vice President -
Information Systems and Technology, of Operations of the Employer. The Executive
will devote his entire business time, attention, skill, and energy exclusively
to the business of the Employer, will use his best efforts to promote the
success of the Employer's business, and will cooperate fully with the President
in the advancement of the best interests of the Employer. If the Executive is
elected as a director of the Employer or as a director or officer of any of its
affiliates, the Executive will fulfill his duties as such director or officer
without additional compensation. The Executive’s duties shall be commensurate
with his title. Executive shall report directly to the President of Employer.
 
12.  COMPENSATION
 
12.1  BASIC COMPENSATION
 
(a)  Salary. The Executive will be paid an annual salary of $132,000.00 for
Employment Year 1; $135,960.00 for Employment Year 2 and $140,039.00 for
Employment Year 3 (the "Salary"), which will be payable in equal periodic
installments according to the Employer's customary payroll practices, but no
less frequently than monthly, and shall be subject to all applicable withholding
and other applicable taxes as required by law.
 
(b)  Benefits. The Executive will, during the Employment Period, be permitted to
participate in such life insurance, hospitalization, major medical, and other
Executive benefit plans of the Employer that may be in effect from time to time,
to the extent the Executive is eligible under the terms of those plans
(collectively, the "Benefits"). The Executive shall be entitled to car and cell
phone allowances at least equal in value to those previously provided to
Executive by the Company.
 
12.2  INCENTIVE COMPENSATION
 
Currently the Company does not have an Executive Incentive Compensation Plan;
however, the Executive will participate in such plan when developed.

12.3  PARENT STOCK OPTION COMPENSATION
 
On the first business day of Employment Year 1, the Executive shall be granted
and issued options for 200,000 shares of restricted Parent Common Stock (25,000
of which shall be attributable to Employment Year 1, 50,000 of which shall be
attributable to Employment Year 2, and 125,000 of which shall be attributable to
Employment Year 3) (the "Options"). The Options shall vest as follows: Options
for 25,000 shares of restricted Parent Stock shall vest 3 years from the grant
date, options for 50,000 shares of restricted Parent Stock shall vest 4 years
from the grant date and options for 125,000 shares of restricted Parent Stock
shall vest 5 years from the grant date. The stock options shall provide for a
five (5) year term from the vesting date, a strike price that is 10% above the
closing price of the Parent Common Stock on the date of issue of the Options.
The parties agree that the terms “Options” and “Parent Stock Options” as used in
this Agreement include only those Options granted pursuant to this Agreement.
 
13.  FACILITIES AND EXPENSES
 
The Employer will furnish the Executive office space, equipment, supplies, and
such other facilities and personnel as the Employer deems necessary or
appropriate for the performance of the Executive's duties under this Agreement.
 
14.  VACATIONS AND HOLIDAYS
 
The Executive will be entitled to three weeks' paid vacation each Employment
Year in accordance with the vacation policies of the Employer in effect for its
executive officers from time to time. Vacation must be taken by the Executive at
such time or times as approved by the Chairman of the Board or President. The
Executive will also be entitled to the paid holidays set forth in the Employer's
policies. Up to five vacation days during any Employment Year that are not used
by the Executive during such Employment Year may be used in any subsequent
Employment Year.
 
15.  TERMINATION
 
15.1  EVENTS OF TERMINATION
 
The Employment Period, the Executive's Basic Compensation, Incentive
Compensation, any Parent Stock Options which have not vested, and Parent Stock
Warrants which have not vested and any and all other rights of the Executive
under this Agreement or otherwise as an Executive of the Employer will terminate
(except as otherwise provided in this Section 6):
 
(a)  upon the death of the Executive;
 
(b)  upon termination by Employer for cause (as defined in Section 6.2),
immediately upon notice from the Employer to the Executive, or at such later
time as such notice may specify; or
 
(c)  upon termination by Executive for good reason (as defined in Section 6.3)
upon not less than thirty days' prior notice from the Executive to the Employer.
 
(d)  upon termination of employment by Executive for any reason other than for
good reason (as defined in Section 6.3).
 
15.2  DEFINITION OF "FOR CAUSE"
 
For purposes of Section 6.1, the phrase "for cause" means: (a) the Executive's
breach of this Agreement which remains uncorrected for 30 days following notice
from the Employer; (b) the Executive's failure to adhere to any written Employer
policy if the Executive has been given a reasonable opportunity to comply with
such policy or cure his failure to comply (which reasonable opportunity must be
granted during the ten-day period preceding termination of this Agreement);
(c) the appropriation (or attempted appropriation) of a material business
opportunity of the Employer, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Employer; (d) the misappropriation (or attempted misappropriation) of any of the
Employer's funds or property; or (e) the conviction of, the indictment for (or
its procedural equivalent), or the entering of a guilty plea or plea of no
contest with respect to, a felony, the equivalent thereof, or any other crime
with respect to which imprisonment is a possible punishment.
 
15.3  DEFINITION OF "FOR GOOD REASON"
 
For purposes of Section 6.1, the phrase "for good reason" means any of the
following: (a) The Employer's material breach of this Agreement which is not
cured within 30 days from the date of notice from the Executive; (b) the
requirement by the Employer that the Executive be based anywhere other than in
the State of Louisiana without the Executive's consent; or (c) the Employer
alters Executive’s duties such that he is stripped of all authority over the
information systems of the Employer.
 
15.4  TERMINATION PAY
 
Effective upon the termination of this Agreement, the Employer will be obligated
to pay the Executive (or, in the event of his death, his designated beneficiary
as defined below) only such compensation as is provided in this Section 6.4, and
in lieu of all other amounts and in settlement and complete release of all
claims the Executive may have against the Employer arising from the employment
relationship. For purposes of this Section 6.4, the Executive's designated
beneficiary will be such individual beneficiary or trust, located at such
address, as the Executive may designate by notice to the Employer from time to
time or, if the Executive fails to give notice to the Employer of such a
beneficiary, the Executive's estate. Notwithstanding the preceding sentence, the
Employer will have no duty, in any circumstances, to attempt to open an estate
on behalf of the Executive, to determine whether any beneficiary designated by
the Executive is alive or to ascertain the address of any such beneficiary, to
determine the existence of any trust, to determine whether any person or entity
purporting to act as the Executive's personal representative (or the trustee of
a trust established by the Executive) is duly authorized to act in that
capacity, or to locate or attempt to locate any beneficiary, personal
representative, or trustee.
 
(a)  Termination by the Executive for Good Reason. If the Executive terminates
this Agreement for good reason, the Employer will pay the Executive the
Executive's Salary for the remainder of the term of this Agreement (the
"Remainder Term") as and when such salary would otherwise become due and
payable. The Executive shall not have the right to any Incentive Compensation as
provided in Section 3.2 for the Employment Year during which such termination
occurs or any subsequent Employment Year. The Executive shall have the right to
retain the options attributable as provided in Section 3.3 hereof for the
Employment Year during which such termination occurs and any prior year and such
options shall vest immediately, but the Executive shall not be entitled to
retain the options attributable to any Employment Year subsequent to the
Employment Year during which such termination occurred and such options shall
expire.
 
(b)  Termination by the Employer for Cause or Termination by Executive without
Good Reason. If the Employer terminates this Agreement for cause or the
Executive terminates his employment for any reason other than for good reason
(as defined in Section 6.3), the Executive will be entitled to receive his
Salary only through the date such termination is effective, and will not be
entitled to any Incentive Compensation, Parent Stock Options or Parent Stock
Warrants for the Employment Year during which such termination occurs or any
subsequent Employment Year and any Parent Stock Options granted to the Executive
pursuant to Section 3.3 that have not vested.
 
(c)  Termination upon Death. If this Agreement is terminated because of the
Executive's death, the Executive will be entitled to receive his Salary through
the end of the calendar month in which his death occurs, but will not be
entitled to receive any Incentive Compensation or Parent Stock Options pursuant
to Section 3.3 for the Employment Year during which his death occurs or any
subsequent Employment Year and any Parent Stock Options granted to the Executive
pursuant to Section 3.3 that have not vested shall be cancelled except that any
Parent Stock Options attributable to the Employment Year of Executive’s death or
any prior Employment Year shall be deemed to have vested immediately prior to
Executive’s death and may be exercised by Executive’s heirs on the same terms
and conditions that would have applied to Executive.
 
(d)  Benefits. The Executive's accrual of, or participation in plans providing
for, the Benefits will cease at the effective date of the termination of this
Agreement, and the Executive will be entitled to accrued Benefits pursuant to
such plans only as provided in such plans. The Executive will only receive, as
part of his termination pay pursuant to this Section 6, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date the notice of termination is given under this Agreement if the termination
is due to the death of Executive or termination by the Executive for Good Reason
per Section 6.3.
 
15.5  TERMINATION DAMAGES PAYABLE BY EXECUTIVE
 
The Executive and the Employer agree that it is impossible to determine with any
reasonable accuracy the amount of the prospective damages to the Employer if the
Executive's employment is terminated for any reason other than death or for good
reason (as defined in Section 6.3) by the Executive (such termination referred
to in this paragraph as "Executive Termination Without Cause"). In the event of
any Executive Termination Without Cause other than a Termination by the
Executive due to a disability that leaves him unable to work, the Executive
agrees to pay as liquidated damages to the Employer an amount equal as follows:
 
(a)  If the Executive Termination Without Cause occurs during Employment Year 1,
then the Executive shall immediately pay to the Employer an amount equal to
$225,000.00.
 
(b)  If the Executive Termination Without Cause occurs during Employment Year 2,
then the Executive shall immediately pay to the Employer an amount equal to
$150,000.00.
 
(c)  If the Executive Termination Without Cause occurs during Employment Year 3,
then the Executive shall immediately pay to the Employer an amount equal to
$75,000.000.
 
16.  NON-DISCLOSURE COVENANT; EXECUTIVE INVENTIONS; NON-COMPETE
 
16.1  ACKNOWLEDGMENTS BY THE EXECUTIVE
 
The Executive acknowledges that (a) during the Employment Period and his prior
employment period with the Employer's predecessor, the Company, and as a part of
his employment with the Employer and its predecessor, the Company, the Executive
was and will continue to be afforded access to Confidential Information;
(b) public disclosure of such Confidential Information could have an adverse
effect on the Employer and its business; (c) because the Executive possesses
substantial technical expertise and skill with respect to the Employer's
business, the Employer desires to obtain exclusive ownership of each Executive
Invention, and the Employer will be at a substantial competitive disadvantage if
it fails to acquire exclusive ownership of each Executive Invention; (d) the
Parent and Employer have each required that the Executive make the covenants in
this Section 7 as a condition to the merger pursuant to the Merger Agreement;
and (e) the provisions of this Section 7 are reasonable and necessary to prevent
the improper use or disclosure of Confidential Information and to provide the
Employer with exclusive ownership of all Executive Inventions.
 
16.2  AGREEMENTS OF THE EXECUTIVE
 
In consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer under this Agreement, the Executive covenants as
follows:
 
(a)  Confidentiality.
(i)  
During and following the Employment Period, the Executive will hold in
confidence the Confidential Information and will not disclose it to any person
except with the specific prior written consent of the Employer or except as
otherwise expressly permitted by the terms of this Agreement.

(ii)  
Any trade secrets of the Employer will be entitled to all of the protections and
benefits under any applicable federal or state trade secret law and any other
applicable law. If any information that the Employer deems to be a trade secret
is found by a court of competent jurisdiction not to be a trade secret for
purposes of this Agreement, such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement. The Executive hereby
waives any requirement that the Employer submits proof of the economic value of
any trade secret or posts a bond or other security.

(iii)  
None of the foregoing obligations and restrictions applies to any part of the
Confidential Information that the Executive demonstrates was or became generally
available to the public other than as a result of a disclosure by the Executive.

(iv)  
The Executive will not remove from the Employer's premises (except to the extent
such removal is for purposes of the performance of the Executive's duties at
home or while traveling, or except as otherwise specifically authorized by the
Employer) any document, record, notebook, plan, model, component, device, or
computer software or code, whether embodied in a disk or in any other form
(collectively, the "Proprietary Items"). The Executive recognizes that, as
between the Employer and the Executive, all of the Proprietary Items, whether or
not developed by the Executive, are the exclusive property of the Employer. Upon
termination of this Agreement by either party, or upon the request of the
Employer during the Employment Period, the Executive will return to the Employer
all of the Proprietary Items in the Executive's possession or subject to the
Executive's control, and the Executive shall not retain any copies, abstracts,
sketches, or other physical embodiment of any of the Proprietary Items.

 
(b)  Executive Inventions. Each Executive Invention will belong exclusively to
the Employer. The Executive acknowledges that all of the Executive's writing,
works of authorship, and other Executive Inventions are works made for hire and
the property of the Employer, including any copyrights, patents, or other
intellectual property rights pertaining thereto. If it is determined that any
such works are not works made for hire, the Executive hereby assigns to the
Employer all of the Executive's right, title, and interest, including all rights
of copyright, patent, and other intellectual property rights, to or in such
Executive Inventions. The Executive covenants that he will promptly:
 
(i)  
disclose to the Employer in writing any Executive Invention;

(ii)  
assign to the Employer or to a party designated by the Employer, at the
Employer's request and without additional compensation, all of the Executive's
right to the Executive Invention for the United States and all foreign
jurisdictions;

(iii)  
execute and deliver to the Employer such applications, assignments, and other
documents as the Employer may request in order to apply for and obtain patents
or other registrations with respect to any Executive Invention in the United
States and any foreign jurisdictions;

(iv)  
sign all other papers necessary to carry out the above obligations; and

(v)  
give testimony and render any other assistance in support of the Employer's
rights to any Executive Invention.

 
16.3  DISPUTES OR CONTROVERSIES
 
The Executive recognizes that should a dispute or controversy arising from or
relating to this Agreement be submitted for adjudication to any court,
arbitration panel, or other third party, the preservation of the secrecy of
Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive, and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
 
17.  NON-COMPETITION AND NON-INTERFERENCE
 
17.1  ACKNOWLEDGMENTS BY THE EXECUTIVE
 
The Executive acknowledges that: (a) the services to be performed by him under
this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the Employer's business is currently regional in
scope and its products are marketed or may be marketed throughout the parishes
and counties indicated on Exhibit “A” hereto (the "Restricted Area"); (c) the
Employer competes with other businesses that are or could be located in any part
of the Restricted Area; (d) the Parent and Employer have each required that the
Executive make the covenants set forth in this Section 8 as a condition to the
merger under the Merger Agreement; and (e) the provisions of this Section 8 are
reasonable and necessary to protect the Employer's business.
 
17.2  COVENANTS OF THE EXECUTIVE
 
In consideration of the acknowledgments by the Executive, and in consideration
of the compensation and benefits to be paid or provided to the Executive by the
Employer, the Executive covenants that he will not, directly or indirectly:
 
(a)  during the Employment Period, except in the course of his employment
hereunder, and during the Post-Employment Period, directly or indirectly, either
for himself or for any partnership, limited liability company, individual,
corporation, joint venture or any other entity or person "participate in" (as
defined below) any business (including, without limitation, any division, group
or franchise of a larger organization) which engages in the "Internet Services
and Telecommunications Business" in the Restricted Area. For purposes of this
Agreement, "Internet Services and Telecommunications Business" shall mean the
business of providing any type of telecommunication services or internet access
services to any person or customer within the Restricted Area, including,
without limitation, local, long distance, broadband, dial up data services,
wireless, DSL, Voice-over-Internet Protocol (VoIP) and any other service or
product being offered or provided by the Employer or the Parent or any of their
respective affiliates. For purposes of this Agreement, the term "participate in"
shall include, without limitation, having any direct or indirect interest in any
corporation, partnership, limited liability company, joint venture or other
entity, whether as a sole proprietor, owner, shareholder, partner, member,
manager, joint venturer, creditor or otherwise, or rendering any direct or
indirect service or assistance to any individual corporation, partnership,
limited liability company, joint venture and other business entity (whether as a
director, officer, manager, supervisor, Executive, agent, consultant or
otherwise). Notwithstanding the foregoing, nothing in this Section 8.2(a) shall
prohibit Executive from owning not more than five percent (5%) of the debt or
equity securities of a publicly traded corporation which may compete with the
Employer or the Parent.
 
(b)  whether for the Executive's own account or for the account of any other
person, at any time during the Employment Period and the Post-Employment Period,
solicit business of the same or similar type being carried on by the Employer or
its Parent or any of their affiliates, from any person known by the Executive to
be a customer of the Employer or its Parent or any of their affiliates, whether
or not the Executive had personal contact with such person during and by reason
of the Executive's employment with the Employer;
 
(c)  whether for the Executive's own account or the account of any other person
(i) at any time during the Employment Period and the Post-Employment Period,
solicit, employ, or otherwise engage as an Executive, independent contractor, or
otherwise, any person who is or was an Executive of the Employer at any time
during the Employment Period or in the period of employment with the Employer's
predecessor or in any manner induce or attempt to induce any Executive of the
Employer to terminate his employment with the Employer; or (ii) at any time
during the Employment Period and for the Post-Employment Period, interfere with
the Employer's relationship with any person, including any person who at any
time during the Employment Period or the period of employment with the
Employer's predecessor was an Executive, contractor, supplier, or customer of
the Employer or its predecessor; or
 
(d)  at any time during or after the Employment Period, disparage the Employer
or its Parent or any of their affiliates or any of their respective
shareholders, directors, officers, Executives, or agents.
 
For purposes of this Section 8.2, the term "Post-Employment Period" means the
two (2) year period beginning on the date of termination of the Executive's
employment with the Employer.
 
If any covenant in this Section 8.2 is held to be unreasonable, arbitrary, or
against public policy, such covenant will be considered to be divisible with
respect to scope, time, and geographic area, and such lesser scope, time, or
geographic area, or all of them, as a court of competent jurisdiction may
determine to be reasonable, not arbitrary, and not against public policy, will
be effective, binding, and enforceable against the Executive.
 
(e)  If at any time during the Employment Period and the Post-Employment Period,
Executive desires to participate in an activity that he believes might be
prohibited by this Section 8.2, such person may request in writing (a
"Clarification Request") a determination by Employer as to whether such proposed
activity would violate this Section 8.2. Employer shall respond in writing to
such Clarification Request (a "Clarification Response") within thirty (30) days
of receipt thereof.
 
18.  GENERAL PROVISIONS
 
18.1  INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
 
The Executive acknowledges that the injury that would be suffered by the
Employer as a result of a breach of the provisions of this Agreement (including
any provision of Sections 7 and 8) would be irreparable and that an award of
monetary damages to the Employer for such a breach would be an inadequate
remedy. Consequently, the Employer will have the right, in addition to any other
rights it may have, to obtain injunctive relief to restrain any breach or
threatened breach or otherwise to specifically enforce any provision of this
Agreement, and the Employer will not be obligated to post bond or other security
in seeking such relief. Without limiting the Employer's rights under this
Section 9 or any other remedies of the Employer, if the Executive breaches any
of the provisions of Section 7 or 8, the Employer will have the right to cease
making any payments otherwise due to the Executive under this Agreement.
 
18.2  COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT COVENANTS
 
The covenants by the Executive in Sections 7 and 8 are essential elements of
this Agreement, and without the Executive's agreement to comply with such
covenants, the Parent and Employer would not have consummated the merger under
the Merger Agreement and the Employer would not have entered into this Agreement
or employed or continued the employment of the Executive. The Employer and the
Executive have independently consulted their respective counsel and have been
advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Employer. Executive agrees to notify Employer if Executive believes that
Employer or Parent have breached this Agreement in such a manner as to excuse
Executive from Executive’s obligations pursuant to the covenants of Sections 7
and 8, at least ten days prior to Executive taking any action inconsistent with
such covenants.
 
If the Executive's employment hereunder expires or is terminated, this Agreement
will continue in full force and effect as is necessary or appropriate to enforce
the covenants and agreements of the Executive in Sections 7 and 8.
 
18.3  REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
 
(a)  The Executive represents and warrants to the Employer that the execution
and delivery by the Executive of this Agreement do not, and the performance by
the Executive of the Executive's obligations hereunder will not, with or without
the giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Executive; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Executive is a party or by which the Executive is or may
be bound.
 
(b)  The Employer represents and warrants to the Executive that the execution
and delivery by the Employer of this Agreement do not, and the performance by
the Employer of the Employer's obligations hereunder will not, with or without
the giving of notice or the passage of time, or both: (a) violate any judgment,
writ, injunction, or order of any court, arbitrator, or governmental agency
applicable to the Employer; or (b) conflict with, result in the breach of any
provisions of or the termination of, or constitute a default under, any
agreement to which the Employer is a party or by which the Employer is or may be
bound.
 
18.4  OBLIGATIONS CONTINGENT ON PERFORMANCE
 
The obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder, and vice versa.
 
18.5  WAIVER
 
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by either party in exercising any
right, power, or privilege under this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement can be discharged by one party, in whole or in part, by a
waiver or renunciation of the claim or right unless in writing signed by the
other party; (b) no waiver that may be given by a party will be applicable
except in the specific instance for which it is given; and (c) no notice to or
demand on one party will be deemed to be a waiver of any obligation of such
party or of the right of the party giving such notice or demand to take further
action without notice or demand as provided in this Agreement.
 
18.6  BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
 
This Agreement shall inure to the benefit of, and shall be binding upon, the
parties hereto and their respective successors, assigns, heirs, and legal
representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
 
18.7  NOTICES
 
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by facsimile (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
 
If to Employer:
 
XFone, Inc.
Xfone.USA, Inc.
Britannia House
2506 Lakeland Drive
960 High Road
Suite 100
London, N129RY
Jackson, MS 39232
United Kingdom
USA
Attention: Guy Nissenson
Attention: Wade Spooner
Telephone: +44 208-446-9494
Telephone: 601-420-6500
Facsimile: +44 208-446-7010
Facsimile: 509-271-7741
Email:  guy@xfone.com
 Email:  wspooner@expetel.com
   
with a copy to:
 
The Oberon Group, LLC
 
79 Madison Ave., 6th Floor
 
New York, NY 10016
 
Attention: Adam Breslawsky
 
Telephone: 212-386-7052
 
Facsimile: 212-447-7212
 
Email:  adam@oberongroup.com 
 
Watkins Ludlam Winter & Stennis, P.A.
 
633 North State Street (39202)
 
P. O. Box 427
 
Jackson, MS 39205-0427
 
Attention: Gina M. Jacobs
 
Telephone: 601-949-4705
 
Facsimile: 601-949-4804
 
Email:  gjacobs@watkinsludlam.com 
 
If to the Executive:
 
Brian Acosta
 
211 E. Thomas Street
 
Hammond, Louisiana 70401
 
Telephone:  (H) 985-370-8904
 
(B) 985-345-1170
 
Facsimile:  985-345-0723
 
Email:  hunter@I-55.com
 
   
With a copy to:
 
David Kurtz
 
Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.
 
201 St. Charles Ave., Suite 3600
 
New Orleans, Louisiana 70170
 
Telephone: (504) 566-5259
 
Facsimile: (504) 636-3959
 
Email:  dkurtz@bakerdonelson.com

 
 

18.8  ENTIRE AGREEMENT; AMENDMENTS
 
This Agreement, the Merger Agreement, and the documents executed in connection
with the Merger Agreement, contain the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, between the parties hereto with respect to the
subject matter hereof. This Agreement may not be amended orally, but only by an
agreement in writing signed by the parties hereto.
 
18.9  GOVERNING LAW
 
This Agreement will be governed by the laws of the State of Louisiana without
regard to conflicts of laws principles.
 
18.10  JURISDICTION
 
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of Louisiana, or, if it has or can acquire
jurisdiction, in any of the United States District Courts in Louisiana, and each
of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on either party anywhere in the world.
 
18.11  SECTION HEADINGS, CONSTRUCTION
 
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement
unless otherwise specified. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
 
18.12  SEVERABILITY
 
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
 
18.13  COUNTERPARTS
 
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
 
18.14  WAIVER OF JURY TRIAL
 
THE PARTIES HERETO HEREBY WAIVE A JURY TRIAL IN ANY LITIGATION WITH RESPECT TO
THIS AGREEMENT.
 
18.15  IRREVOCABLE PROXY FROM EXECUTIVE
 
As a condition to the employment of the Executive, the Executive shall have
entered into an Irrevocable Proxy in form reasonably satisfactory to Parent in
which the Executive agrees to irrevocably appoint Guy Nissenson or such other
party designated by Parent as proxy to vote the Executive's Parent Common Stock
or any Parent Common Stock issued to or acquired hereafter by the Executive
whether from the exercise of any of the Parent Stock Warrants or any other stock
options or warrants granted hereafter or otherwise until such time as the
Executive sells such Parent Common Stock, subject to the condition that if at
any time, Guy Nissenson and Abraham Keinan together command less than 50% of the
voting rights of Parent, then such proxies shall automatically terminate.
 
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date above first written above.
 
EMPLOYER: EXECUTIVE:
 
XFone USA, Inc.
 
By:                                                                                                                        
    Wade Spooner, President/CEO     Brian Acosta, Individually

 
 

EXHIBIT “A”
Restricted Area
Louisiana

Acadia Parish, Allen Parish, Ascension Parish, Assumption Parish, Avoyelles
Parish, Beauregard Parish, Bienville Parish, Bossier Parish, Caddo Parish,
Calcasieu Parish, Caldwell Parish, Cameron Parish, Catahoula Parish, Claiborne
Parish, Concordia Parish, De Soto Parish, East Baton Rouge Parish, East Carroll
Parish, East Feliciana Parish, Evangeline Parish, Franklin Parish, Grant Parish,
Iberia Parish, Iberville Parish, Jackson Parish, Jefferson Parish, Jefferson
Davis Parish, La Salle Parish, Lafayette Parish, Lafourche Parish, Lincoln
Parish, Livingston Parish, Madison Parish, Morehouse Parish, Natchitoches
Parish, Orleans Parish, Ouachita Parish, Plaquemines Parish, Pointe Coupee
Parish, Rapides Parish, Red River Parish, Richland Parish, Sabine Parish, St.
Bernard Parish, St. Charles Parish, St. Helena Parish, St. James Parish, St.
John the Baptist Parish, St. Landry Parish, St. Martin Parish, St. Mary Parish,
St. Tammany Parish, Tangipahoa Parish, Tensas Parish, Terrebonne Parish, Union
Parish, Vermilion Parish, Vernon Parish, Washington Parish, Webster Parish, West
Baton Rouge Parish, West Carroll Parish, West Feliciana Parish, Winn Parish

Mississippi

Adams County, Alcorn County, Amite County, Attala County, Benton County, Bolivar
County, Calhoun County, Carroll County, Chickasaw County, Choctaw County,
Claiborne County, Clarke County, Clay County, Coahoma County, Copiah County,
Covington County, DeSoto County, Forrest County, Franklin County, George County,
Greene County, Grenada County, Hancock County, Harrison County, Hinds County,
Holmes County, Humphreys County, Issaquena County, Itawamba County, Jackson
County, Jasper County, Jefferson County, Jefferson Davis County, Jones County,
Kemper County, Lafayette County, Lamar County, Lauderdale County, Lawrence
County, Leake County, Lee County, Leflore County, Lincoln County, Lowndes
County, Madison County, Marion County, Marshall County, Monroe County,
Montgomery County, Neshoba County, Newton County, Noxubee County, Oktibbeha
County, Panola County, Pearl River County, Perry County, Pike County, Pontotoc
County, Prentiss County, Quitman County, Rankin County, Scott County, Sharkey
County, Simpson County, Smith County, Stone County, Sunflower County,
Tallahatchie County, Tate County, Tippah County, Tishomingo County, Tunica
County, Union County, Walthall County, Warren County, Washington County, Wayne
County, Webster County, Wilkinson County, Winston County, Yalobusha County,
Yazoo County

 
 

EXHIBIT "E"
Form of Release
 
 

RELEASE
This Release (this "Release") is entered into by the undersigned officers and
directors of the Company (as defined herein) (the "Officers and Directors"),
effective as of the _____ day of _______________, 2005 in connection with the
Transaction contemplated by the terms and provisions of that certain Agreement
and Plan of Merger dated August ___, 2005 (the "Merger Agreement") I-55 Internet
Services, Inc., a Louisiana corporation (the "Company"), XFone, Inc., a Nevada
corporation (the "Parent"), XFone USA, Inc., a Mississippi corporation (the
"Subsidiary") and Hunter McAllister and Brian Acosta.
 
WHEREAS, execution of this Release by each of the Officers and Directors of the
Company is a condition precedent to the Closing of the Merger contemplated by
the Agreement and Plan of Merger and as such is a material inducement to the
Parent and the Subsidiary in order for them to enter into the Merger; and
 
WHEREAS, the Parent and the Subsidiary would not have closed the Merger without
the execution of this Release by each and everyone of the undersigned Officers
and Directors; and
 
WHEREAS, each Officer and Director has agreed to execute this Release.
 
NOW, THEREFORE, as additional consideration for the Merger and the covenants,
representations, agreements and undertakings contained herein and other good and
valuable consideration, the receipt and sufficiency of all of which is hereby
acknowledged and intending to be legally bound, the undersigned parties do
hereby severally agree as follows:
 
20.  Recitals. Each of the above referenced recitals is true and correct and
incorporated into this Release by this reference.
 
21.  Merger Agreement. Each of the undersigned hereby acknowledges receipt of a
copy of the Merger Agreement and any amendments thereto. In the event of a
conflict between the terms of this Release and the terms of the Merger
Agreement, the terms and provisions of this Release shall govern. All
capitalized terms which are not otherwise defined in this Release shall have the
respective meaning ascribed to such terms in the Merger Agreement.
 
22.  Release by Each Officer and Director. Each Officer and Director hereby
severally releases and forever discharges the Company, and each of its
respective officers, directors, partners, shareholders, members, employees and
all of their successors and assigns (collectively, " Releasees") of and from any
and all claims, causes or rights of action, demands and damages of every kind
and nature which such Officer or Director may now have, whether known or
unknown, anticipated or unanticipated and whether accrued or hereafter to
accrue, against Releasees, caused by or arising out of or in any way related to
the following: (i) the business, affairs, actions or omissions of the Company
and/or the Officers or Directors or any other employee or independent contractor
of the Company through the date of Closing under the Merger Agreement; (ii) such
Officer's or Director's direct or beneficial ownership or interests in the
Company, if any; (iii) such Officer's or Director's status as an Officer or
Director or shareholder of the Company; (iv) any action or omission by any of
the Officers or Directors of the Company, or any other employees or independent
contractors of the Company through the date of Closing under the Merger
Agreement; (v) any claims of such Officer or Director arising out of or relating
in any manner to any prior business relationship or service of or with respect
to the Company through the date of Closing under the Merger Agreement, and (vi)
any and all agreements, events or occurrences by, between or among any Officer
or Director and/or the Company prior to Closing or relating in any manner to
this Merger, including, without limitation, any tax analysis with respect to the
transactions contemplated by the Merger Agreement.
 
23.  Compromise. Each Officer and Director agrees that this settlement is a
compromise of doubtful and disputed claims through the date of Closing under the
Merger Agreement, and that the agreement to pay the consideration recited herein
is not to be construed as an admission of any liability whatsoever by Releasees
and that Releasees expressly deny any such liability.
 
24.  Scope of Release. Each Officer and Director agrees that the consideration
for this release was paid to secure full, complete, and final discharge of
Releasees from any and all claims, demands, actions, or causes of action that
any of the undersigned Officers or Directors of the Company may have against the
Releasees as of the date hereof with respect to matters hereby released as set
forth in paragraph 3 hereof, and each of the Officers or Directors of the
Company hereby agree that such claims, demands, actions, or causes of action are
wholly and forever satisfied and extinguished.
 
25.  Covenant Not to Sue. Each Officer and Director will forever refrain and
desist from instituting, prosecuting, or asserting against Releasees, or any of
them, any further claim, demand, action, cause of action or suit of any kind or
nature, either directly or indirectly, on account of matters hereby releases as
set forth in paragraph 3 hereof.
 
26.  No Prior Assignment. Each Officer and Director specifically acknowledges,
covenants, represents and warrants that there has been no assignment of any
right or claim released hereby and that each Officer and Director will,
severally, as with respect to actions by any such Officer and Director defend
and hold harmless Releasees with respect to any matters hereby released.
 
27.  Authority. Each Officer and Director represents and warrants that each are
fully competent and authorized to execute this Release, and that upon execution
this Release will be valid and binding upon each of them. Each Officer and
Director represents and warrants that the undersigned constitute all of the
Directors and Officers of the Company. Releasees represent and warrant that they
are fully competent and authorized to execute this Release, and that upon
execution this Release will be valid and binding upon each of them.
 
28.  Acknowledgment. Each Officer and Director represents and warrants that the
terms of this Release have been read, voluntarily accepted, understood by each
such Officer and Director or explained to each such Officer and Director by its
attorney(s), and agreed to and approved by its attorney(s). Each Officer and
Director further represents and warrants that it has relied upon its own
judgment, knowledge and belief as to the nature and extent of any damages which
may have been suffered or sustained, or may be sustained in the future, with
regard to the items released hereby under paragraph 3 hereof.
 
29.  Entire Agreement. This Release constitutes the entire agreement between the
parties with respect to the releases contemplated hereby. All prior to or
contemporaneous agreements, understandings, representations, warranties and
statements, oral or written are hereby superceded. Any alterations or additions
shall be effective only if reduced to writing, dated and signed by the party
against whom the enforcement thereof is or may be sought.
 
30.  Waiver. No waiver of a breach of any of the terms, covenants or conditions
of this Release by any party shall be construed or held to be a waiver of any
succeeding or preceding breach of the same or any other term, covenant or
condition herein contained. No waiver of any default by any party hereunder
shall be implied from any omissions by either party to take any action on
account of such default. If such default persists or is repeated, and no express
waiver shall affect a default other than as specified in such waiver.
 
31.  Severability. If any term, provision, covenant or condition of this Release
is held to be invalid, void or otherwise unenforceable to any extent by any
court of competent jurisdiction, the remainder of this Release shall not be
affected thereby, and each term, provision, covenant or condition of this
Release shall be valid and enforceable to the fullest extent permitted by law.
 
32.  Successors. Subject to the restriction on assignment provided herein, all
terms of this Release shall be binding upon, inure to the benefit of, and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
 
33.  Assignment. No party hereto shall assign their respective rights,
obligations or interest under this Release in any manner.
 
34.  Headings. The captions and paragraph headings used in this Release are
inserted for convenience of reference only and are not intended to define, limit
or affect the interpretation or construction of any term or provision hereof.
 
35.  Counterparts. This Release may be executed in multiple copies, each of
which shall be deemed an original, but all of which shall constitute one
Agreement binding on all parties.
 
36.  Facsimile Signatures. In order to expedite the Merger contemplated herein,
telecopied signatures may be used in place of original signatures on this
Release. All parties hereto intend to be bound by the signatures on the
telecopied document, are aware that other parties will rely on the telecopied
signatures, and hereby waive any and all defenses to the enforcement of the
terms of this Release based on the form of signature.
 
37.  Governing Law. This Release shall be governed, construed and enforced in
accordance with the laws of the State of Louisiana.
 
38.  Effective Date. The terms and provisions of this Release shall be effective
upon Closing of the Transaction contemplated by the Merger Agreement.
 
IN WITNESS WHEREOF, each Officer and Director set forth below has executed this
Release as of the Effective Date.
 
DIRECTORS:
OFFICERS:
                                                                               
Hunter McAllister
Hunter McAllister, President and CEO

                                                                                
Brian Acosta, Chairman
 
Brian Acosta, CTO
                                                                                
Wayne Cooper
Wayne Cooper, COO

                                                                              
Terry Cooper
Terry Cooper, Secretary
                                                                              
Brian Harper
Chad Nethercutt, CFO
                                     Robert Miller  
                                     Randy Tricou  
                                     Kelly Morse  
                                     Chad Soileau  

 
 
 
 
 

EXHIBIT "F"
Restricted Area
Louisiana

Acadia Parish, Allen Parish, Ascension Parish, Assumption Parish, Avoyelles
Parish, Beauregard Parish, Bienville Parish, Bossier Parish, Caddo Parish,
Calcasieu Parish, Caldwell Parish, Cameron Parish, Catahoula Parish, Claiborne
Parish, Concordia Parish, De Soto Parish, East Baton Rouge Parish, East Carroll
Parish, East Feliciana Parish, Evangeline Parish, Franklin Parish, Grant Parish,
Iberia Parish, Iberville Parish, Jackson Parish, Jefferson Parish, Jefferson
Davis Parish, La Salle Parish, Lafayette Parish, Lafourche Parish, Lincoln
Parish, Livingston Parish, Madison Parish, Morehouse Parish, Natchitoches
Parish, Orleans Parish, Ouachita Parish, Plaquemines Parish, Pointe Coupee
Parish, Rapides Parish, Red River Parish, Richland Parish, Sabine Parish, St.
Bernard Parish, St. Charles Parish, St. Helena Parish, St. James Parish, St.
John the Baptist Parish, St. Landry Parish, St. Martin Parish, St. Mary Parish,
St. Tammany Parish, Tangipahoa Parish, Tensas Parish, Terrebonne Parish, Union
Parish, Vermilion Parish, Vernon Parish, Washington Parish, Webster Parish, West
Baton Rouge Parish, West Carroll Parish, West Feliciana Parish, Winn Parish

Mississippi

Adams County, Alcorn County, Amite County, Attala County, Benton County, Bolivar
County, Calhoun County, Carroll County, Chickasaw County, Choctaw County,
Claiborne County, Clarke County, Clay County, Coahoma County, Copiah County,
Covington County, DeSoto County, Forrest County, Franklin County, George County,
Greene County, Grenada County, Hancock County, Harrison County, Hinds County,
Holmes County, Humphreys County, Issaquena County, Itawamba County, Jackson
County, Jasper County, Jefferson County, Jefferson Davis County, Jones County,
Kemper County, Lafayette County, Lamar County, Lauderdale County, Lawrence
County, Leake County, Lee County, Leflore County, Lincoln County, Lowndes
County, Madison County, Marion County, Marshall County, Monroe County,
Montgomery County, Neshoba County, Newton County, Noxubee County, Oktibbeha
County, Panola County, Pearl River County, Perry County, Pike County, Pontotoc
County, Prentiss County, Quitman County, Rankin County, Scott County, Sharkey
County, Simpson County, Smith County, Stone County, Sunflower County,
Tallahatchie County, Tate County, Tippah County, Tishomingo County, Tunica
County, Union County, Walthall County, Warren County, Washington County, Wayne
County, Webster County, Wilkinson County, Winston County, Yalobusha County,
Yazoo County