AGREEMENT AND PLAN OF MERGER
By and Among
I-55 TELECOMMUNICATIONS, L.L.C.,
XFONE, INC. AND XFONE USA, INC.
Dated August 26, 2005

ARTICLE I
THE MERGER
2
1.01
The Merger; Effective Time
2
1.02
Effect of the Merger
2
1.03
Consideration; Conversion of Shares
2
1.04
No Dissenters Rights
4
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
5
1.10
Taking of Necessary Action; Further Action
5
1.11
Tax Consequences
5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPALS
6
2.01
Organization
6
2.02
Subsidiaries
6
2.03
Capital Structure
6
2.04
Authority
7
2.05
No Conflict
7
2.06
Consents
7
2.07
The Company Financial Statements
8
2.08
No Undisclosed Liabilities
8
2.09
No Changes
8
2.10
Tax Matters
10
2.11
Restrictions on Business Activities
11
2.12
Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment
11
2.13
Material or Significant Agreements, Contracts and Commitments
12
2.14
Interested Party Transactions
14
2.15
Governmental Authorization
14
2.16
Litigation
15
2.17
Accounts Receivable
15
2.18
Assets Necessary to Business
15
2.19
Minute Books
15
2.20
Environmental Matters
15
2.21
Brokers' and Finders' Fees
16
2.22
Employee Benefit Plans and Compensation
16
2.23
Compliance with Laws; Relations with Governmental Entities
20
2.24
Merger Tax Matters
20
2.25
Intellectual Property
20
2.26
Customer Contracts
20
2.27
Relationships with Suppliers
21
2.28
Investment Representation; Legends
21
2.29
Stockholder Matters
22
2.30
Banking and Insurance
22
2.31
Representations Complete
22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
23
3.01
Organization and Standing
23
3.02
Authorization
23
3.03
Binding Obligation
24
3.04
Issuance of Parent Common Stock and Parent Stock Warrants
24
3.05
Litigation
24
3.06
Securities and Exchange Commission Filings
24
ARTICLE IV
COVENANTS OF PARTIES PRIOR TO THE EFFECTIVE TIME
25
4.01
[Intentionally omitted]
25
4.02
Restrictions on Transfer; Legends
25
4.03
Access to Information
25
4.04
Public Disclosure
26
4.05
Conduct Business in Ordinary Course
26
4.06
Consents and Approvals
27
4.07
Financial Statements
27
4.08
Notification of Certain Matters
27
4.09
Additional Documents and Further Assurances
28
4.10
Federal and State Securities Exemptions
28
4.11
Shareholder List
28
4.12
Non-Competition and Non-Solicitation
28
4.13
Approval of Shareholders
29
4.14
No Shop
29
ARTICLE V
CONDITIONS TO THE MERGER
30
5.01
Conditions to Obligations of Each Party to Effect the Merger
30
5.02
Conditions to the Obligations of Parent and Subsidiary
31
5.03
Conditions to Obligations of the Company and the Principals
33
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION; POST-CLOSING
COVENANTS
35
6.01
Survival of Representations, Warranties and Covenants
35
6.02
Indemnification by the Principals; Escrow Fund
36
6.03
Indemnification Procedures
38
6.04
No Contribution
39
6.05
Benefit Plans
39
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
40
7.01
Termination
40
7.02
Effect of Termination
40
7.03
Expenses; Termination Fees.
40
7.04
Amendment
41
7.05
Extension; Waiver
41
ARTICLE VIII
GENERAL PROVISIONS
42
8.01
Notices
42
8.02
Interpretation
43
8.03
Counterparts
43
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
8.10
Attorneys' Fees
44
8.11
Shareholder's Post Closing Sale Restrictions
45

Exhibits
 
Exhibit A
Articles of Merger
Exhibit B
Escrow Agreement
Exhibit C
Management Agreement
Exhibit D
Release
Exhibit E
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 2.30
Banking and Insurance
Schedule 5.02(b)
 

 

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AGREEMENT AND PLAN OF MERGER
 
This AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of August 26, 2005 by
and among I-55 TELECOMMUNICATIONS, L.L.C., a limited liability company organized
under the laws of the State of Louisiana (â€œI-55â€ or the â€œCompanyâ€),
XFONE, INC., a corporation organized under the laws of the State of Nevada
("Parent"), XFone USA, Inc. (â€œSubsidiaryâ€), a corporation organized under
the laws of the State of Mississippi, a wholly owned subsidiary of Parent , and
Randall Wade James Tricou (the "Principal").
 
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 the Principal, 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, Parent, the
Subsidiary, the Escrow Agent (as defined herein) and the Principal are entering
into an Escrow Agreement, in the form attached as Exhibit B (the "Escrow
Agreement").
 
NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth in this Agreement, the parties agree as follows:
 

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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. The
"Management Date" shall mean a date prior to the Closing Date that the Company
and the Subsidiary enter into a Management Operating Agreement; provided,
however, if the Company and Subsidiary fail to enter into a Management Operating
Agreement, the Management Date shall be the Closing Date.
 
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 $333,333.00
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 Management 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 $166,667.00 with the value calculated as of the Management Date
assuming 90% volatility of the underlying Parent Common Stock pursuant to the
Black Scholes option - pricing model.
 
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(ii) "Company Common Stock" shall mean shares of the Company's common stock. The
terms â€œstockâ€ and â€œcommon stockâ€ shall be construed to include any
ownership interest in the Company.
 
(iii) "Company Stockholders" or "Company Shareholders" shall mean the holders of
the Total Company Common Stock at the Effective Time. â€œStockholdersâ€ and
â€œshareholdersâ€ includes any owners of any interest in the Company.
 
(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 Subsidiaryâ€™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.
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1.04 No Dissenters Rights. Since the sole shareholder by execution of this
Agreement has approved this Agreement and the Merger and transactions
contemplated hereby, the Company and Principal represent and warrant that there
are no dissenterâ€™s rights available under the Limited Liability Company Law of
Louisiana or otherwise.
 
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.
 
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(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 Management 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.
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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 Organization. The Company is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Louisiana
and the Company has filed its only tax return in a manner consistent with
taxation as a corporation. 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 Organization of the Company and the
operating agreement 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/members (herein
â€œShareholdersâ€ or â€œMembersâ€) and their Boards of Managers (herein
â€œBoard of Directorsâ€) (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 shares of
Company Common Stock, 100 shares of which are issued and outstanding to the
Principal. Except as set forth in this Section 2.03 or 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 in this Section 2.03
or 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 Organization or Operating Agreement 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, there are no options, warrants or similar rights
outstanding or authorized with respect to the capital stock or equity of the
Company. 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. The Principal has 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.
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(c) The requisite vote required to approve the Merger under Louisiana law, the
Company's Articles of Organization, Operating Agreement and any other agreement
to which the Company or any Shareholder of the Company is majority of the
Company Common Stock voting as a class.
 
2.04 Authority. The Company and the Principal 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
limited liability company action on the part of the Company, including approval
of the sole Company Shareholder. No further action is required on the part of
the Principal to authorize the Agreement, any Related Agreement to which he is a
party and the transactions contemplated hereby and thereby. This Agreement, any
Related Agreement to which the Company is a party and the merger and the
transactions contemplated thereby have been unanimously approved by the board of
directors and the Principal, as sole Shareholder of the Company. 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 Principal,
as the case may be, and constitute the valid and binding obligations of the
Company and the Principal, 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 Articles of Merger and
Management Agreement, and any other agreements to which the Company and/or the
Principal 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 the Principal of
this Agreement and any Related Agreement to which the Company and/or the
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 Organization or Operating Agreement 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 the
Principal in connection with the execution and delivery of this Agreement, any
of the Related Agreements to which the Company, or the Principal is a party, or
the consummation of the transactions contemplated hereby or thereby, except for:
(i) the approval of the Public Service Commission of the States of Louisiana and
Mississippi; (ii) the filing of the Articles/Certificate of Merger with the
Secretary of State of the State of Mississippi and Louisiana; (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.

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        2.07 The Company Financial Statements. Attached as Schedule 2.07 are the
(i) unaudited 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
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 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.
 
 
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 $25,000),
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 $10,000 in the aggregate;
 
(d) payment, discharge or satisfaction, in any amount in excess of $5,000 in any
one case, or $10,000 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;
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(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;
 
(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;
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(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.
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Copies of Companyâ€™s only 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. The Company has filed its only tax return in a
manner consistent with taxation as a corporation.
 
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.
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(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;
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(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
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(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 $25,000.
 
(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.
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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
the Principal or their respective properties or any person or entity whose
liability the Company or the Principal may have retained or assumed, either
contractually or by operation of law, nor, to the Knowledge of the Company or
Principal, is there any reasonable basis therefor. There is no investigation or
other proceeding pending or threatened against the Company or the Principal, any
of their respective properties or any person or entity whose liability the
Company or the 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 Principal, 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 its operations as presently
or previously conducted.
 
2.17 Accounts Receivable. 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 (or, in the
case of the BellSouth receivable reflected on Schedule 2.09(g), 180 days from
the Management Date), 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
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(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.
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(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.
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(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.
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(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) 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.
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(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 the Principal, nor, to the
Knowledge of the Company or the 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 the 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 the 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 the Principal represents that each of
them 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.
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The Company has not entered into any binding agreement with respect to any
Customer Contract that could adversely affect the Companyâ€™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 the 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.
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2.29 Stockholder Matters. The Principal is and shall continue to be the sole
holder of all of the Company's capital stock as of the date hereof and as of the
Closing Date 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
Companyâ€™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 the 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
Principal 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 Principal 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 Principal 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
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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.
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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.
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ARTICLE IV
COVENANTS OF PARTIES PRIOR TO THE EFFECTIVE TIME
 
4.01 [Intentionally omitted]
 
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 TELECOMMUNICATIONS, L.L.C., XFONE, INC. AND XFONE USA, INC. DATED AS
OF AUGUST 26, 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.
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(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
Management 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 Management 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 Management Date. Through the Management 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 Management 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.
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4.06 Consents and Approvals. The Company shall use its best efforts to obtain,
prior to the Closing, the consent of the Public Service Commissions in Louisiana
and Mississippi and 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. Through the Management Date, 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) Through the Management Date, the Company and the Principal, 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 the Principal, 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 the Principal 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 Parent or Subsidiary 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.
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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 Section 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, for a period of two (2) years following the date of this
Agreement (the "Noncompetition Period"), the Principal will not, directly or
indirectly, either for himself 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 â€œEâ€ (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, the Principal shall not (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 (including those previously with the Company) 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).
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(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. The Principal with respect to the terms of this Section 4.12
agrees that the restrictions contained in this Section 4.12 are reasonable.
 
(d) If at any time during the Noncompetition Period the Principal desires to
participate in an activity that he 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) The Principal by execution of this Agreement agrees to the terms of this
Section 4.12 as to himself.
 
(f) Nothing in this Section 4.12 shall be construed to prohibit Principal from
acting as a reseller of Parentâ€™s or Subsidiaryâ€™s services, acting as an
agent of Parent or Subsidiary, or otherwise from earning commissions by
obtaining customers for Parent or Subsidiary.
 
4.13 Approval of Shareholders. The Principal by execution hereof does hereby as
the sole owner of all of the Company Common Stock, which constitutes all of the
equity of the Company, approve for and on behalf of the Company this Agreement
and Related Agreements and the Merger and the execution and delivery of this
Agreement and the Related Agreements by the Company and the consummation of the
Merger and the transactions contemplated by this Agreement and the Related
Agreements and the performance by the Company through its officers and
directors/managers of all of its obligations as provided in this Agreement and
the Related Agreements in order to consummate the Merger and transactions
contemplated under this Agreement and the Related Agreements.
 
4.14 No Shop. Until such time, if any, as this Agreement is terminated pursuant
to Article VII, neither the Company or the Principal 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, or any merger, consolidation, business
combination, or similar transaction involving the Company.
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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 by the shareholders of Subsidiary by the requisite vote under applicable
law and the Subsidiaryâ€™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) Tax-Free Merger. The Merger and the proposed transaction among Parent,
Subsidiary and I-55 Internet Services, Inc., taken individually or together,
shall have no adverse tax consequences to Company, I-55 Internet Services, Inc.,
or either of their shareholders.
 
(f) Debt Restructure. The Parent and Subsidiary shall have entered into
agreements for the terms for repayment or purchase of the debt due from Company
to the Principal, Tricou Construction, Bon Aire Estates, Bon Aire Utility, Danny
Acosta, Intercosmos and Jeff Smyly, all on terms satisfactory to Parent and
Subsidiary.
 
(g) BellSouth Credits. On or before the Management Date, Parent shall create an
escrow satisfactory to Principal, Parent and Subsidiary into which Parent shall
deposit $100,000 in Parent Common Stock and $50,000 in Parent Stock Warrants, to
be held in the name of the escrow agent, to be released to Principal if and to
the extent that Principal and/or Subsidiary recovers from BellSouth monies or
payables not reflected on the financials of the Company (other than the new
receivable reflected on Schedule 2.09(g)).  The escrow shall terminate on the
Closing Date, and any stock or warrants remaining in the escrow on the Closing
Date shall revert to Parent.
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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 Principal in this
Agreement (other than the representations and warranties of the Company and the
Principal 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 Principal 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) Certificate of the Company and the Principal. Parent shall have received a
certificate, validly executed by the Principal 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 Principal in
this Agreement (other than the representations and warranties of the Company and
the Principal 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 Principal 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).
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(e) 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 Organization and the
Operating Agreement of the Company, including all amendments thereto; and (ii)
the valid adoption of resolutions of the board of directors of the Company and
the sole Company Shareholder Member approving this Agreement and the
consummation of the transactions contemplated hereby.
 
(f) 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.
 
(g) Working Capital Requirement. The Companyâ€™s "Working Capital" (as defined
herein) as of the Management Date shall not be more than a deficit of $10,000.00
("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 Management Date
("Management Date Financials"). "Working Capital" shall mean the current assets
less the total liabilities (excluding the Long Term Liabilities as defined in
Section 5.02(q)) as determined in accordance with GAAP. In the event that the
Working Capital Requirement is not met, the Parent and Subsidiary 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.
 
(h) [Intentionally Omitted]
 
(i) Shareholder List. Parent shall have received from the principal executive
officer of the Company a certification that the Principal is the sole owner and
holder of all of the Company Common Stock.
 
(j) 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: None.
 
(k) Escrow Agreement. The Principal and Escrow Agent shall have entered into the
Escrow Agreement in the form of Exhibit B hereto.
 
(l) Irrevocable Proxy from Principals. The Principal 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.
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(m) Management/Operating Agreement. Contemporaneous with the closing of the
Merger of I-55 Internet Services, Inc. with and into the Subsidiary pursuant to
that certain Agreement and Plan of Merger among them and Parent dated August 18,
2005, the Company shall have entered into a Management/Operating Agreement with
the Parent or Subsidiary in the form of Exhibit C. 
 
(n) Merger with I-55 Internet Services, Inc. The merger of I-55 Internet
Services, Inc. into the Subsidiary shall have previously closed or shall close
simultaneously with the Merger under this Agreement.
 
(o) Releases. Each officer and director shall have executed and delivered a
Release in substantially the form attached hereto as Exhibit â€œD.â€
 
(p) Audit. The Company shall have completed an audit of fiscal year 2004 and a
review of the six months ending June 30, 2005 and the audited financial
statements issued in connection with the audit for such fiscal year shall be in
form and substance satisfactory to Parent and Subsidiary.
 
(q) Long Term Liabilities. The sum of the Long Term Liabilities (as defined
below) as of the Management Date shall not exceed $1,200,000 as shown on the
Management Date Financials. The term â€œLong Term Liabilitiesâ€ shall mean the
amount due for the following: Note Payable - Taqua; Note Payable to Randy
Tricou; Note Payable - Rene Tricou; Note Payable to Danny Acosta; Note Payable
to Intercosmos; Note Payable to Loan Pay - New Borrowings, any debt or amounts
due to AmSouth Bank and any other debt for borrowed money or purchase or lease
of assets. In the event that the sum of the Long Term Liabilities exceeds
$1,200,000 as of the Management Date, the Parent and Subsidiary may nevertheless
elect to close and reduce the Parent Stock Consideration by an amount equal to
the amount by which the sum of the Long Term Liabilities exceeds $1,200,000. In
the event the Long Term Liabilities are less than $1,200,000 (which shall not
include any adjustments due to the Debt Restructure as required by Section
5.02(h) hereof), then the Parent Stock Consideration shall be increased by an
amount equal to the amount by which Long Term Liabilities are less than
$1,200,000.
 
5.03 Conditions to Obligations of the Company and the Principals. The
obligations of the Company and the Principal 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).
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(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.
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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 the Principal
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 third 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 fifty 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 Principal 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, including
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 the Company
Shareholders shall be deemed to be a Parent Indemnified Party.
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6.02 Indemnification by the Principals; Escrow Fund.
 
(a) The Principal agrees that, subject to the limits of Sections 6.01 and
6.02(b)-(e), from and after the Effective Date, the Principal 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 the Principal 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 fifty percent (50%) 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 Principal directs
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"). The escrow shall be funded in the
same proportions of Parent Company Stock to Parent Stock Warrant that the
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 the Principal shall be issued and outstanding on the books of Parent,
and the Principal shall be the owners thereof, but registered in the Escrow
Agent's name until the Escrow Agreement is terminated.
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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. The
Principal shall have voting rights with respect to the shares of Parent Common
Stock contributed to the Escrow Fund (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.
 
(ii) The percentage set forth below 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 (less an amount equal in value to the maximum amount claimed to satisfy any
Pending Claims Notices) shall be released on the third anniversary date of the
Effective Date. 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.
 
(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."
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(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 $25,000.00 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 the Principal 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 the
Principal shall be limited to his Escrow Shares then remaining in the escrow,
and the Principal shall not have any personal liability beyond his Escrow Shares
unless the claim is based upon intentional fraud by the Principal.
 
6.03 Indemnification Procedures. All claims for indemnification under Sec6.02
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
Principal of such claim, and the Principal 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 Principal, 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 the Principal has consented to any
such settlement, then the Principal 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 Principal and
the Escrow Agent (if applicable). If the Principal does 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 Principal 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 Principal. 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 Principal 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.
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6.04 No Contribution. The 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 Subsidiaryâ€™s or Parentâ€™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.
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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
December 31, 2005 unless the only reason the merger cannot be consummated is due
to the failure to have obtained the necessary Public Service Commission
regulatory approvals or Bell South consent required to consummate the Merger, in
which case such date shall be extended to April 30, 2006; 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
Principal, 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.
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(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.
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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

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(b) if to the Company or the Principals, to: 

 
Randall Wade James Tricou
 
650 Poydras Street
 
Suite 1000
 
New Orleans, Louisiana 70130
 
Telephone:  985-969-4822
 
Email:  rtricou@i-55telecom.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.
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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).
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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.
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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:      
Name: Guy Nissenson
Title: President and CEO
I-55 TELECOMMUNICATIONS, L.L.C.
By:      
Name: Randall Wade James Tricou
Title: President and CEO
XFONE USA, INC.
By:      
Name: Wade Spooner
Title: President
PRINCIPAL
Randall Wade James Tricou, Individually

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EXHIBIT "A"
 

OFFICE OF THE MISSISSIPPI SECRETARY OF STATE
PO BOX 136, JACKSON, MS 39205-0136  (601)359-1333
Articles of Merger or Share Exchange
Profit Corporation
The undersigned corporation pursuant to Section 79-4-11.05, as amended, hereby
executes the following document and sets forth:
 
1. Name of Corporation 1
    I-55 Telecomunications, L.L.C., a Louisiana limited liability co. ("I-55")
2. Name of Corporation 2
    XFone USA, Inc., a Mississippi Corporation
3. Name of Corporation 3
 
4. The future effect date is (complete if applicable)
 
5. The plan of merger or share exchange (Attach page)
 
6. Mark the appropriate box.
  o  (a) Sholder approval of the plan of merger or share exchange was not
required
    or
  x  (b) If approval of the Shareholders of one or more corporations party to
the merger or share exchange was requires
        (i) the designation, number of outstanding shares, and number of voyes
entitled to be cast by
            Each class entitled to vote seperately on the plan as to each
corporation were
 

 Name of Corporation  Designation   No. of outstanding shares No. of votes
entitled to be cast   I-55  Interests  N/A  100%  XFone USA, Inc.  Common  100
 100

 
Exhibit A-1-

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OFFICE OF THE MISSISSIPPI SECRETARY OF STATE
PO BOX 136, JACKSON, MS 39205-0136  (601)359-1333
Articles of Merger or Share Exchange
And Either
 
    a. the total number of votes cast for and asainst the plan by each class
entitled to vote seperately on the plan was

 Name of Corporation  Class  Total no. of votes cast FOR the plan Total no. of
votes cast AGAINST the plan    

 
OR
 
    b. the total number of undisputed votes cast for the plan seperately by each
class was

 Name of Corporation  Class  Total no. of votes cast FOR the plan  I-55
Interests 100%  XFone USA, Inc. Common 100

 
and the number of votes cast for the plan was sufficient for approval by that
class.
 
Name of Corporation 1
    
    I-55 Telecomunications, L.L.C.

       
   
   
    By:   /s/   Signature  

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Printed Name   Title 

 
Exhibit A-2-

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OFFICE OF THE MISSISSIPPI SECRETARY OF STATE
PO BOX 136, JACKSON, MS 39205-0136  (601)359-1333
Articles of Merger or Share Exchange
Table of Contents
Name of Corporation 2

    XFone USA, Inc.

       
   
   
    By:   /s/   Signature  

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Printed Name   Title 

 
Name of Corporation 3

              

       
   
   
    By:   /s/   Signature  

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Printed Name   Title 

 
NOTE
1. If shareholder approval is required, the plan must be approved by each voting
group entitled to vote on the plan by a majority of all votes to be cast by that
voting group unless the Act ot the articles of incorporation provide for a
greater or lesser vote, but not less than a majority of all votes cast at a
meeting.
 
2. The articles cannot be filed unless the corporation(s) has (have) paid all
fees and taxes (and delinquencies) imposed by law.
 
3. The articles must be similarly executed by each corporation that is a party
to the merger.
 
Exhibit A-3-

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EXHIBIT "B"
 
Form of Escrow Agreement
ESCROW AGREEMENT
 
This Escrow Agreement, dated as of ____________, 2005 (the "Closing Date"),
among I-55 Telecommunications, L.L.C., a Louisiana limited liability company
(â€œI-55â€ or the â€œCompanyâ€), XFone, Inc., a Nevada corporation, and XFone
USA, Inc., a Mississippi corporation (collectively "Buyer"), Randall Wade James
Tricou, an individual resident of Louisiana ("Tricou" or â€œPrincipalâ€) 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 _______________, 2005 (the "Merger Agreement") among Buyer, the
Company and the Principal. 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 Principal
thereunder, or otherwise pursuant to the terms of the Merger Agreement, the
Principal 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 Principal 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:
 
1.  ESTABLISHMENT OF ESCROW
 
(a)  Deposit of XFone Common Stock and XFone Stock Warrants. The Principal
hereby deposits in escrow the number of shares of XFone Common Stock and XFone
Common Stock Warrants set out opposite his names on Exhibit "A" attached to this
Agreement ("Escrow Shares"), registered in the name of the Escrow Agent or its
nominee.
 
(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 Principal 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 the Principal such proxies,
consents, or other documents as may be necessary to enable the Principal to
exercise such rights with respect to any XFone Common Stock deposited by the
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 Principal, for income tax
purposes, but shall be received by the Escrow Agent and constitute part of the
Escrow Fund.
 
Exhibit B-1-

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(e)  Taxes and Charges on Escrow Fund. The Principal 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 Principal 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").
 
2.  DISTRIBUTIONS FROM ESCROW FUND
 
(a)  Buyer Request. If Buyer (or either of them) submits a notice and request to
the Principal 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 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 the Principal that
it disputes the requested release from the Escrow Fund for the Loss.
 
(b)  Request by Principal. If the Principal gives a notice in substantially the
form attached as Appendix C to the Escrow Agent and Buyer stating that he is
entitled to a distribution from 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, 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 Principal 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 Principal.
 
(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 Principal.
 
Exhibit B-2-

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3.  DURATION AND TERMINATION OF ESCROW
 
(a)  On the third anniversary date of this Agreement, the Escrow Agent shall
retain an amount of the Escrow Fund equal to the aggregate dollar value of the
Estimated Losses for all outstanding Pending Claims Notices and the remainder of
the Escrow Fund shall be disbursed to the 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.
 
4.  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.
 
Exhibit B-3-

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(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)  Buyer and Principal 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 and 50% by the Principal. 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.
 
5.  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.
 
6.  OWNERSHIP FOR TAX PURPOSES
 
Principal agrees that, for purposes of federal and other taxes based on income,
the Principal will be treated as the owner of the Escrow Fund and that the
Principal will report all income, if any, that is earned on, or derived from,
the Escrow Fund as his income in the taxable year or years in which such income
is properly includible and pay any taxes attributable thereto.
 
Exhibit B-4-

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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 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:
 
Randall Wade James Tricou
I-55 Telecommunications, L.L.C.
14599 Highway 22
Ponchatoula, LA 70454
Telephone: (504) ___________
Facsimile: (504) ___________
Email:     
 
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
 
Exhibit B-5-

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                           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 (â€œSandyâ€) Carter, V.P.
 
8.  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.
 
9.  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.
 
Exhibit B-6-

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10.  SECTION HEADINGS
 
The headings of sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation.
 
11.  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.
 
12.  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 Principal
and the Escrow Agent.
 
13.  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.
 

 

Exhibit B-7-

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BUYERS:
 
XFone, Inc.
 
By: Guy Nissenson, President and CEO
 
XFone USA, Inc.

 
By: Wade Spooner, President
 

ESCROW AGENT:
 
Trustmark National Bank
 
By:
Title:
PRINCIPAL:

Randall Wade James Tricou, Individually

Exhibit B-8-

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EXHIBIT "A"
 
XFone Common Stock XFone Stock Warrants
 
Randall Wade James Tricou ________ 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.

 

Exhibit B-9-

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APPENDIX A
 
PENDING CLAIM NOTICE
 
To:   __________________________________, or its successor ("Escrow Agent")
Randall Wade James Tricou ("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: 

 

Exhibit B-10-

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APPENDIX B
 
BUYER DEPOSITION NOTICE REQUEST
 
To:
 
__________________________________, or its successor ("Escrow Agent")

Randall Wade James Tricou ("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)
_________ shares XFone Common Stock as follows:

 
(2)
_________ shares XFone Stock Warrants as follows:

 
(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: 

 

Exhibit B-11-

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

XFone, Inc./XFone USA, Inc. ("XFone")
 
From:
 
Randall Wade James Tricou ("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 the 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
the Principal the following XFone Common Stock and Parent Stock Warrants
endorsed as follows for transfer from the Escrow Fund:
 
To Randall Wade James Tricou:
 
__________ shares of XFone Common Stock Randall Wade James Tricou deposited in
the Escrow Fund.
 
__________ XFone Stock Warrants from Randall Wade James Tricouâ€™s XFone Stock
Warrants deposited in the Escrow Fund.
 
Sincerely,
 
Randall Wade James Tricou
 

Exhibit B-12-

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EXHIBIT "C"
 
Form of Management Agreement

MANAGEMENT AGREEMENT
 
THIS MANAGEMENT AGREEMENT is effective as of the ____ day of ___________, 2005
and is by and between I-55 Telecommunications, L.L.C., a Louisiana limited
liability company (â€œI-55 Telecomâ€) and XFone USA, Inc., a Mississippi
corporation ("XFone USA" or "Manager") and Randall Wade James Tricou (the
"Guarantor") (referred to collectively hereinafter as "the Parties").
 
WITNESSETH:
 
WHEREAS, pursuant to the terms of that certain Agreement and Plan of Merger
dated as of _____________, 2005 (the "Merger Agreement") among I-55 Telecom,
Guarantor, XFone USA and XFone, Inc. (the "Parent"), I-55 Telecom is to be
merged with and into XFone USA (the "Merger") for the Merger Consideration to be
paid by Parent (capitalized terms not otherwise defined herein shall have the
meaning as set forth in the Merger Agreement); and
 
WHEREAS, certain regulatory approvals are required before the Merger may be
consummated and the parties desire that XFone USA provide management services to
I-55 Telecom in accordance with the terms of this Agreement pending the
consummation of the Merger.
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Parties agree as follows:
 
1. Retention of XFone USA. I-55 Telecom does hereby hire and appoint XFone USA
as Manager to be responsible for the operation and management of all of I-55
Telecom's business operations (the "Business") and XFone USA hereby accepts such
appointment as Manager and shall manage the operations of the Business upon the
terms set forth herein. The management services to be performed by Manager under
this Agreement shall be performed by Manager as agent for I-55 Telecom and
without limiting the foregoing, I-55 Telecom hereby grants the Manager the
authority and powers necessary for the management of the Business in the
ordinary and usual course of business generally consistent with past practice,
including, without limitation, the following:
 
(a) Personnel. Supervising the current employees and independent contractors of
I-55 Telecom with the Manager having the authority to hire, discharge and direct
such personnel for the conduct of the Business.
 

Exhibit C-1-

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(b) Accounting. Supervision and administration of all accounting and the
maintenance of all books and records for the Business, including, without
limitation, (i) all billing, communications and other services provided to
customers serviced under I-55 Telecom's licenses; (ii) collection on behalf of
I-55 Telecom of all fees, charges and other compensation relating to the
Business; (iii) review of all bills received for services, work or supplies in
connection with maintaining and operating the Business and paying all such bills
as and when the same shall become due and payable except for the Long Term
Liabilities (as defined in the Merger Agreement); and (iv) preparation on a
monthly basis of a balance sheet and income and expense statement with respect
to the Business.
 
(c) Contracts. Maintain all existing contracts necessary for the operation of
the Business and the authority to enter into or renew contracts in I-55
Telecom's name as necessary for the continuing operation of the Business
provided that the consent of I-55 Telecom shall be required for any new
contracts or renewals of existing contracts that are not terminable on 60 days
notice, or that require the commitment of more than $5,000.00, which is not
included in an approved operating budget.
 
(d) Policies/Procedures. Preparation of all policies and procedures for the
operation of the Business.
 
(e) Budgets. Preparation of all operating, capital or other budgets which shall
be prepared and submitted on a schedule to be approved by the Parties.
 
2. Assignment of Revenues and Payment of Expenses.
 
(a) For and in consideration of the management services to be provided
hereunder, I-55 Telecom hereby assigns and transfers to Manager all revenues
generated from the operations of the Business (the "Revenues"), to be used in
accordance with this Agreement and Manager agrees to pay and cause to be paid
from the Revenues the normal operating, maintenance, administrative, and similar
expenses of the Business incurred in the ordinary course of business during the
term hereof, exclusive of the Long Term Liabilities (as defined in the Merger
Agreement) ("Expenses").
 
(b) I-55 Telecom shall designate the Manager as the controlling party of the
current operating accounts of the Business (the "Accounts") and all funds
collected from the operations, fees, sales and other collections and operations
of the Business shall be deposited in the Accounts and the Manager shall control
and have authority with respect to all disbursements from said Accounts and the
Manager agrees that the normal operating expenses shall be paid from the
Revenues collected and deposited in such Accounts and then to the extent of
available funds, the Long Term Liabilities and other non-recurring liabilities
shall be paid.
 

Exhibit C-2-

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3. Loans by Manager. The Manager, in its discretion, shall have the right to
make advances or loans (the "Manager Loans") to I-55 Telecom payable on demand
(or if no demand payable in equal quarterly installments of principal and
interest) for an amount up to [$500,000.00,] with interest at [7%] per annum
from the date advanced until paid for the payment of any amounts due during the
term of this Management Agreement under any of the Long Term Liabilities (as
defined in the Merger Agreement) or for any other liabilities the Manager deems
appropriate for which there are not sufficient Revenues generated to pay such
debts and expenses. I-55 Telecom, by execution of this Agreement, grants to the
Manager a security interest in all of the assets, whether now owned or hereafter
acquired and wherever located, of I-55 Telecom, including without limitation,
all accounts, goods, equipment, inventory, contracts and contract rights,
instruments, chattel paper, securities and other investment property. The
Manager is hereby authorized to file such financing statements and amendments
thereto and continuations thereof in such offices as necessary to perfect the
security interest granted hereby.
 
The Guarantor, by execution hereof, unconditionally guarantees the prompt
payment as and when due whether at maturity or by acceleration or otherwise of
the Manager Loans, together with any and all interest or other amounts due with
respect to the Manager Loans and any renewals, extensions or amendments of the
Manager Loans. The obligation of the Guarantor hereunder shall constitute a
present and continuing guaranty of payment and not of collectibility only, shall
be absolute and unconditional, shall not be subject to any counterclaim, setoff,
deduction or defense Guarantor may at any time have against Manager or any other
person, and shall remain in full force and effect without regard to any event
whatsoever (whether or not Guarantor shall have any knowledge or notice thereof
or shall have consented thereto), including without limitation: (1) any
extensions, renewals or changes in form of this Agreement or any other documents
evidencing the Manager Loan (the "Manager Loan Documents"), as the same may be
amended and/or supplemented from time to time, any assignment or transfer of any
part thereof, any renewals or extension of the terms of payment under any of the
Manager Loan Documents or the granting of time in respect of the payment
thereof, or any furnishing or acceptance of security or any release of any
security so furnished or accepted in connection with any of the Manager Loan
Documents; (2) any waiver, consent, extension, forbearance or other action or
inaction under or in respect of this Guaranty or the Manager Loan Documents, or
any exercise of or failure to exercise any right, remedy or power in respect
hereof or thereof; (3) any failure, neglect or omission of Manager to protect,
in any manner, the collection of the Manager Loans, or any portion thereof, or
any security given therefor; (4) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceedings with
respect to I-55 Telecom; or (5) any default by I-55 Telecom, Guarantor or party
to any of the Manager Loan Documents, or the invalidity or any unenforceability
of, or any misrepresentation, irregularity or other defect in, any of the
Manager Loan Documents.
 

Exhibit C-3-

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4. Terms. The term of this Agreement shall commence on the date hereof and shall
continue until the consummation of the Merger, provided that this Agreement may
be terminated by either party at any time after ______________, 2006 upon 30
days prior notice.
 
5. Termination Fee. In the event that the Agreement is terminated by either
party as provided in Paragraph 4 (other than due to the consummation of the
Merger), then the Parties agree that the "Net Revenue" or "Net Loss" during the
term of this Agreement shall be divided 50% to I-55 Telecom and 50% to the
Manager, provided that in the event the Manager or any of its affiliates has
made any Manager Loans to I-55 Telecom, that the Manager may offset against any
amounts due under any Manager Loans any amounts due to I-55 Telecom for the "Net
Revenue" and in the event there is a "Net Loss", then I-55 Telecom's share of
the "Net Loss" shall be added to the principal due under the Manager Loans. If
this Agreement is terminated due to the consummation of the Merger, then in such
event the Manager shall be entitled to all the Net Revenues or Net Losses. For
purposes of this section "Net Revenue" is the excess of gross revenues derived
from the Business during the Term, over expenses paid and losses incurred during
the Term, and "Net Loss" is the excess of expenses paid and losses incurred
during the Term, over gross revenues derived from the Business during the Term.
 
6. Insurance. I-55 Telecom shall include the Manager as an additional insured on
all insurance currently maintained and such insurance shall continue throughout
the term of this Management Agreement.
 
7. Independent Contractor. It is the expressed intent of I-55 Telecom, on the
one hand, and Manager, on the other hand, that neither a partnership, joint
venture, nor employment relationship is created between the Parties by this
Agreement; rather, it is the express intent of the Parties that this Agreement
represents an independent contractor relationship under which I-55 Telecom is
retaining the services of Manager.
 
8. Force Majeure. The obligations of the Parties hereto shall be excused during
such time as, and to the extent that, performance is prevented by any occurrence
or act beyond their respective control and not due to their fault or negligence,
including, without limitation, action of the elements, riots, fire, terrorism,
war, acts of God, and any ruling, ordinance, law or regulation of any local,
state or federal governmental body having jurisdiction over either party.
 
9. Compliance with Law. Each of the Parties shall comply in all material
respects with all applicable laws and regulations. Manager and I-55 Telecom
shall immediately notify the other of any pending or threatened action by the
FCC, PSC or any other Governmental Authority or third party to suspend, revoke,
terminate, or challenge the licenses, or otherwise investigate the licenses of
I-55 Telecom. I-55 Telecom shall cooperate with Manager to assist Manager in
fulfilling Manager's obligations under the terms of this Agreement.
 

Exhibit C-4-

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10. Modifications. This Agreement constitutes the entire understanding and
agreement between the Parties and it may not be altered or amended in any way
whatsoever except in writing and signed by all of the Parties hereto.
 
11. Confidentiality. During the term of this Agreement, each party will have
access to certain confidential information of the other party, including but not
limited to trade secrets, financial data and projections, data regarding
suppliers and customers operations methods and practices, and marketing and
sales approaches (the "Confidential Information"). Each party acknowledges that
all Confidential Information which may be disclosed to it by the other party or
which may come to the attention of such party (or its agents) in connection with
the provision of services under this Agreement is confidential. Accordingly,
each party agrees not to disclose such Confidential Information (or suffer its
agents to disclose such Confidential Information) unless required to do so by
law or unless such party has first obtained the prior written consent of the
other party. Each party further agrees not to use such Confidential Information
(or suffer its agents to use such Confidential Information) in any manner except
in connection with the performance of the services described in this Agreement.
Each party further agrees to take reasonable steps necessary to insure that no
disclosure or use prohibited by this paragraph is made, including, without
limitation, those steps, which a reasonable person would take to protect his own
information, data or other tangible or intangible property, which he regards as
proprietary or confidential. Upon breach of this paragraph, the non-breaching
party shall be entitled to injunctive relief, either pending litigation or
permanently or both, against the breaching party, since the Parties acknowledge
that a remedy at law would be inadequate and insufficient. In addition, the
non-breaching party shall be entitled to recover such damages as it may
demonstrate as sustained by reason of such breach. Nothing contained herein or
in any other provision of this Agreement shall be construed as limiting a
party's remedies under this paragraph in any manner.
 
12. Delegation and Assignment. Except as expressly provided herein, no party
shall delegate its duties or assign its rights hereunder in whole or in part,
without the prior written consent of the other.
 
13. Notices. All notices required to be given hereunder shall be in writing and
shall be deemed given if delivered in person, transmitted by electronic
facsimile, or deposited in United States first class mail, postage prepaid,
certified or registered mail, return receipt requested, addressed to the Parties
as set forth opposite their respective names below. Notice shall be deemed given
on the date it is personally delivered, on the date it is transmitted by
electronic facsimile, or on the date it is deposited in the mail, as indicated
by the United States postmark thereon, in accordance with the foregoing. Any
party may change the address or facsimile number at which to send notices by
notifying the other party of such change of address or facsimile number in
writing in accordance with the foregoing.
 

Exhibit C-5-

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14. Further Assurances. Each of the Parties hereto shall execute and deliver all
documents, papers and instruments necessary or convenient to carry out the terms
of this Agreement.
 
15. Entire Agreement. The Parties acknowledge and agree that this document,
together with all other documents expressly referred to herein, constitutes the
entire agreement between the Parties. Except as set forth in such other
documents (including the exhibits and schedules thereto and ancillary agreements
referenced therein), no representatives, promises, conditions or warranties with
reference to the execution of this document have been made or entered into
between the Parties hereto.
 
16. Waiver of Provisions. Any waiver of any term and condition hereof must be in
writing and signed by the party giving the waiver. A waiver of any of the terms
and conditions hereof shall not be construed as a waiver of any other terms and
conditions hereof.
 
17. Captions. Any captions to or headings of the articles, sections,
subsections, paragraphs or subparagraphs of this Agreement are solely for the
convenience of the Parties, are not a part of this Agreement, and shall not be
used for the interpretation or determination of validity of this Agreement or
any provision hereof.
 
18. Severability. The invalidation of any clause or provision of this Agreement
shall have no effect on the remaining provisions of this Agreement, and as such,
the remaining Agreement shall remain in full force and effect, and be
interpreted as consistently as possible.
 
19. Authority. The Parties hereto represent and warrant that all necessary
corporate action required to approve and authorize the execution of this
Agreement has been accomplished and that this Agreement is a legally binding
obligation of the Parties.
 
20. Counterparts/Facsimile Delivery. This Agreement and any subsequent
amendments may be executed in one or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one and the same
agreement. This Agreement and any subsequent amendments may be signed and
delivered by facsimile transmission, which delivery shall have the same binding
effect as delivery of the document containing the original signature. At the
request of any party, any document delivered by facsimile signature shall be
followed by or re-executed by all Parties in an original form, provided that the
failure of any party to do so will not invalidate the signature delivered by
facsimile transmission.
 
21. Mississippi Law. This Agreement shall be governed by the laws of the state
of Mississippi.
 

Exhibit C-6-

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IN WITNESS WHEREOF, the Parties have executed this Agreement effective the day
and year first above written.

 Xfone USA, Inc.
      /s/ Guy Nissenson     /s/ Randall
Wade                                                  /s/James Tricou

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

Guy Nissenson
President

Address: Britannia House
                 960 High Road
                 London, N129RY
                United Kingdom
Telephone: +44 208-446-9494
Facsimile: +44 208-446-7010
Email: guy@xfone.com

with copy to:
 
The Oberon Group, LLC
79 Madison Ave., 6th Floor
New York, NY 10016
Attention: Adam Breslawsky
Facsimile: 212-447-7212
Email: adam@oberongroup.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
I-55 Telecommunications, L.L.C.
   
       Randall Wade                                                       James
Tricou
 
New Orleans, LA   
Telephone: 504-___-____
Facsimile: 504-___-____
Email:    

     
Exhibit C-7-

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EXHIBIT "D"
 
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
Telecommunications, L.L.C., a Louisiana limited liability company (the
"Company"), XFone, Inc., a Nevada corporation (the "Parent"), XFone USA, Inc., a
Mississippi corporation (the "Subsidiary") and Randall Wade James Tricou.
 
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:
 
1.  Recitals. Each of the above referenced recitals is true and correct and
incorporated into this Release by this reference.
 
2.  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.
 
3.  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.
 
Exhibit D-1-

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4.  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.
 
5.  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.
 
6.  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.
 
7.  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.
 
8.  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.
 
9.  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.
 
10.  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.
 
11.  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.
 
12.  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.
 
Exhibit D-2-

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13.  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.
 
14.  Assignment. No party hereto shall assign their respective rights,
obligations or interest under this Release in any manner.
 
15.  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.
 
16.  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.
 
17.  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.
 
18.  Governing Law. This Release shall be governed, construed and enforced in
accordance with the laws of the State of Louisiana.
 
19.  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:

 
Randall Wade James Tricou
Randall Wade James Tricou, President

 
 
 
 

Exhibit D-3-

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EXHIBIT "E"
 
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-1-

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