LOAN AGREEMENT

LOAN AGREEMENT, dated as of December 10, 2009, between Swiftnet Limited (company
number 02469394) whose registered office is at Britannia House 960 High Road,
London N12 9RY (the "Borrower"), Xfone, Inc. whose principal executive offices
are at 5307 W Loop 289, Lubbock, TX 79414 US (the “Guarantor”) and certain
subsidiaries of either the Borrower or the Guarantor each of which is registered
in England & Wales being Auracall Limited (company number 04308459, “Auracall”),
Equitalk.co.uk Limited (company number 03894765, “Equitalk”) and Story Telecom
Limited (company number 04551415) (the “UK Subsidiaries” and “UK Subsidiary”
means any of them as may be appropriate), and Iddo Keinan whose address is at
Flat 2, 62 Fitzjohns avenue, Hampstead, London NW3 5LT, UK  (the "Lender").

RECITALS

WHEREAS, the Lender is willing to extend to the Borrower a loan in an amount of
£860,044.58 (Eight Hundred and Sixty Thousand and Forty Four Pounds Sterling and
Fifty Eight Pence Only) on the terms and conditions set forth in this Loan
Agreement (“this Agreement”); and
 
WHEREAS, for the purpose of performance of his undertakings under this
Agreement, the Lender has obtained the funds for the Loan (as that term is
defined below) in the sum of £1,252,500 (the “Lender’s Loan”) from the Lender’s
bank and has and/or shall bear certain costs and expenses as specified in the
schedule of expenses attached to this Agreement as “Schedule A” (the “Lender’s
Expenses”) in connection with the Loan.
 
NOW, THEREFORE, the parties hereto agree as follows:
 
1.  
THE LOAN

 
(a)  
Subject to the terms and conditions set forth below, the Lender shall lend to
the Borrower an amount of £860,044.58 (Eight Hundred and Sixty Thousand and
Forty Four Pounds Sterling and Fifty Eight Pence) (the "Loan"), no later than
December 10, 2009 (the "Drawdown Date"). The Loan shall be advanced by the
Borrower to the Guarantor for the bridge funding of the payment of amounts due
from the Guarantor under its Series A Bonds.

 
(b)  
Provided no event of default occurs as specified in Clause (k), the Loan shall
be repaid to the Lender in full no later than May 30, 2010.

 
(c)  
The Borrower shall pay to the Lender the following amounts:

 
(i)  
interest at an interest rate of 1.3% (One Point Three Per Cent) per month
charged on the total amount of the Lender’s Loan, to be paid by the Borrower by
way of standing order, less a monthly amount of £1,000 (One Thousand Pounds
Sterling); and

 
(ii)  
the Lender’s Expenses; and

 
(iii)  
any costs that may arise in respect of the Loan either as a result of putting
the Loan in place, during its tenor or in order to obtain repayment of the Loan.

 
(d)  
All payments are to be made by the Borrower without set off or counterclaim and
free and clear of any and all deductions, including (without limitation)
withholding taxes except to the extent required by law.  If the Borrower is
compelled by law or regulations to deduct any such amount the amount payable
will be automatically increased so that the net amount after allowing for such
deduction would be equal to the amount which would have been payable if no such
deduction had arisen.

 
(e)  
All payments are to be made by the Borrower to the Lender in Pounds Sterling for
value on their due date.  If any payment is made by the Borrower to the Lender
in any currency other than Pounds Sterling then the Borrower will indemnify the
Lender for any shortfall that may occur as a result of the Lender having to
convert such payment to Pounds Sterling.

 
 
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(f)  
The Loan will not be made available by the Lender to the Borrower until the
following conditions are satisfied:

 
(i)  
the Borrower confirms that the existing debentures granted by the Borrower
and  Equitalk.co.uk Limited in favour of Barclays Bank PLC have been released;

 
(ii)  
a legal opinion from a lawyer in the same jurisdiction as the jurisdiction of
incorporation of the Guarantor or any other party providing security in favour
of the Lender but not incorporated in England & Wales confirming their good
standing and power and authority to enter into this Agreement and any other
documents specified herein;

 
(iii)  
this Agreement and the security documents specified at Clause (h) duly executed;

 
(iv)  
certified copies of board resolutions of the Borrower, the Guarantor and any
security provider under this Agreement together with shareholder resolutions of
the Borrower and the UK Subsidiaries in relation to the entering into of this
Agreement and any other documents specified herein;

 
(g)  
Borrower shall have the right upon two (2) Business Days' prior written notice
to Lender, to make a voluntary prepayment of the Loan, in whole or in part. If
the Borrower elects to prepay the Loan, in whole or in part, pursuant to this
Clause, no prepayment fees shall apply. Provided that, should the Borrower
choose to prepay the Loan at any time within the first month following the
Drawdown Date then an early repayment charge equal to the balance of the first
month’s interest shall apply.

 
(h)  
 For good consideration and as an inducement for the Lender, on the Drawdown
Date and so long as Borrower’s obligations and undertaking under this Agreement
are outstanding, the following shall be granted as security in favour of the
Lender for the Borrower’s obligations under this Agreement (the “Security
Documents”):

 
(a)  
A charge over 51% (Fifty One Per Cent) of the issued Class A shares of the
Borrower and a charge over 51% (Fifty One Per Cent) of the issued Class B shares
of the Borrower, a charge over 51% (Fifty One Per Cent) of the issued share
capital of Equitalk and a charge over the entire issued share capital of the UK
Subsidiaries (except Equitalk) together with (1) undated stock transfer forms in
respect of the Borrower and each UK Subsidiary executed by the relevant
shareholder with the identity of the Lender as the transferee (the “Stock
Transfer Forms”); and (2) the original share certificates representing each
shareholder’s holding in the Borrower and the relevant UK Subsidiary (the
“Certificates”).

 
Borrower and Guarantor shall deliver to the person identified by both the Lender
and Guarantor as an agreed escrow agent for the Lender, Borrower and Guarantor
(the “Escrow Agent”) the Stock Transfer Forms and the Certificates to be held by
the Escrow Agent until the earlier of (1) the Borrower has repaid the Loan in
full, in which case the Escrow Agent shall deliver the Stock Transfer Forms and
the Certificates to Guarantor; or (2) the Lender exercises its rights pursuant
to Clause (k) in respect of the Borrower and the UK Subsidiaries in which case
the Escrow Agent shall deliver the Stock Transfer Forms and the Certificates to
the Lender.
 
Should the Loan not be repaid in full then the other security granted in favour
of the Lender pursuant to this Clause (h) shall continue in full force and
effect until all amounts due under this Agreement are repaid in full.
 
In order to grant and perfect the Lender’s security in respect of the shares in
the Borrower and the UK Subsidiaries the Borrower shall or shall procure that
appropriate UCC-1 Forms, together with any supporting documentation as may be
necessary, are filed with the Nevada Secretary of State.
 
(b)  
An intercompany guarantee between the Borrower, the Guarantor, the UK
Subsidiaries and NTS Communications, Inc. (“NTS”), a company incorporated in
Texas, US whose principal executive offices are at 5307 W Loop 289, Lubbock, TX
79414 US;

 
(c)  
Debentures over the entire assets of each of the Borrower and each UK
Subsidiary.

 
 
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(i)  
For the duration of the Loan the Guarantor shall:

 
(a)  
Preserve Mr. Abraham Keinan’s (“Mr. Keinan”) current positions in each of the
Borrower and each UK Subsidiary (together the “Group”) and grant Mr. Keinan a
veto right on any resolution in the board of directors of each member of the
Group; and appoint Mr. Keinan as a signatory of each member of the Group,
thereby Mr. Keinan’s signature shall be required for the undertaking of any
payment and/or obligation in any amount. Without derogating from the generality
of the above, Mr. Keinan shall not abuse his rights and/or positions as a
director of any member of the Group and the Group’s affiliates in a manner that
may hinder or prevent the Borrower from performing the Borrower’s obligations
and undertakings under this Agreement; In the event Mr. Keinan abuses his
foregoing veto right and/or positions as a director of any member of the Group
and the Group’s affiliates in a manner that may hinder or prevent the Borrower
from performing the Borrower’s obligations and undertakings under this
Agreement, Mr. Keinan’s aforementioned veto right shall terminate and become
void.

 
(b)  
Provide sufficient funds to Lender on a monthly basis to ensure the timely
payments of Borrower’s monthly interest payments on the Loan, in full.

 
(j)  
The Guarantor covenants that it will appoint an additional director to its Board
of Directors no later than January 15 2010 and that such appointee shall be
acceptable to Mr. Keinan.  Until such time as such an individual is appointed or
until the Loan is repaid in full, Mr. Keinan shall have a veto right on any
resolution put forth before the Guarantor’s Board of Directors. Mr. Keinan shall
recommend an appropriate candidate (an “Appropriate Candidate”) for such
appointment no later than January 2 2010.  Without derogating from the
generality of the above, Mr. Keinan shall not abuse his foregoing veto right
and/or position as a director of the Guarantor in a manner that may hinder or
prevent such an appointment. In the event Mr. Keinan fails to recommend an
Appropriate Candidate until January 2 2010, Mr. Keinan’s aforementioned veto
right shall terminate and become void on January 2 2010. In the event Mr. Keinan
abuses his foregoing veto right and/or position as a director of the Guarantor
in a manner that may hinder or prevent such an appointment, Mr. Keinan’s
aforementioned veto right shall terminate and become void on January 15 2010.

 
(k)  
The occurrence of any of the following events shall constitute an event of
default under this Agreement ("Event of Default"):

 
(a)  
the Borrower fails to pay on the due date the principal of the Loan (the
“Principal”); or

 
(b)  
the Borrower fails to pay on the due date any amount, including interest but
excluding the Principal, payable under this Agreement or the Security Documents,
and such failure is not remedied to the reasonable satisfaction of the Lender
within 5 Business Days; or

 
 
(iii)
the Group, Guarantor or NTS (together the “Obligors”) fails to comply with any
provision of this Agreement or the Security Documents and where capable of
remedy, such failure is not remedied to the reasonable satisfaction of the
Lender within 10 Business Days of the Lender giving written notice to the
applicable Obligor requiring such Obligor to remedy the same; or

 
 
(iv)
Borrower, Auracall, Guarantor or NTS become insolvent; or

 
 
 
(v)
an administrative or other receiver, administrator, manager or similar officer
is appointed for the Borrower, Auracall, Guarantor or NTS;

 
 
(vi)
any order is made or any effective resolution is passed for:

 
 
(a)
the winding up, dissolution or liquidation of the Borrower, Auracall, Guarantor
or NTS other than for the purpose of a reconstruction or amalgamation the terms
of which have previously been approved by the Lender in writing provided that
the Lender’s consent will not be required should such a reconstruction or
amalgamation be taking place in a non-insolvent situation; or

 
 
(b)
the making of an administration order against the Borrower, Auracall, Guarantor
or NTS; or

 
 
(c)
the notice of the appointment of an administrator in respect of the Borrower,
Auracall, Guarantor or NTS;

 
 
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(vii)
analogous legal or statutory proceedings to those matters specified in Clauses
(j) (iv) to (vi) (inclusive) under any applicable law in any other jurisdiction;

 
Then in any such case and at any time thereafter while such event is continuing
the Lender may by written notice to the Borrower with a copy to the Guarantor
declare the Loan, all interest accrued and all other sums payable by the
Borrower to the Lender under this Agreement to be immediately due and payable
and/or terminate the obligations of the Lender under this Agreement.
 
Upon the occurrence of an Event of Default, Lender may exercise his rights under
the Security Documents with respect to any Obligor at the Lender’s sole
discretion.
 
(l)  
In the event Lender becomes a shareholder of the Borrower or any UK Subsidiary,
(the “Exercised Subsidiaries” and “Exercised Subsidiary” means any of them as
may be appropriate), then for a period of 3 (Three) months (the “Buy Back
Period”), the Guarantor shall have an irrevocable right to purchase back the
shares of the Exercised Subsidiaries from the Lender at a purchase price equal
to the aggregate amount of the outstanding principal, interest and any other
expenses and costs born by Lender in connection with the Loan. During the Buy
Back Period the Lender shall operate the business of the Exercised Subsidiary in
such manner as is consistent with its current operations and shall not, without
the consent of the Borrower, take any extraordinary actions which could
reasonably be expected to have a materially adverse effect on the business or
value of the Exercised Subsidiaries.

 
(m)  
Once the Buy Back Period has ended without the Guarantor exercising his right to
buy back the shares of the Exercised Subsidiaries, (i) the legal and beneficial
ownership in the shares of the Exercised Subsidiaries shall pass to the Lender
and such shares/stock shall be transferred to the Lender with full title
guarantee (and any rights of pre-emption in respect of such shares/stock are
hereby waived by the Borrower); (ii) the Lender shall be entitled to date and
otherwise complete the Stock Transfer Forms and take any steps necessary to
perfect his title to the shares in the relevant Exercised Subsidiary; and (iii)
the Guarantor and the Lender shall appoint an agreed independent appraiser to
perform a valuation of the Exercised Subsidies (the “Valuation”).  Any positive
balance between the value of Lender's shares of the Exercised Subsidiaries (to
be calculated and determined in accordance with the Valuation) and amounts
unpaid to the Lender under this Agreement, shall, if the relevant Exercised
Subsidiary is able do so by way of declaration of dividend, be paid to the
Borrower annually out of the Exercised Subsidiary’s net annual profits.  Such
annual payments to the Borrower shall not exceed 50% of the Exercised
Subsidiary’s net profits for that applicable year.  The obligation of the Lender
to repay any such positive balance shall be reflected by an eight year
promissory note bearing interest at the London Interbank Offer Rate plus 1% (One
Per Cent) (the “Promissory Note”). Such Promissory Note shall be pre-payable out
of any sale of the Exercised Subsidiaries or in the event that the Exercised
Subsidiaries sell any equity to an outside party. Upon the execution of the
Promissory Note, any obligations that the Lender has to the Borrower whether
under or in connection with, this Agreement, or the Security Documents in
respect of amounts over and above amounts due to the Lender under this Agreement
shall no longer apply and instead be replaced by the obligations of the Lender
to the Borrower as specified in the Promissory Note.

 
(n)  
In consideration of the Lender entering in to this Agreement at the request of
the Guarantor, and without derogating from the Borrower’s rights under the
Promissory Note, the Guarantor hereby grants the Lender an option to purchase
its entire holding of shares or stock in the Exercised Subsidiaries on the
following terms (“ Option”):

 
(a)  
Exercisable at any time after the Buy Back Period and for a period of 24 months
thereafter;

 
(b)  
by notice in writing , electronic means or fax to the Guarantor with copy to
Guarantor's General Counsel;

 
(c)  
at a purchase price to be calculated and determined in accordance with the
Valuation which shall apply to the Option mutatis mutandis;

 
(d)  
subject to regulatory and legal requirement under the laws of Nevada, the laws
of England & Wales and any other applicable law (including, if applicable,
obtaining the approval of the shareholders of the Guarantor, which approval the
Guarantor shall use its best endeavors to obtain as soon as possible following
exercise of the Option);

 
(e)  
may be exercised in respect of some or all of the Exercised Subsidiaries, at
Lender’s sole discretion;

 
(f)  
completion of any purchase under the Option shall take place within 48 hours of
the satisfaction of Clause 1(n)(d) above, on which date the Guarantor shall
deliver to the Lender duly executed stock transfer forms, or their equivalent in
the relevant jurisdiction, of the shares the subject of the Option, in favour of
the Lender or as he may direct, together with the relevant share certificates;
and the Lender shall deliver to the Guarantor the full payment in respect of the
purchase of the same calculated as specified in Clause 1(n)(c) above.

 
 
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(o)  
Following repayment of the liabilities of the Borrower under this Agreement to
the Lender in full then the Lender shall, at the request and cost of the
Borrower execute any such documents as may be necessary for the release or
reassignment as may be appropriate of any security granted in favour of the
Lender by any Obligor.

 
(p)  
The Guarantor confirms that it has obtained a credit facility from Bank Leumi
(UK) Plc of up to £150,000 (One Hundred and Fifty Thousand Pounds Sterling), for
general working capital purposes (the “Credit Facility”).  The Credit Facility
is secured by a bank guarantee given to Bank Leumi (UK) by FIBI London. The
guarantee has been issued by FIBI London on the basis of a deposit in an
equivalent amount lodged by the Lender with FIBI London (“Lender’s
Deposit”).  The Guarantor covenants with the Lender to repay the Credit Facility
no later than May 30 2010 so that the Lender’s Deposit can be released to the
Lender.  A failure to comply with this Clause (po) will constitute an event of
default.

 
(q)  
The Guarantor hereby grants the Lender a security interest in the proceeds of
any sale of its working interest in the capital stock of Xfone 018 Ltd (“Xfone
018”) in an amount at least equal to the Loan. The Guarantor agrees to file a
UCC-1 Form together with any supporting documentation as may be necessary, in
favour of the Lender to secure such interest. In addition, Guarantor shall or
shall procure that appropriate UCC-1 Form, together with any supporting
documentation as may be necessary, covering any such proceeds, will be filed
with the Nevada Secretary of State within 3 (Three) days of such sale.  The
Guarantor further agrees to immediately notify the Lender in the event of the
sale of its interest in Xfone 018.

 
2.  
MISCELLANEOUS

 
(a)  
This Agreement shall be binding upon and inure to the benefit of the Borrower
and the Lender and their respective successors and assigns, except that neither
party may assign any of its rights or obligations hereunder without the prior
written consent of the other party.

 
(b)  
Any provision of this Agreement may be amended or waived only if such amendment
or waiver is in writing and is signed by all parties.

 
(c)  
No failure on the part of the Lender to exercise, and no delay in exercising,
any right will be deemed as a waiver thereof, nor will any single or partial
exercise by the Lender of any right preclude any other or future exercise
thereof or the exercise of any other right.

 
(d)  
In case any of the provisions contained in  this Agreement shall be found to be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.

 
(e)  
This Agreement is governed by the laws of the England & Wales and the parties
submit to the exclusive jurisdiction of the High Court of England & Wales.

 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be
duly executed as of the date first above written.

Xfone, Inc.

By: /s/ Itzhak Almog, Director

Swiftnet Limited

By: /s/ John Burton, Director

Auracall Limited.

By: /s/ John Burton, Director

Equitalk.co.uk Limited.

By: /s/ John Burton, Director

Story Telecom Limited.

By: /s/ John Burton, Director

Iddo Keinan

By: /s/ Iddo Keinan

I hereby confirm my obligations pursuant to Clauses (i) and (j) of this
Agreement.

Abraham Keinan

By: /s/ Abraham Keinan

 
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