Exhibit 10.5


 


THESE SECURITIES ARE NOT REGISTERED UNDER STATE OR
FEDERAL SECURITIES LAWS, AND MAY NOT BE OFFERED, OR SOLD, PLEDGED (EXCEPT
A PLEDGE PURSUANT TO THE TERMS OF WHICH ANY OFFER OR SALE UPON FORECLOSURE
WOULD BE MADE IN A MANNER THAT WOULD NOT VIOLATE THE REGISTRATION PROVISIONS OF
FEDERAL OR STATE SECURITIES LAWS) OR OTHERWISE DISTRIBUTED FOR VALUE, NOR MAY THESE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT OPINION OF
COUNSEL, CONCURRED IN BY COUNSEL FOR THE COMPANY, THAT NO VIOLATION OF SAID
REGISTRATION PROVISIONS WOULD RESULT THEREFROM.


 


CONVERTIBLE PROMISSORY NOTE


 


	
  $1,100,000.00

  	
  May 14, 2009

  
	
   

  	
  New York, New York

  



 


For value received of One
Million Dollars ($1,000,000), XShares Group, Inc., a Delaware corporation
(the “Company”), promises to pay to MGT Capital Investments, Inc.
(the “Holder”), the principal sum of One Million One Hundred Thousand
Dollars ($1,100,000.00). Interest shall accrue from the date of this Note on
the unpaid principal amount at a rate equal to ten percent (10%) per annum,
compounded annually.  This Note is being made in
conjunction with the execution of that certain Securities Purchase Agreement of
even date herewith (the “Purchase Agreement”) in order to provide the
Company with access to amounts funded hereunder prior to the Initial Closing
(as defined in the Purchase Agreement). 
This Note is subject to the following terms and conditions.


 


1.             Maturity.


 


(a)           Unless converted as provided in Section 2, this Note
will automatically mature and be due and payable on August 1, 2009  (the “Maturity Date”).  Subject to Sections 1(b) and 2 below,
interest shall accrue on this Note  but
shall not be due and payable until the Maturity Date  .


 


(b)           Notwithstanding the foregoing, the entire unpaid principal
sum of this Note, together with accrued and unpaid interest thereon and
interest at the rate of eighteen (18%) percent per annum going forward, shall
become immediately due and payable upon the insolvency of the Company, the
commission of any act of bankruptcy by the Company, the execution by the
Company of a general assignment for the benefit of creditors, the filing by or
against the Company of a petition in bankruptcy or any petition for relief
under the federal bankruptcy act or the continuation of such petition without
dismissal for a period of ninety (90) days or more, the appointment of a
receiver or trustee to take possession of the property or assets of the
Company, the breach of any representations, warranties or covenants under the
Purchase Agreement or this Note, or the failure to pay this Note on the
Maturity Date.


 


(c)           This Note may be prepaid in full at any time prior to
conversion pursuant to Section 2( below), with or without notice, without
penalty or premium.


 


2.             Conversion.


 


(a)           Conversion into Series B
Preferred Stock.  The
entire principal amount of this Note shall be converted into shares of the
Company’s Series B Preferred Stock at the Initial Closing.  Accrued interest on this Note shall be
converted into Accruing Dividends (as defined in the Company’s Second Amended
and Restated Articles of Incorporation attached to the Purchase Agreement (the “Certificate”))
from the date hereof.


 

















 


(b)           Conversion into
Common Stock.  If (i) the
Certificate is not approved by a majority of the holders of the Company’s Series A
Preferred Stock or a majority of the Common Stock, or (ii) at any time
prior to the Initial Closing, there shall be (a) an acquisition of the
Company by another entity other than Holder or its affiliates by means of a
merger, consolidation, or other transaction or series of related transactions
resulting in the exchange of the outstanding shares of the Company’s capital
stock such that shareholders of the Company prior to such transaction own,
directly or indirectly, less than 50% of the voting power of the surviving
entity, or (b) a sale or transfer of all or substantially all of the
Company’s assets to any other person other than Holder or its affiliates, then,
at the Holder’s option, the entire unpaid principal sum of this Note, and interest
thereon, shall be immediately paid to the Holder or converted into shares of
the Company’s common stock at a price of $0.001 per share.


 


(c)           Mechanics and Effect
of Conversion.  No
fractional shares of the Company’s capital stock will be issued upon conversion
of this Note.  In lieu of any fractional
share to which the Holder would otherwise be entitled, the Company will pay to
the Holder in cash the amount of the unconverted principal and interest balance
of this Note that would otherwise be converted into such fractional share.  Upon conversion of this Note pursuant to this
Section 2, the Holder shall surrender this Note, duly endorsed, at the
principal offices of the Company or any transfer agent of the Company.  At its expense, the Company will, as soon as
practicable thereafter, issue and deliver to such Holder, at such principal
office, a certificate or certificates for the number of shares to which such
Holder is entitled upon such conversion, together with any other securities and
property to which the Holder is entitled upon such conversion under the terms
of this Note, including a check payable to the Holder for any cash amounts
payable as described herein.  Upon
conversion of this Note, the Company will be forever released from all of its
obligations and liabilities under this Note with regard to that portion of the
principal amount and accrued interest being converted including without
limitation the obligation to pay such portion of the principal amount and
accrued interest.


 


3.             Payment.  All payments shall be made in lawful money of
the United States of America at such place as the Holder hereof may from time
to time designate in writing to the Company. 
Payment shall be credited first to the accrued interest then due and
payable and the remainder applied to principal.


 


4.             Transfer; Successors and Assigns.  The terms and conditions of this Note shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties.  Notwithstanding
the foregoing, the Holder may not assign, pledge, or otherwise transfer this
Note, except for transfers to affiliates. 
Subject to the preceding sentence, this Note may be transferred only
upon surrender of the original Note for registration of transfer, duly
endorsed, or accompanied by a duly executed written instrument of transfer in
form satisfactory to the Company. 
Thereupon, a new note for the same principal amount and interest will be
issued to, and registered in the name of, the transferee.  Interest and principal are payable only to
the registered holder of this Note.


 


5.             Governing Law.  This Note and any controversy arising out of
or relating to this Note shall be governed by and construed in accordance with
the General Corporation Law of the State of Delaware as to matters within the
scope thereof, and as to all other matters shall be governed by and construed
in accordance with the internal laws of the State New York, without regard to
conflict of law principles that would result in the application of any law
other than the law of the State of New York.


 


6.             Notices.  All notices and other communications given or
made pursuant to this Note shall be in writing and shall be deemed effectively
given upon the earlier of actual receipt or: 
(a) personal delivery to the party to be notified, (b) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (c) one (1) business day after deposit
with a nationally recognized overnight courier, freight prepaid, specifying
next business day delivery, with written 


 


2

















 


verification of receipt.  All communications shall be sent to the
respective parties at their address as set forth on the signature page, or to
such e-mail address, facsimile number or address as subsequently modified by
written notice given in accordance with this Section 6.


 


7.             Amendments and
Waivers.  Any term of this
Note may be amended only with the written consent of the Company and the
Holder. 
Any amendment or waiver effected in accordance with this Section 7
shall be binding upon the Company, the Holder and each transferee of the Note.


 


8.             Shareholders,
Officers and Directors Not Liable.  In no event shall any shareholder, officer or
director of the Company be liable for any amounts due or payable pursuant to
this Note.


 


9.             Failure or
Indulgence Not Waiver.  No
failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege, nor shall
any waiver by the Holder of any such right or rights on any one occasion be
deemed a waiver of the same right or rights on any future occasion.


 


10.           Action to Collect on
Note.  If action is
instituted to collect on this Note, the Company promises to pay all costs and
expenses, including reasonable attorney’s fees, incurred in connection with
such action.


 


 


	
   

  	
  XSHARES GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey Feldman

  
	
   

  	
   

  	
  Jeffrey Feldman, Chief Executive Officer

  



 


	
   

  	
  Address:

  	
  XShares Group, Inc.

  420 Lexington Avenue, Suite 2550

  New York, NY 10170

  



 


ACKNOWLEDGED AND ACCEPTED:


this 14th day of May, 2009,


By: MGT CAPITAL
INVESTMENTS, INC.,


 


 


	
   

  	
  By:

  	
  /s/ Tim Paterson-Brown

  	
   

  
	
   

  	
  Its: 

  	
  Chief Executive Officer

  	
   

  
	
   

  
	
  Address:

  	
  MGT Capital Investments, Inc.

  
	
   

  	
  Kensington Centre

  
	
   

  	
  66 Hammersmith Road

  
	
   

  	
  London W14 8UD

  
	
   

  	
  United Kingdom

  
					



 


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