ex10111.htm


    SUBSCRIPTION
      AGREEMENT

     

    


     

    FOR
      THE

     

    


     

    PURCHASE
      OF UNITS CONSISTING OF

     

    TWO
      SHARES OF COMMON STOCK AND

     

    ONE
      COMMON STOCK PURCHASE WARRANT OF

     

    XFONE,
      INC.

     

    ______________,
      2007

     


    
      
        
        

      

      
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    XFONE,
      INC.

    


    SUBSCRIPTION
      AGREEMENT

    FOR
      THE PURCHASE OF UNITS CONSISTING OF

    TWO
      SHARES OF COMMON STOCK AND

    ONE
      COMMON STOCK PURCHASE WARRANT

    


    


    XFONE,
      INC., a Nevada corporation (the “Company”) is offering (this
“Offering”) for sale to ____________________________
      (the
“Investor”) up to an aggregate of ____________ units (the
“Units”) in the capital of Xfone, Inc. (the
“Company”), a Nevada company,
      at a price of $6.20 per Unit for
      the aggregate subscription price of $____________ (the “Subscription
      Amount”).  Each Unit shall consist of two shares (the
“Unit Shares”) of common stock, $0.001 par value per share
      (“Common Stock”) in the capital of the Company, and one Common
      Stock Purchase Warrant (a “Warrant”) entitling the Purchaser to
      purchase one additional share of the Company’s Common Stock (a “Warrant
      Share”), at an exercise price of $3.10 per share, for a period of five
      years from the completion of the purchase.  The Units, together with
      the Unit Shares, the Warrants and the Warrant Shares, may collectively be
      referred to herein as the “Securities.”

    


    This
      Offering is made by the Company, acting without a placement agent, and is being
      conducted in reliance upon the exemption from registration requirements of
      the
      Securities Act of 1933, as amended (the “Securities Act”)
      afforded by Section 4(2) of the Securities Act.

    


    NOW,
      THEREFORE, IT IS HEREBY AGREED:

     

    Purchase
      of Units

     

    (a)           The
      undersigned Investor agrees to purchase at the Closing (as defined herein),
      and
      the Company agrees to sell and issue to the Investor at the
      Closing, ____________  Units, at a price of $6.20 per Unit, for the
      aggregate Subscription Amount of $____________.

     

    (b)           The
      Investor and the Company agree that the Subscription Amount shall be paid by
      or
      on behalf of the Investor by wire transfer to the Escrow Account (as defined
      below) in accordance with paragraph (d) under “Subscription Procedures” below,
      wherein the Subscription Amount will be held until all of the following have
      occurred:

     

    (i)
      the
      consummation of the Company’s acquisition of NTS Communications, Inc.
      (“NTS”), pursuant to that certain Stock Purchase Agreement
      entered into on August 22, 2007 between the Company, NTS and the shareholders
      of
      NTS (including any amendments thereto);

     


    
      
        
        

      

      
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    (ii)
      receipt by the Company of the approval of the American Stock Exchange
      (“AMEX”) and the Tel Aviv Stock Exchange
      (“TASE”) for the listing of the Unit Shares and the Warrant
      Shares;

     

    (iii)
      the
      receipt by the Company of any other consent and approval which may be required
      by AMEX or TASE for the issuance of the Unit Shares, the Warrants and the
      Warrant Shares, which may include approval by the Company’s shareholders;
      and

     

    (iv)
      the
      issuance of the Unit Shares and the Warrant to the Investor pursuant to this
      Agreement;

     

    at
      which
      time the Subscription Amount will be released to the Company (the
“Closing”).

     

     

    Subscription
      Procedures

     

    To
      subscribe, the Investor must:

     

    (a)           complete
      and sign this Agreement;

     

    (b)           complete
      and sign the accompanying Confidential Prospective Purchaser Questionnaire,
      attached hereto as Attachment A (this Agreement together with all
      exhibits and attachments hereto are collectively referred to herein as the
      “Offering Documents”);

     

    (c)           return
      the completed and signed Offering Documents on behalf of the Investor by both
      (i) faxing to the attention of Arthur S. Marcus, Esq. at Gersten Savage LLP
      at
      (212) 980-5192, and (ii) then mailing the original completed and signed Offering
      Documents to:

     

    Gersten
      Savage LLP

     

    600
      Lexington Avenue, 9th Floor

     

    New
      York,
      NY 10022-6018

     

    Attn:  Arthur
      S. Marcus, Esq.

     

    (d)           Wire
      the full Subscription Amount not later than twenty-four (24) hours after
      notification of acceptance by the Company (the “Subscription Date”), to Gersten
      Savage LLP, as escrow agent (the “Escrow Agent”), to the escrow account (the
“Escrow Account”) at the following instructions:

     

    Gersten
      Savage LLP

    600
      Lexington Avenue

    New
      York,
      NY 10022

    


    Signature
      Bank

    565
      Fifth
      Avenue

    New
      York,
      NY 10017


    
      
        
        

      

      
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    ABA
      #
      026013576

    Account
      #
      1500885978

    FBO
      Xfone, Inc.

    


    Prospective
      Investors should retain their own professional advisors to review and evaluate
      the economic, tax, and other consequences of an investment in the
      Company.

     

    THE
      SECURITIES OFFERED HEREBY, HAVE NOT BEEN FILED OR REGISTERED WITH OR APPROVED
      BY
      THE U.S. SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”), NOR HAS THE
      COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE OFFERING DOCUMENTS.
      NO
      STATE SECURITIES LAW ADMINISTRATOR HAS PASSED ON OR ENDORSED THE MERITS OF
      THIS
      OFFERING OR THE ACCURACY OR THE ADEQUACY OF THE OFFERING DOCUMENTS. ANY
      REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

     

    IT
      IS INTENDED THAT THE SECURITIES OFFERED HEREBY WILL BE MADE AVAILABLE TO
      ACCREDITED INVESTORS, AS DEFINED IN REGULATION D AND RULE 501 PROMULGATED UNDER
      THE SECURITIES ACT AND UP TO THIRTY-FIVE NON-ACCREDITED
      INVESTORS.  THE SECURITIES OFFERED HEREBY ARE BEING OFFERED PURSUANT
      TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
      APPLICABLE STATE SECURITIES LAWS FOR NONPUBLIC OFFERINGS. SUCH EXEMPTIONS LIMIT
      THE NUMBER AND TYPES OF INVESTORS TO WHICH THE OFFERING WILL BE MADE AND
      RESTRICT SUBSEQUENT TRANSFERS OF THE INTERESTS.

     

    THE
      SECURITIES OFFERED HEREBY SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD
      TO
      SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT. INVESTORS WILL BE REQUIRED TO
      REPRESENT THAT THEY ARE FAMILIAR WITH AND UNDERSTAND THE TERMS OF THIS
      OFFERING.

     

    NO
      SECURITIES MAY BE RESOLD OR OTHERWISE DISPOSED OF BY AN INVESTOR UNLESS, IN
      THE
      OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, REGISTRATION UNDER THE
      APPLICABLE FEDERAL OR STATE SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS
      MADE WITH SUCH REGISTRATION REQUIREMENTS.

     

    THE
      INVESTOR, BY ACCEPTING DELIVERY OF THE OFFERING DOCUMENTS, AGREES TO RETURN
      THE
      OFFERING DOCUMENTS AND ALL ACCOMPANYING OR RELATED DOCUMENTS TO THE COMPANY
      UPON
      REQUEST IF THE INVESTOR DOES NOT AGREE TO PURCHASE ANY OF THE SECURITIES OFFERED
      HEREBY.

     


    
      
        
        

      

      
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    ANY
      OFFERING DOCUMENTS SUBMITTED IN CONNECTION WITH THE PRIVATE PLACEMENT OF THE
      SECURITIES DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
      JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
      AUTHORIZED.  ANY REPRODUCTION OR DISTRIBUTION OF ANY OFFERING
      DOCUMENTS IN WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF THEIR CONTENTS,
      WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY, IS PROHIBITED. ANY PERSON
      ACTING CONTRARY TO THE FOREGOING RESTRICTIONS MAY PLACE HIM/HERSELF AND THE
      COMPANY IN VIOLATION OF FEDERAL OR STATE SECURITIES LAWS.

     


    
      
        
        

      

      
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    NASAA
      UNIFORM LEGEND

     

    IN
      MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION
      OF
      THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
      INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
      SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
      AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
      DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE
      SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
      NOT
      BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND
      THE
      APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
      THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
      FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
      TIME.

     

    The
      undersigned Investor acknowledges that the Units have not been registered under
      the Securities Act, nor under the securities laws of any State, that absent
      an
      exemption from registration contained in those laws, the issuance and sale
      of
      the Units would require registration, and that the Company's reliance upon
      such
      exemption is based upon the undersigned's representations, warranties, and
      agreements contained in the Offering Documents.

     


    
      
        
        

      

      
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    XFONE,
      INC.

    


    SUBSCRIPTION
      AGREEMENT FOR THE

    PURCHASE
      OF UNITS CONSISTING OF

    TWO
      SHARES OF COMMON STOCK AND

    ONE
      COMMON STOCK PURCHASE WARRANT

    


    1.           Unless
      terminated earlier by the Company, in its sole discretion, this Offering is
      scheduled to terminate on or about December 13, 2007, 5:00 p.m., New York
      time.  The issuance of the Units is subject to the satisfaction of
      each of the following conditions:

     

    a.           the
      consummation of the Company’s acquisition of NTS, pursuant to that certain Stock
      Purchase Agreement entered into on August 22, 2007 between the Company, NTS
      and
      the shareholders of NTS (including any amendments thereto);

     

    b.           receipt
      by the Company of the approval of the AMEX and TASE for the listing of the
      Unit
      Shares and the Warrant Shares; and

     

    c.           the
      receipt by the Company of any other consent and approval which may be required
      by AMEX or TASE for the issuance of the Unit Shares, the Warrants and the
      Warrant Shares, which may include approval by the Company’s
      shareholders.

     

    The
      Units
      shall not be issued until all conditions are satisfied.  In the event
      all such conditions are not satisfied on or before March 31, 2008, the Investor
      may, but shall not be obligated to, demand that its Subscription Amount be
      returned from the Escrow Account by the Escrow Agent, in full, including any
      accrued interest.

     

    2.           For
      additional information regarding the Company, Investors are encouraged to review
      the Company’s Annual Report on Form 10-KSB for the period ending December 31,
      2006, filed with the Commission on March 30, 2007, together with an amendment
      thereto on Form 10-KSB/A filed with the Commission on July 30, 2007, and the
      Company’s Quarterly Report on Form 10-QSB for the period ending September 30,
      2007 filed with the Commission on November 14, 2007, along with the Company’s
      periodic reports and other information incorporated by reference therein
      (collectively referred to herein as the “Exchange Filings”), as
      well as the section entitled “Risk Factors” attached hereto as Attachment
      B.  A copy of any of the Exchange Filings is available at no
      charge, by contacting the Company’s Corporate Secretary at
alon@xfone.com.

     

    3.           The
      Company hereby makes the following representations, warranties and covenants
      to
      the Investor:

     

    a.           The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the state of its incorporation.  The Company is duly
      qualified to conduct business and is in corporate and tax good standing under
      the laws of each jurisdiction in which the nature of its businesses or the
      ownership or leasing of its properties requires such qualification, except
      where
      the failure to be so qualified or in good standing would not have a material
      adverse effect on the Company’s business.  The Company has all requisite
      corporate power and authority to carry on the businesses in which it is engaged
      and to own and use the properties owned and used by it.

     


    
      
        
        

      

      
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    b.           The
      Company has all requisite power and authority to execute and deliver this
      Agreement and the Warrant and to perform its obligations hereunder and
      thereunder.  The execution and delivery by the Company of this Agreement
      and the Warrant and the consummation by the Company of the transactions
      contemplated hereby and thereby have been duly and validly authorized by all
      necessary corporate action on the part of the Company.  This Agreement and
      the Warrant have been duly and validly executed and delivered by the Company
      and
      constitute valid and binding obligations of the Company, enforceable against
      it
      in accordance with their respective terms.

     

    c.    Subject
      to compliance with the applicable requirements of the Securities Act, the
      Securities Exchange Act of 1934 and any applicable state securities laws,
      neither the execution and delivery by the Company of this Agreement or the
      Warrant nor the consummation by the Company of the transactions contemplated
      hereby or thereby, will (a) conflict with or violate any provision of the
      charter or Bylaws of the Company, (b) require on the part of the Company
      any filing with, or permit, authorization, consent or approval of, any court,
      arbitrational tribunal, administrative agency or commission or other
      governmental or regulatory authority or agency (“Governmental Entity”), except
      that AMEX approval is required for the issuance of the Shares and Warrant
      Shares, (c) conflict with, result in breach of, constitute (with or without
      due notice or lapse of time or both) a default under, result in the acceleration
      of obligations under, create in any party any right to terminate, modify or
      cancel, or require any notice, consent or waiver under, any contract or
      instrument to which the Company is a party or by which it is bound or to which
      any of its assets are subject, or (d) violate any order, writ, injunction,
      decree, statute, rule or regulation applicable to the Company or any of its
      properties or assets.

     

    d.           The
      authorized capital stock of the Company consists of 50,000,000 shares of Common
      Stock.  As of the date of this Agreement, there were 13,467,928 shares of
      Common Stock issued and outstanding.  The Company has no outstanding bonds,
      debentures, notes or other obligations the holders of which have the right
      to
      vote (or which are convertible into or exercisable for securities having the
      right to vote) with the stockholders of the Company on any matter,
      other than
      outstanding warrants and options (including out-of-the-money warrants and
      options) to purchase up to 10,219,159
      shares of common
      stock. 
      All issued and outstanding
      shares of Common Stock are duly authorized, validly issued, fully paid,
      nonassessable and free of preemptive rights. 

     

    e.           The
      Company has delivered (incorporated by reference to the Company’s filings as
      reported on the SEC’s web site) to Buyers each registration statement, report,
      proxy statement or information statement prepared and filed with the Securities
      and Exchange Commission by it since September 30, 2005, each in the form
      (including exhibits and any amendments thereto) filed with the SEC
      (collectively, the “Company Reports”).  As of their respective dates, the
      Company Reports (i) complied as to form in all material respects with the
      applicable requirements of the Securities Act, the Securities Exchange Act
      of
      1934, as amended (the “Exchange Act”), and the rules and regulations thereunder
      and (ii) did not contain any untrue statement of a material fact or omit to
      state a material fact required to be stated therein or necessary to make the
      statements made therein, in the light of the circumstances under which they
      were
      made, not misleading.  Each of the consolidated balance sheets included in
      or incorporated by reference into the Company Reports (including the related
      notes and schedules) fairly presents, in all material respects, the consolidated
      financial position of the Company as of its date, and each of the consolidated
      statements of income, retained earnings and cash flows included in or
      incorporated by reference into the Company Reports (together with the related
      notes and schedules) fairly presents, in all material respects, the results
      of
      operations, retained earnings or cash flows, as the case may be, of the Company
      for the periods set forth therein (subject to the lack of footnote disclosure
      and normal year-end audit adjustments which would not be material in amount
      or
      effect), in each case in accordance with generally accepted accounting
      principles consistently applied during the periods involved, except as may
      be
      noted therein.  Except as and to the extent set forth in the consolidated
      balance sheet of the Company at September 30, 2007, including all notes thereto,
      or as set forth in the Company Reports, the Company has no material liabilities
      or obligations of any nature (whether accrued, absolute, contingent or
      otherwise) that would be required to be reflected on, or reserved against in,
      a
      balance sheet of the Company or in the notes thereto, prepared in accordance
      with generally accepted accounting principles consistently applied, except
      liabilities arising in the ordinary course of business since such
      date.

     


    
      
        
        

      

      
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    f.    Since
      September 30, 2007, the Company has conducted its business only in the ordinary
      course of such business, and, other than as set forth in the Company Reports,
      there has not been (i) any material adverse effect on the Company’s
      business; (ii) any declaration, setting aside or payment of any dividend or
      other distribution with respect to its capital stock; or (iii) any material
      change in its accounting principles, practices or methods.

     

    g.           There
      is no action, suit, proceeding, claim, arbitration or investigation before
      any
      Governmental Entity which is pending or has been threatened against the
      Company.  There are no judgments, orders or decrees outstanding against the
      Company.  To the knowledge of the Company, there is no threatened civil or
      criminal litigation, written notice of violation, formal administrative
      proceeding, or investigation, inquiry or information request by any governmental
      entity with respect to the business of the Company.

     

    h.           The
      Unit Shares and Warrant Shares, when sold, issued and delivered in accordance
      with the terms of this Agreement, will be duly and validly issued, fully paid
      and nonassessable, and will be subject to restrictions on transfer under federal
      and applicable state securities law until a registration statement covering
      such
      shares is declared effective by the Securities and Exchange Commission (the
      “SEC”), and then may be sold in accordance with the terms provided in the
      prospectus to such registration statement.  The Shares will be issued in
      compliance in all material respects with an exemption from the registration
      of
      the Securities Act, and the registration and qualification requirements of
      the
      securities laws of the applicable states.

     


    
      
        
        

      

      
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    4.           The
      Investor hereby makes the following representations, warranties and covenants
      to
      the Company:

     

    a.           The
      Investor has been given the opportunity to ask questions of, and receive answers
      from the Company concerning the terms and conditions of this Offering and the
      Offering Documents and to obtain such additional written information, to the
      extent the Company possesses such information or can acquire it without
      unreasonable effort or expense, necessary to verify the accuracy of the same
      as
      the Investor desires in order to evaluate this
      investment.  Notwithstanding the foregoing, the only information upon
      which the Investor has relied is that set forth in the Offering Documents and
      the Exchange Filings, and the Investor’s own independent
      investigation.  The Investor acknowledges that the Investor has
      received no representations or warranties from the Company or its employees,
      directors, officers, or agents in making this investment decision other than
      as
      set forth in the Offering Documents and the Exchange Filings.

     

    b.           The
      Investor is aware that the purchase of the Units is a speculative investment
      involving a high degree of risk and that there is no guarantee that the Investor
      will realize any gain from this investment, and that the Investor could lose
      the
      total amount of the Investor's investment.

     

    c.           The
      Investor understands that no federal or state agency has made any finding or
      determination regarding the fairness of this Offering, or any recommendation
      or
      endorsement of this Offering.

     

    d.           The
      Investor is purchasing the Units for the Investor's own account, with the
      intention of holding the Units, with no present intention of dividing or
      allowing others to participate in this investment or of reselling or otherwise
      participating, directly or indirectly, in a distribution of the Units, and
      shall
      not make any sale, transfer, or pledge thereof without registration under the
      Securities Act and any applicable securities laws of any state or unless an
      exemption from registration is available under those laws.

     

    e.           The
      Investor represents that the Investor, if an individual, has adequate means
      of
      providing for his or her current needs and personal and family contingencies
      and
      has no need for liquidity in this investment in the Units.  The
      Investor has no reason to anticipate any material change in his or her personal
      financial condition for the foreseeable future.

     

    f.           The
      Investor is financially able to bear the economic risk of this investment,
      including the ability to hold the Units indefinitely or to afford a complete
      loss of the Investor’s investment.

     

    g.           The
      Investor represents that the Investor's overall commitment to this investment
      is
      not disproportionate to the Investor's net worth, and the Investor's investment
      in the Units will not cause such overall commitment to become
      excessive.  The Investor will not pledge, transfer, or assign this
      Agreement.

     

    h.           The
      Investor represents that the funds provided for this investment are either
      separate property of the Investor, community property over which the Investor
      has the right of control, or are otherwise funds as to which the Investor has
      the sole right of management.

     


    
      
        
        

      

      
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    i.           FOR
      PARTNERSHIPS, CORPORATIONS, TRUSTS, OR OTHER ENTITIES
      ONLY:  If the Investor is a partnership, corporation, trust,
      or other entity, (i) [the Investor has enclosed with this Agreement appropriate
      evidence of the authority of the individual executing this Agreement to act
      on
      its behalf (e.g., if a trust, a certified copy of the trust agreement; if a
      corporation, a certified corporate resolution authorizing the signature and
      a
      certified copy of the articles of incorporation; or if a partnership, a
      certified copy of the partnership agreement),] (ii) the Investor represents
      and
      warrants that it was not organized or reorganized for the specific purpose
      of
      acquiring the Units, (iii) the Investor has the full power and authority to
      execute this Agreement on behalf of such entity and to make the representations
      and warranties made herein on its behalf, and (iv) this investment in the
      Company has been affirmatively authorized, if required, by the governing board
      of such entity and is not prohibited by the governing documents of the
      entity.

     

    j.           The
      address shown under the Investor's signature at the end of this Agreement is
      the
      Investor's principal residence if he or she is an individual, or its principal
      business address if a corporation or other entity.

     

    k.           The
      Investor has such knowledge and experience in financial and business matters
      as
      to be capable of evaluating the merits and risks of an investment in the
      Units.

     

    l.           The
      Investor expressly acknowledges and agrees that the Company is relying upon
      the
      Investor's representations contained in the Offering Documents.

     

    5.

     

    a.           The
      Company shall prepare and file with the Commission as soon as practicable but
      in
      no event later than 120 days after the closing of the transaction contemplated
      by the Purchase Agreement, a registration statement (the “Initial Shelf
      Registration Statement,” and together with any Subsequent Shelf Registration
      Statement (as defined below), including, in each case, the prospectus,
      amendments and supplements to such registration statements, including
      post-effective amendments, all exhibits, and all materials incorporated by
      reference or deemed to be incorporated by reference in such registration
      statements, are herein collectively referred to as the “Shelf Registration
      Statement”) for an offering to be made on a delayed or continuous basis pursuant
      to Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”)
      (the “Shelf Registration”), registering the resale from time to time by
      Stockholders of all of the Unit Shares and Warrant Shares (“Registrable
      Securities”).  The Initial Shelf Registration Statement shall be on an
      appropriate form under the Securities Act permitting registration of such
      Registrable Securities for resale by Stockholders from time to time as set
      forth
      in the Initial Shelf Registration Statement.  The Company shall use
      its best efforts to cause the Initial Shelf Registration Statement to be
      declared effective under the Securities Act as promptly as is practicable and
      to
      keep the Initial Shelf Registration Statement (or any Subsequent Shelf
      Registration Statement) continuously effective under the Securities Act to
      permit the prospectus included therein to be lawfully delivered by the
      Stockholders, for a period that will terminate when (i) all the Registrable
      Securities covered by the Shelf Registration Statement have been sold pursuant
      thereto or (except in sales described in the proviso to Section 5.1) otherwise
      or (ii) such Registrable Securities may be sold pursuant to the provisions
      of
      Rule 144 under the Securities Act (such period, the “Effectiveness
      Period”).

     


    
      
        
        

      

      
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    b.           If
      the Initial Shelf Registration Statement or any Subsequent Shelf Registration
      Statement ceases to be effective for any reason at any time during the
      Effectiveness Period (other than because all Registrable Securities registered
      thereunder have been resold pursuant thereto or have otherwise ceased to be
      Registrable Securities), the Company shall use its best efforts to obtain the
      prompt withdrawal of any order suspending the effectiveness thereof, and in
      any
      event shall within thirty (30) days of such cessation of effectiveness amend
      such Shelf Registration Statement in a manner reasonably expected to obtain
      the
      withdrawal of the order suspending the effectiveness thereof, or file an
      additional Shelf Registration Statement covering all of the securities that
      as
      of the date of such filing are Registrable Securities (a “Subsequent Shelf
      Registration Statement”).  If a Subsequent Shelf Registration
      Statement is filed, the Company shall use its best efforts to cause the
      Subsequent Shelf Registration Statement to become effective as promptly as
      is
      practicable after such filing and to keep such Subsequent Shelf Registration
      Statement continuously effective until the end of the Effectiveness
      Period.

     

    c.           The
      Company shall supplement and amend the Shelf Registration Statement if required
      by the rules, regulations or instructions applicable to the registration form
      used by the Company for such Shelf Registration Statement, if required by the
      Securities Act.

     

    d.           Notwithstanding
      any other provisions of this Agreement to the contrary, the Company shall cause
      the Shelf Registration Statement and the related prospectus and any amendment
      or
      supplement thereto, as of the effective date of the Shelf Registration
      Statement, amendment or supplement, (i) to comply in all material respects
      with
      the applicable requirements of the Securities Act and the rules and regulations
      of the Commission and (ii) not to contain any untrue statement of a material
      fact or omit to state a material fact required to be stated therein or necessary
      in order to make the statements therein not misleading.

     

    6.           Except
      as otherwise specifically provided for hereunder, no party shall be deemed
      to
      have waived any of his, her, or its rights hereunder or under any other
      agreement, instrument, or papers signed by any of them with respect to the
      subject matter hereof unless such waiver is in writing and signed by the party
      waiving said right.  Except as otherwise specifically provided for
      hereunder, no delay or omission by any party in exercising any right with
      respect to the subject matter hereof shall operate as a waiver of such right
      or
      of any such other right.  A waiver on any one occasion with respect to
      the subject matter hereof shall not be construed as a bar to, or waiver of,
      any
      right or remedy on any future occasion.  All rights and remedies with
      respect to the subject matter hereof, whether evidenced hereby or by any other
      agreement, instrument, or paper, will be cumulative, and may be exercised
      separately or concurrently.

     


    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    


    7.           The
      parties have not made any representations or warranties with respect to the
      subject matter hereof not set forth herein, and this Agreement, together with
      any instruments executed simultaneously herewith, constitutes the entire
      agreement between them with respect to the subject matter hereof.  All
      understandings and agreements heretofore existing between the parties with
      respect to the subject matter hereof are merged in this Agreement and any such
      instrument, which alone fully and completely express their
      agreement.

     

    8.           This
      Agreement may not be changed, modified, extended, terminated, or discharged
      orally, but only by an agreement in writing, which is signed by the Company
      and
      the Investor.

     

    9.           The
      parties agree to execute any and all such other and further instruments and
      documents, and to take any and all such further actions reasonably required
      to
      effectuate this Agreement and the intent and purposes hereof.

     

    10.           If
      any provision or any portion of any provision of this Agreement or the
      application of any such provision or any portion thereof to any person or
      circumstance, shall be held invalid or unenforceable, the remaining portion
      of
      such provision and the remaining portion of such provision as is held invalid
      or
      unenforceable to persons or circumstances other than those as to which it is
      held invalid or unenforceable, shall not be affected thereby.

     

    11.           This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York and the Investor hereby consents to the jurisdiction of the
      courts of the State of New York and/or the United States District Court for
      the
      Southern District of New York.

     

    [Remainder
      of page intentionally left blank.]

     


    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    


    


     

    ALL
      INVESTORS MUST COMPLETE A COPY OF THIS PAGE

     

    __________________________

    (Print
      Name of Investor)

     

    IN
      WITNESS WHEREOF, the Investor has executed this Agreement on this ____
      day of ________, 2007.

     

    The
      Investor hereby offers to subscribe for ____________ Units on the terms and
      conditions of this Agreement and agrees to pay the Subscription Amount in the
      sum of $__________.

    


     

    Please
      indicate the form of ownership that you desire your Units to be registered
      in.

     

    1.           |__|           Individual

     

    2.           |__|           Joint
      Tenants with Right of Survivorship

     

    3.           |__|           Community
      Property

     

    4.           |__|           Tenants
      in Common

     

    5.           |__|           Corporation/Partnership

     

    6.           |__|           IRA
      of________________

     

    7.           |__|           Trust

     

                          Date
      Opened ___________

     

    8.           |__|           As
      A Custodian For________________

     

    Under
      the
      Uniform Transfer to Minors Act of the

     

    State
      of ___________

     

    9.           |__|           Married
      with Separate

     

                              Property

     

    10.           |__|           Keogh
      Plan ____________

     


    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    


    


     

    EXECUTION
      BY SUBSCRIBER WHO IS A NATURAL PERSON

     

    


    Exact
      Name in Which Title is to be Held

    


    


    (Signature)

    


    


    Name
      (Please Print)

    


    


    Title
      of
      Person Executing Agreement

    


    


    Address:  Number
      and Street

    


    


    City,
      State, Zip Code

    


    


    Social
      Security Number

    


     

    Accepted
      this ___ day of _______, 2007, on behalf of XFONE,
      INC.

     

    


    By:
      _____________________________

    Name:

    Title:

     

    


     


    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    


    EXECUTION
      BY SUBSCRIBER WHICH IS A CORPORATION, PARTNER, TRUST, ETC.

     

    


    Exact
      Name in Which Title is to be Held

    


    


    (Signature)

    


    


    Name
      (Please Print)

    


    


    Title
      of
      Person Executing Agreement

    


    


    Address:  Number
      and Street

    


    


    City,
      State, Zip Code

    


    


    Tax
      Identification Number

    


    Accepted
      this ___ day of _______, 2007 on behalf of XFONE,
      INC.

     

    


     

    By:
      ________________________

          Name:

          Title:

     

    


    
      	
               

            	 


    


    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    


    ATTACHMENTS

    


    
      


      
        	
                Attachment
                  A

              	
                Confidential
                  Prospective Purchaser
                  Questionnaire

              


      

    

    


    
      	
              Attachment
                B

            	
              Risk
                Factors

            


    

    


    


    



    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    


    Attachment
      A

    CONFIDENTIAL
      PROSPECTIVE PURCHASER QUESTIONNAIRE

     

    THIS
      QUESTIONNAIRE IS TO BE COMPLETED BY EACH PERSON WHO DESIRES TO PURCHASE UNITS
      OF
      XFONE, INC. (THE “COMPANY”).  THIS MATERIAL DOES NOT CONSTITUTE AN
      OFFER TO SELL NOR IS IT A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. THE
      TERMS OF THE OFFERING WILL BE MADE SOLELY PURSUANT TO THE TERMS AND CONDITIONS
      OF THE SECURITIES PURCHASE AGREEMENT PROVIDED HEREWITH WHICH CONTAINS MATERIAL
      INFORMATION TO BE REVIEWED IN CONNECTION WITH ANY INVESTMENT
      DECISION.

     

    ACCREDITED
      INVESTOR STATUS

     

    Please
      check whether one or more of the following definitions of "Accredited Investor,"
      if any, applies to you.  If none of the following applies to you,
      please leave a blank.  Please sign in the indicated space below and
      indicate the amount of your investment and put you initials after the
      amount.

     

    
      	
                     
                (a)

            	
              A
                Bank as defined in Section 3(a)(2) of the Securities Act of 1933,
                as
                amended (the "1933 Act"), or any savings and loan association or
                other
                institution as defined in Section 3(a)(5)(A) of the 1933 Act whether
                acting in its individual or fiduciary capacity; any broker or dealer
                registered pursuant to Section 15 of the Securities Exchange Act
                of 1934,
                as amended (the "Exchange Act"); an insurance company as defined
                in
                Section 2(13) of the 1933 Act; an investment company registered under
                the
                Investment Company Act of 1940 or a business development company
                as
                defined in Section 2(a)(48) of that act; a Small Business Investment
                Company licensed by the U.S. Small Business Administration under
                Section
                301(c) or (d) of the Small Business Investment Act of 1958; any plan
                established and maintained by a state, or its political subdivisions,
                or
                any agency or instrumentality of a state or its political subdivisions
                for
                the benefit of its employees, if such plan has total assets in excess
                of
                $5,000,000; any employee benefit plan within the meaning of the Employee
                Retirement Income Security Act of 1974, if the investment decision
                is made
                by a plan fiduciary, as defined in Section 3(21) of such act, which
                is
                either a bank, savings and loan association, insurance company, or
                registered investment advisor, or if the employee benefit plan has
                total
                assets in excess of $5,000,000 or, if a self-directed plan, with
                investment decisions made solely by persons that are Accredited
                Investors.

            


    

     

    
      	
                     
                (b)

            	
              A
                Private Business Development Company as defined in Section 202(a)(22)
                of
                the Investment Advisers Act of
                1940.

            


    

     

    
      	
                     
                (c)

            	
              An
                organization described in Section 501(c)(3) of the Internal Revenue
                Code
                or corporation, Massachusetts or similar business trust, or partnership,
                not formed for the specific purpose of acquiring the securities offered,
                with total assets in excess of
                $5,000,000.

            


    

     

    
      	
                     
                (d)

            	
              A
                natural person whose individual net worth, or joint net worth with
                that
                person's spouse, at the time of purchase exceeds
                $1,000,000.

            


    

     

    
      	
                     
                (e)

            	
              A
                natural person who had an individual income in excess of $200,000
                in each
                of the two most recent years or joint income with that person's spouse
                in
                excess of $300,000 in each of those years and has a reasonable expectation
                of reaching the same income level in the current
                year.

            


    

     

    
      	
                     
                (f)

            	
              Any
                trust, with total assets in excess of $5,000,000, not formed for
                the
                specific purpose of acquiring the common stock, whose purchase is
                directed
                by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation
                D.

            


    

     

    
      	
                     
                (g)

            	
              Any
                entity in which all of the equity owners are Accredited
                Investors.

            


    

     

    $                              

     

    Investor’s
      Signature                                                   Amount
      of Investment Initials

     

    


     

    (Please
      insert name in which Securities will be

     

    held;
      if
      held by a corporation, please sign below)

     

    Corporate
      Purchaser

     

    


     

    


     

    By:  ___________________________           

     

    Name/Title

     


    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    


    Attachment
      B

     

    


    RISK
      FACTORS

    


    You
      should carefully consider the risks described below before buying the Units
      offered in this offering. The risks and uncertainties described below are not
      the only risks we face. Additional risks and uncertainties not currently known
      to us or that we currently deem immaterial may impair our business operations.
      If any of the adverse events described in this risk factors section actually
      occur, our business, results of operations and financial condition could be
      materially adversely affected, the trading price of our common stock could
      decline and you might lose all or part of your investment. We have had operating
      losses from time to time and cannot assure that we will be profitable in the
      foreseeable future. We make various statements in this section which constitute
      “forward-looking” statements under Section 27A of the Securities
      Act.

    


    RISKS
      RELATED TO OUR BUSINESS

    


    AN
      INVESTMENT IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. WE CANNOT ASSURE
      PROSPECTIVE INVESTORS THAT WE WILL CONTINUE OPERATIONS OR MAKE A PROFIT IN
      THE
      FUTURE. NO PURCHASE OF COMMON STOCK SHOULD BE MADE BY ANY PERSON WHO CANNOT
      AFFORD A TOTAL LOSS OF HIS OR HER INVESTMENT.

    


    In
      addition to the other information provided in the Offering Documents, you should
      carefully consider the following risk factors in evaluating our business before
      purchasing any common stock.

    


    WHILE
      WE ACT IN COMPLIANCE WITH THE GENERAL CONDITIONS OF ENTITLEMENT IN THE UNITED
      KINGDOM AND ACCORDING TO OUR LICENSES IN THE UNITED STATES AND ISRAEL, IF WE
      DO
      NOT COMPLY WITH AND CONTINUE TO FOLLOW THE TERMS OF SUCH REGIME AND/OR LICENSES
      AND THE RELEVANT LAWS AND REGULATIONS, WE COULD LOSE OUR ENTITLEMENT AND/OR
      LICENSES TO CONDUCT OUR BUSINESSES IN THESE JURISDICTIONS.

    


    Not
      complying with, or indeed violating the conditions of our licenses and the
      related laws and regulations could lead to the loss of, material changes to,
      or
      freezing of our entitlement and/or licenses which could
      have a material adverse effect on our operations. Without such authorization
      or
      licenses we would not be able to provide any approved and/or licensed services,
      resulting in a loss of revenues. Such violations of our licenses in the US
      or
      Israel could lead to monetary penalties.

    


    WE
      ARE SUBJECT TO EXTENSIVE REGULATION IN THE UNITED KINGDOM, THE UNITED STATES,
      ISRAEL AND OTHER FOREIGN COUNTRIES WHICH MAY LEAD US TO INCUR INCREASED BUSINESS
      COSTS AND HAVE NEGATIVE EFFECTS UPON OUR BUSINESS INCLUDING REVENUES AND
      POTENTIAL PROFITABILITY.

    


    We
      serve
      customers in many countries, all of which have different regulations,
      jurisdictions, and standards and controls related to licensing,
      telecommunications, import/export, currency and trade. Regulatory changes
      pertaining to future regulatory classification of Internet related telephone
      services, otherwise known as VOIP telephony, may lead to burdensome regulatory
      requirements and fees, as well as additional interconnection fees to carriers
      and changes in access charges, universal service, and regulatory fee payments,
      which would affect our international and long distance services related costs
      and may have a material impact upon our ability to conduct business, as well
      as
      our revenues. Our compliance with foreign rules and regulations may lead to
      increased costs of doing business or reduced revenues from having to decrease
      or
      eliminate our business in certain foreign countries, all of which may negatively
      affect our potential profitability. 

    



    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    


    IF
      OUR TELECOMMUNICATIONS INFRASTRUCTURE OR EQUIPMENT IS DAMAGED OR INOPERATIVE,
      WE
      MAY NOT BE ABLE TO PROVIDE SERVICE TO OUR CUSTOMERS.

    


    We
      rely
      on our telecommunications equipment, including, but not limited to our
      switchboard and switches, to provide services to our customers. In the event
      that such equipment is not able to provide the services for which it is then
      used, we may not be able to provide services to our customers. While we have
      back-up for much of this equipment, if any portion of the equipment is
      unavailable for any extended period of time, it will be difficult to provide
      service to our customers, might give rise to the ability of our customers to
      terminate agreements with us, and would generally have a detrimental effect
      on
      retaining our customers.

    


    IF
      OUR SUPPLIERS' TELECOMMUNICATIONS INFRASTRUCTURE IS DAMAGED, IT COULD INCREASE
      OUR EXPENSES AND WE MAY NOT BE ABLE TO PROVIDE SERVICE TO OUR
      CUSTOMERS.

    


    We
      rely
      on certain suppliers' telecommunications infrastructure in
      order to provide services to our customers. If their ability to supply such
      services to us is damaged in any way, we may be required to incur additional
      costs to replace such services and we may not be able to provide service to
      our
      customers.

    


    IF
      OUR INFORMATION AND BILLINGS SYSTEMS ARE UNABLE TO FUNCTION PROPERLY AS OUR
      OPERATIONS GROW, WE MAY EXPERIENCE SYSTEM DISRUPTIONS, REDUCED LEVELS OF
      CUSTOMER SERVICE AND A DECLINING CUSTOMER BASE AND
      REVENUES.

    


    Over
      the
      past two years, our business revenues and operations have almost doubled. We
      now
      handle millions of transactions on a daily basis with hundreds of thousands
      of
      customers and users located in many countries. Accordingly, our information
      and
      billing systems are under increasing stress. We use internally developed and
      acquired systems to operate our services and for transaction processing,
      including billing and collections processing. We must continually improve these
      systems in order to meet the level of use. Furthermore, in the future, we may
      add features and functionality to our products and services using internally
      developed or third party licensed technologies. Our inability to add software
      and hardware or develop and upgrade existing technology, transaction processing
      systems and network infrastructure to meet increased volume through our
      processing systems or provide new features or functionality, may cause system
      disruptions, slower response times, reductions in levels of customer service,
      decreased quality of the user's experience, collection difficulties, and delays
      in reporting accurate financial information. Any such failure could cause system
      disruptions, reduced levels of customer service, and a declining customer base
      and revenues.

    


    WE
      SERVE AN EXTREMELY LARGE NUMBER OF CUSTOMERS / USERS AND ARE THUS AT RISK FOR
      CLASS ACTION LAW SUITS.

    


    Because
      we provide services to so many customers / users, it is possible that such
      customers / users may join together in a large or expensive class action to
      initiate an action.  There is currently no class action lawsuit filed
      against us, however, class action lawsuits have become much more popular in
      both
      Israel and the United States where we have much of our operations.

     

    TERRORIST
      ATTACKS, WAR, OR ARMED CONFLICT OR POLITICAL / ECONOMIC EVENTS OR UPHEAVALS
      IN
      FOREIGN COUNTRIES MAY LEAD TO A DISRUPTION IN OUR SERVICES AS WELL AS DECREASED
      DEMAND.

    


    Terrorist
      attacks in the United Kingdom, the United States or Israel, as well as the
      United Kingdom and the United States of America's involvement in Iraq or in
      armed conflict or political / economic events in countries where we conduct
      business, may negatively impact consumers' confidence in relying on alternative
      communication lines and spending in the countries where we conduct our business.
      Certain of our key employees, officers and directors are residents of Israel.
      Accordingly, armed conflicts between Israel and its neighbors, terrorism,
      political and economic conditions in Israel directly affect the Company's
      business. Any such occurrences could lead to an interruption in our services
      and
      could negatively affect our revenues and results of operations. Moreover, the
      governments in those countries might take extreme measures that could prohibit
      access to alternative communication lines.


    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    


     

    


    NATURAL
      DISASTERS AND ACTS OF GOD MAY RESULT IN INCREASED COSTS.

    


    Our
      wholly owned subsidiary Xfone USA, Inc. is positioned in an environment which
      has a higher than average propensity to experience hurricanes. In 2005, we
      suffered adverse affects to our business from Hurricane Katrina. In the event
      of
      another hurricane, the cost of restructuring our facilities, as well as the
      time
      spent in rebuilding and organizing our infrastructure might be long and costly.
      There is no guarantee that we will not be negatively affected in the future
      by
      other natural disasters, hurricanes or Acts of God.

    


    IF
      WE ARE UNABLE TO OBTAIN FINANCING AS WE GROW OUR BUSINESS, WE MAY HAVE TO
      CURTAIL OUR PLANS AND THE VALUE OF YOUR INVESTMENT MAY BE NEGATIVELY
      AFFECTED.

     

    Our
      future business will involve substantial costs, primarily those costs associated
      with marketing, business development, and possible mergers and acquisitions.
      If
      our revenues are insufficient to fund our operations as we grow our business,
      we
      may need traditional bank financing or financing from debt or equity offerings.
      However, if we are unable to obtain financing when needed, we may be forced
      to
      curtail our operations, which could negatively affect our revenues and potential
      profitability and the value of your investment. There can be no assurance that
      we will be able to obtain additional financing when needed or if available
      that
      it will be on commercially reasonable terms.  

     

    THE
      COMPANY MIGHT BE REGARDED AS A LOCAL TAX RESIDENT IN COUNTRIES OTHER THAN
      THE UNITED STATES.

    


    The
      Company was incorporated in Nevada, U.S.A., and accordingly is a US
      tax resident and is taxed in the US. To the best knowledge of the Company,
      and
      based on consultancy provided by its accountants, the Company is not a tax
      resident in any other country in which it conducts business (directly or
      indirectly through local subsidiaries). However, there is no assurance that
      none
      of the local tax authorities in these countries will determine that the
      Company is a local tax resident, and thus we recommend that the investors
      examine the tax implication of such potential classification. Any determination
      by such local tax authorities could have an adverse effect on our results of
      operations or the consequences of your investment in our securities.

    


    SHOULD
      OUR AGREEMENTS WITH OUR PRINCIPAL SUPPLIERS, “THE NEW ATT” (FORMERLY BELLSOUTH
      TELECOMMUNICATIONS), BRITISH TELECOMMUNICATIONS OR BEZEQ THE ISRAEL
      TELECOMMUNICATION CORP.  LIMITED BE CANCELLED, OUR OPERATIONS
      WILL BE NEGATIVELY IMPACTED.

    


    We
      are
      dependent on several of our suppliers. However, these suppliers are required
      to
      provide us with services according to the relevant regulations and their
      licenses to operate as a telecommunications provider in the relevant
      jurisdictions. Should our agreements involving our principal suppliers, “the new
      ATT” (formerly BellSouth Telecommunications), British Telecommunications or
      Bezeq The Israel Telecommunication Corp. Limited be cancelled, our operations
      may be negatively affected.

    


    WE
      MAY BE UNABLE TO ADEQUATELY COMPETE WITH OUR COMPETITORS.

    


    The
      telecommunications business is a very competitive one with constantly shrinking
      margins. Our competitors may be able to adapt more quickly to changes in
      customer needs or to devote greater resources than we can to developing and
      expanding our services. Such competitors could also attempt to increase their
      presence in our markets by forming strategic alliances with other competitors,
      by offering new or improved products or services or by increasing their efforts
      to gain and retain market share through competitive pricing. As the market
      for
      our services matures, price competition and penetration into the market will
      intensify. Such competition may adversely affect our gross profits, margins
      and
      results of operations. There can be no assurance that we will be able to
      continue to compete successfully with existing or new
      competitors.


    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    


     

    


    OUR
      MANAGEMENT DECISIONS ARE MADE BY OUR FOUNDER AND CHAIRMAN OF OUR BOARD OF
      DIRECTORS, ABRAHAM KEINAN, AND OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER, GUY
      NISSENSON; IF WE LOSE THEIR SERVICES, OUR OPERATIONS WILL BE NEGATIVELY
      IMPACTED.

    


    The
      success of our business is largely dependent upon the expertise of our Chairman
      of the Board, Abraham Keinan, and our President Chief Executive Officer, and
      Director, Guy Nissenson. Mr. Nissenson also formerly served as our Treasurer
      and
      Chief Financial Officer, until the appointment of Niv Krikov to such
      positions.  Because Messrs Keinan and Nissenson are essential to our
      operations, you must rely on their management decisions. We have not obtained
      any “key man” life insurance relating to Messrs Keinan and Nissenson. There is
      no assurance that we would be able to hire and retain another Chairman of the
      Board or President/Chief Executive Officer with comparable experience. As a
      result, the loss of either Mr. Keinan's or Mr. Nissenson's services would have
      a
      materially adverse affect upon our business, financial condition, and results
      of
      operation.

    


    OUR
      MANAGEMENT MAY BE ABLE TO EXERT SIGNIFICANT VOTING CONTROL OVER STOCKHOLDER
      MATTERS, INCLUDING THE ELECTION OF OUR DIRECTORS, AND ACCORDINGLY, CONTROL
      OF
      OUR OPERATIONS. 

    


    As
      of the
      date of this Offering, our Chairman of the Board, Abraham Keinan, beneficially
      owns 25.08% of our common stock. Our President, Chief Executive Officer, and
      Director, Guy Nissenson has significant influence over an additional 8.94%%
      of
      our common stock, which is owned by Campbeltown Business Ltd., an entity owned
      and controlled by Mr. Nissenson and his family. In addition, certain
      stockholders provided Mr. Nissenson and Mr. Keinan with irrevocable proxies
      representing a total of 8.91% of our common stock. Eyal Harish, a director,
      beneficially owns 0.11% of our common stock. Our wholly owned subsidiary,
      Swiftnet Limited, beneficially owns 0.97% of our common stock. Therefore, our
      management potentially may vote 44.01% of our common stock, without giving
      effect to the issuance of any shares upon the exercise of outstanding warrants
      or options. As such, our management may be able to exert significant control
      over the outcome of all matters submitted to a vote of the holders of our common
      stock, including the election of our directors, amendments to our articles
      of
      incorporation and bylaws and approval of significant corporate transactions.
      Additionally, our management may be able to delay, deter or prevent a change
      in
      our control that might be beneficial to our other stockholders. We need to
      emphasize the fact that management could make substantial decisions that could
      be protected under the business judgment rule, and not necessarily satisfy
      minority shareholders (for example, expanding the territory of operation at
      heavy costs, or by limiting the territory of our operations in order to save
      capital).

    


    In
      addition to the foregoing, our Chairman of the Board, Abraham Keinan, and our
      President, Chief Executive Officer and Director, Guy Nissenson, exercise
      significant control over stockholder matters through a September 28, 2004 Voting
      Agreement between Mr. Keinan, Mr. Nissenson and Campbeltown Business, Ltd.,
      an
      entity owned and controlled by Mr. Nissenson and his family. This agreement,
      which is for a term of 10 years, provides that: (a) Messrs. Keinan and Nissenson
      and Campbeltown Business, Ltd. agree to vote any shares of our common stock
      controlled by them only in such manner as previously agreed by all these
      parties; and (b) in the event of any disagreement regarding the manner of
      voting, a party to the agreement will not vote any shares, unless all the
      parties have settled the disagreement.

    


    CERTAIN
      OF OUR EXISTING CREDIT FACILITIES CONTAIN A NUMBER OF RESTRICTIONS AND
      OBLIGATIONS THAT MAY LIMIT OUR FINANCIAL FLEXIBILITY.

    


    Our
      credit facilities contain a number of restrictive covenants that limit our
      financial flexibility. These covenants, among other things, restrict our right
      to pledge our assets, make loans or give guarantees, and engage in mergers
      or
      consolidations. Our ability to continue to comply with these and other
      obligations depends in part on the future performance of our business. There
      can
      be no assurance that such obligations will not have a materially adverse affect
      on our ability to finance our future operations. In addition, one of our lenders
      has a right of first refusal to participate in future financings which may
      have
      the effect of making it more difficult to raise financing from other
      sources.


    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    


     

    


    RISKS
      RELATED TO OUR COMMON STOCK

    


    THERE
      IS A LIMITED MARKET FOR OUR COMMON STOCK, AND AN ACTIVE TRADING MARKET FOR
      OUR
      COMMON STOCK MAY NEVER DEVELOP, WHICH MAY MAKE IT DIFFICULT TO RESELL YOUR
      SHARES.

    


    Trading
      in our stock has been limited and has been characterized by wide fluctuations
      in
      trading prices, due to many factors that may have little to do with our
      operations or business prospects. Therefore, shareholders should be aware that
      the lack of exposure to our stock in the investment community could consequently
      be reflected by a lack of market trading upon the issuance of material
      information that could be perceived as disappointing or very encouraging from
      a
      market point of view. This could result in an inability for shareholders to
      be
      able to dispose of their shares.

    


    THE
      MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO
      RESELL YOUR SHARES AT OR ABOVE THE PRICE YOU PAID FOR THEM, OR AT
      ALL.

    


    The
      stock
      markets in general have experienced during the past few years extreme price
      and
      volume fluctuations. The market prices of securities of technology companies
      have been extremely volatile, and have experienced fluctuations that have often
      been unrelated or disproportionate to the operating performance of those
      companies. These broad market fluctuations could adversely affect the market
      price of our common stock. For example, during 2003, the market price of our
      common stock fluctuated between $0.35 and $6.00; during 2004, the market price
      of our common stock fluctuated between $1.95 and $5.75; during 2005, the market
      price fluctuated between $2.30 and $4.29; and during 2006, the market price
      fluctuated between $2.18 and $3.84. The market price of our common stock traded
      on the AMEX fluctuated between $2.34 and $3.70 during the first nine months
      of 2007.

    


    The
      market price of our common stock may continue to fluctuate substantially due
      to
      a variety of factors, including:

     

    
      	
              ·  
                

            	
              any
                actual or anticipated fluctuations in our or our competitors' revenues
                and
                operating results;

            
	
              ·  

            	
              shortfalls
                in our operating results from levels forecast by us or by securities
                analysts;

            
	
              
                ·  
                  

              

            	
              public
                announcements concerning us or our competitors;

            
	
              
                ·  
                  

              

            	
              the
                introduction or market acceptance of new products or service offerings
                by
                us or by our competitors;

            
	
              
                ·  
                  

              

            	
              changes
                in product pricing policies by us or our competitors;

            
	
              
                ·  
                  

              

            	
              changes
                in security analysts' financial estimates;

            
	
              
                ·  
                  

              

            	
              changes
                in accounting principles;

            
	
              
                ·  
                  

              

            	
              sales
                of our shares by existing shareholders; and

            
	
              
                ·  
                  

              

            	
              the
                loss of any of our key personnel.

            


    

    


    In
      addition, economic, political, and market conditions and military conflicts
      and,
      in particular, those specifically related to Israel, may affect the market
      price
      of our shares.

    


    OUR
      SHARES OF COMMON STOCK ARE TRADED ON MORE THAN ONE MARKET AND THIS MAY RESULT
      IN
      PRICE VARIATIONS.

    


    Our
      shares of common stock are trade on the American Stock Exchange and the Tel
      Aviv
      Stock Exchange. Trading in our shares of common stock on these markets takes
      place in different currencies (dollars on the AMEX, and NIS on the TASE), and
      at
      different times (resulting from different time zones, different trading days
      and
      different public holidays in the United States and Israel). The trading prices
      of our common stock on these two markets may differ due to these and other
      factors. Any decrease in the trading price of our shares of common stock on
      one
      of these markets could cause a decrease in the trading price of our shares
      of
      common stock on the other market.


    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    


    FUTURE
      SALES OF OUR SHARES IN THE PUBLIC MARKET OR ISSUANCES OF ADDITIONAL SECURITIES
      COULD CAUSE THE MARKET PRICE FOR OUR SHARES OF COMMON STOCK TO
      FALL.

    


    As
      of
      November 28, 2007, we had 13,467,928 shares of common stock issued and
      outstanding. In addition, we have reserved 5,493,700 shares of common stock
      for
      issuance under our 2004 Stock Option Plan, 4,804,159 shares of common stock
      underlying warrants, and approximately 200,000 shares of common stock underlying
      a certain Secured Convertible Term Note.  Our Board of Directors has
      adopted the Company’s 2007 Stock Incentive Plan, which is subject to shareholder
      approval, and will be voted upon by the shareholders at the Company’s upcoming
      annual meeting of shareholders, and if approved, the Company will reserve an
      additional 8,000,000 shares of common stock for issuance of awards under the
      plan.  In addition, certain of our shareholders have registration rights
      with respect to the shares they hold, including piggyback rights. If a large
      number of shares of our common stock is sold in a short period, the price of
      our
      common stock would likely decrease.

    


    RISKS
      RELATED TO THE SECURITIES

    


    THE
      TRANSFERABILITY OF THE SECURITIES WILL BE LIMITED.

     

    There
      is
      no established trading market for the Units, or the Warrants underlying the
      Units, nor is any market expected to develop.  In addition, the Units
      and the Warrants have not been and will not be registered under the Securities
      Act or the securities laws of any state, In addition, the Unit Shares and the
      Warrant Shares have not yet been registered under the Securities Act or the
      securities laws of any state.  Accordingly, the Securities may not be
      resold, pledged or otherwise transferred unless and until they are registered
      under the Securities Act and applicable state securities laws or pursuant to
      available exemptions from such registration requirements.  In
      addition, the Units may be subject to additional transfer restrictions pursuant
      to this Agreement.  Accordingly, the transferability of the Units and
      the Warrants, and, until registered, the Unit Shares and Warrant Shares, will
      be
      limited.

     

    


    


     


    
      
        
        

      

      
        -24-