**Exhibit 10.5**

 

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

 

**CONVERTIBLE PROMISSORY NOTE**

 
| $1,100,000.00 | May 14, 2009  |
|---------------|--------------------|
|          | New York, New York |

 

For value received of OneMillion 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 ThousandDollars ($1,100,000.00). Interest shall accrue from the date of this Note onthe unpaid principal amount at a rate equal to ten percent (10%) per annum,compounded annually. ** **This Note is being made inconjunction with the execution of that certain Securities Purchase Agreement ofeven date herewith (the “Purchase Agreement”) in order to provide theCompany 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 Notewill 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****butshall not be due and payable until the Maturity Date  .

 

(b)           Notwithstanding the foregoing, the entire unpaid principalsum of this Note, together with accrued and unpaid interest thereon andinterest at the rate of eighteen (18%) percent per annum going forward, shallbecome immediately due and payable upon the insolvency of the Company, thecommission of any act of bankruptcy by the Company, the execution by theCompany of a general assignment for the benefit of creditors, the filing by oragainst the Company of a petition in bankruptcy or any petition for reliefunder the federal bankruptcy act or the continuation of such petition withoutdismissal for a period of ninety (90) days or more, the appointment of areceiver or trustee to take possession of the property or assets of theCompany, the breach of any representations, warranties or covenants under thePurchase Agreement or this Note, or the failure to pay this Note on theMaturity Date.

 

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

 

2.             **Conversion.**

 

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

 

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(b)           **Conversion intoCommon Stock. **If (i) theCertificate is not approved by a majority of the holders of the Company’s Series APreferred Stock or a majority of the Common Stock, or (ii) at any timeprior to the Initial Closing, there shall be (a) an acquisition of theCompany by another entity other than Holder or its affiliates by means of amerger, consolidation, or other transaction or series of related transactionsresulting in the exchange of the outstanding shares of the Company’s capitalstock such that shareholders of the Company prior to such transaction own,directly or indirectly, less than 50% of the voting power of the survivingentity, or (b) a sale or transfer of all or substantially all of theCompany’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 interestthereon, shall be immediately paid to the Holder or converted into shares ofthe Company’s common stock at a price of $0.001 per share.

 

(c)           **Mechanics and Effectof Conversion.**  Nofractional shares of the Company’s capital stock will be issued upon conversionof this Note.  In lieu of any fractionalshare to which the Holder would otherwise be entitled, the Company will pay tothe Holder in cash the amount of the unconverted principal and interest balanceof this Note that would otherwise be converted into such fractional share.  Upon conversion of this Note pursuant to thisSection 2, the Holder shall surrender this Note, duly endorsed, at theprincipal offices of the Company or any transfer agent of the Company.  At its expense, the Company will, as soon aspracticable thereafter, issue and deliver to such Holder, at such principaloffice, a certificate or certificates for the number of shares to which suchHolder is entitled upon such conversion, together with any other securities andproperty to which the Holder is entitled upon such conversion under the termsof this Note, including a check payable to the Holder for any cash amountspayable as described herein.  Uponconversion of this Note, the Company will be forever released from all of itsobligations and liabilities under this Note with regard to that portion of theprincipal amount and accrued interest being converted including withoutlimitation the obligation to pay such portion of the principal amount andaccrued interest.

 

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

 

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

 

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

 

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

 

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

 

7.             **Amendments andWaivers.** Any term of thisNote may be amended only with the written consent of the Company and theHolder.** **Any amendment or waiver effected in accordance with this Section 7shall 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 ordirector of the Company be liable for any amounts due or payable pursuant tothis Note.

 

9.             **Failure orIndulgence Not Waiver**.  Nofailure or delay on the part of the Holder in the exercise of any power, rightor privilege hereunder shall operate as a waiver thereof, nor shall any singleor partial exercise of any such power, right or privilege preclude other orfurther exercise thereof or of any other right, power or privilege, nor shallany waiver by the Holder of any such right or rights on any one occasion bedeemed a waiver of the same right or rights on any future occasion.

 

10.           **Action to Collect onNote.**  If action isinstituted to collect on this Note, the Company promises to pay all costs andexpenses, including reasonable attorney’s fees, incurred in connection withsuch 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 14********th******** day of May, 2009,****

****By:****MGT CAPITALINVESTMENTS, 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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