Document:

Unassociated Document

    
      Exhibit
        10.55

       

      SUBSIDIARY
        GUARANTY

      
        

        
          	
                  New
                    York, New York

                	
                  September
                    27, 2005

                

        

      

       

      FOR
        VALUE
        RECEIVED, and in consideration of note purchases from, or credit otherwise
        extended or to be extended by Laurus Master Fund, Ltd. (“Laurus”) to or for the
        account of XFONE, INC., a Nevada corporation (the “Debtor”) from time to time
        and at any time and for other good and valuable consideration and to induce
        Laurus, in its discretion, to purchase such notes or make other extensions
        of
        credit and to make or grant such renewals, extensions, releases of collateral
        or
        relinquishments of legal rights as Laurus may deem advisable, each of the
        undersigned (and each of them if more than one, the liability under this
        Guaranty being joint and several) (jointly and severally referred to as
“Guarantors” or “the undersigned”) unconditionally guaranties to Laurus, its
        successors, endorsees and assigns the prompt payment when due (whether by
        acceleration or otherwise) of all present and future obligations and liabilities
        of any and all kinds of the Debtor to Laurus and of all instruments of any
        nature evidencing or relating to any such obligations and liabilities upon
        which
        the Debtor or one or more parties and the Debtor is or may become liable
        to
        Laurus, whether incurred by the Debtor as maker, endorser, drawer, acceptor,
        guarantors, accommodation party or otherwise, and whether due or to become
        due,
        secured or unsecured, absolute or contingent, joint or several, and however
        or
        whenever acquired by Laurus, whether arising under, out of, or in connection
        with (i) that certain Securities Purchase Agreement dated as of the date
        hereof
        by and between the Debtor and Laurus (the “Securities Purchase Agreement”) and
        (ii) each Related Agreement referred to in the Securities Purchase Agreement
        (the Securities Purchase Agreement and each Related Agreement, as each may
        be
        amended, modified, restated and/or supplemented from time to time, are
        collectively referred to herein as the “Documents”), or any documents,
        instruments or agreements relating to or executed in connection with the
        Documents or any documents, instruments or agreements referred to therein
        or
        otherwise, or any other obligations or liabilities of the Debtor to Laurus,
        whether now existing or hereafter arising, direct or indirect, liquidated
        or
        unliquidated, absolute or contingent, due or not due and whether under, pursuant
        to or evidenced by a note, agreement, guaranty, instrument or otherwise (all
        of
        which are herein collectively referred to as the “Obligations”), and
        irrespective of the genuineness, validity, regularity or enforceability of
        such
        Obligations, or of any instrument evidencing any of the Obligations or of
        any
        collateral therefor or of the existence or extent of such collateral, and
        irrespective of the allowability, allowance or disallowance of any or all
        of the
        Obligations in any case commenced by or against the Debtor under Title 11,
        United States Code, including, without limitation, obligations or indebtedness
        of the Debtor for post-petition interest, fees, costs and charges that would
        have accrued or been added to the Obligations but for the commencement of
        such
        case. Terms not otherwise defined herein shall have the meaning assigned
        such
        terms in the Securities Purchase Agreement. In furtherance of the foregoing,
        the
        undersigned hereby agrees as follows:

       

      1.  No
        Impairment.
        Laurus
        may at any time and from time to time, either before or after the maturity
        thereof, without notice to or further consent of the undersigned, extend
        the
        time of payment of, exchange or surrender any collateral for, renew or extend
        any of the Obligations or increase or decrease the interest rate thereon,
        or any
        other agreement with the Debtor or with any other party to or person liable
        on
        any of the Obligations, or interested therein, for the extension, renewal,
        payment, compromise, discharge or release thereof, in whole or in part, or
        for
        any modification of the terms thereof or of any agreement between Laurus
        and the
        Debtor or any such other party or person, or make any election of rights
        Laurus
        may deem desirable under the United States Bankruptcy Code, as amended, or
        any
        other federal or state bankruptcy, reorganization, moratorium or insolvency
        law
        relating to or affecting the enforcement of creditors’ rights generally (any of
        the foregoing, an “Insolvency Law”) without in any way impairing or affecting
        this Guaranty. This Guaranty shall be effective regardless of the subsequent
        incorporation, merger or consolidation of the Debtor, or any change in the
        composition, nature, personnel or location of the Debtor and shall extend
        to any
        successor entity to the Debtor, including a debtor in possession or the like
        under any Insolvency Law.

       

      2.  Guaranty
        Absolute.
        Subject
        to Section 5(c) hereof, each of the undersigned jointly and severally guarantees
        that the Obligations will be paid strictly in accordance with the terms of
        the
        Documents and/or any other document, instrument or agreement creating or
        evidencing the Obligations, regardless of any law, regulation or order now
        or
        hereafter in effect in any jurisdiction affecting any of such terms or the
        rights of the Debtor with respect thereto. Guarantors hereby knowingly accept
        the full range of risk encompassed within a contract of “continuing guaranty”
        which risk includes the possibility that a Debtor will contract additional
        obligations and liabilities for which Guarantors may be liable hereunder
        after
        the Debtor’s financial condition or ability to pay its lawful debts when they
        fall due has deteriorated, whether or not the Debtor has properly authorized
        incurring such additional obligations and liabilities. The undersigned
        acknowledge that (i) no oral representations, including any representations
        to
        extend credit or provide other financial accommodations to the Debtor, have
        been
        made by Laurus to induce the undersigned to enter into this Guaranty and
        (ii)
        any extension of credit to the Debtor shall be governed solely by the provisions
        of the Documents. The liability of each of the undersigned under this Guaranty
        shall be absolute and unconditional, in accordance with its terms, and shall
        remain in full force and effect without regard to, and shall not be released,
        suspended, discharged, terminated or otherwise affected by, any circumstance
        or
        occurrence whatsoever, including, without limitation: (a) any waiver,
        indulgence, renewal, extension, amendment or modification of or addition,
        consent or supplement to or deletion from or any other action or inaction
        under
        or in respect of the Documents or any other instruments or agreements relating
        to the Obligations or any assignment or transfer of any thereof, (b) any
        lack of
        validity or enforceability of any Document or other documents, instruments
        or
        agreements relating to the Obligations or any assignment or transfer of any
        thereof, (c) any furnishing of any additional security to Laurus or its
        assignees or any acceptance thereof or any release of any security by Laurus
        or
        its assignees, (d) any limitation on any party’s liability or obligation under
        the Documents or any other documents, instruments or agreements relating
        to the
        Obligations or any assignment or transfer of any thereof or any invalidity
        or
        unenforceability, in whole or in part, of any such document, instrument or
        agreement or any term thereof, (e) any bankruptcy, insolvency, reorganization,
        composition, adjustment, dissolution, liquidation or other like proceeding
        relating to the Debtor, or any action taken with respect to this Guaranty
        by any
        trustee or receiver, or by any court, in any such proceeding, whether or
        not the
        undersigned shall have notice or knowledge of any of the foregoing, (f) any
        exchange, release or nonperfection of any collateral, or any release, or
        amendment or waiver of or consent to departure from any guaranty or security,
        for all or any of the Obligations or (g) any other circumstance which might
        otherwise constitute a defense available to, or a discharge of, the undersigned.
        Any amounts due from the undersigned to Laurus shall bear interest until
        such
        amounts are paid in full at the highest rate then applicable to the Obligations.
        Obligations include post-petition interest whether or not allowed or
        allowable.

       

      3.  Waivers.

       

      (a)  This
        Guaranty is a guaranty of payment and not of collection. Laurus shall be
        under
        no obligation to institute suit, exercise rights or remedies or take any
        other
        action against the Debtor or any other person or entity liable with respect
        to
        any of the Obligations or resort to any collateral security held by it to
        secure
        any of the Obligations as a condition precedent to the undersigned being
        obligated to perform as agreed herein and each of the Guarantors hereby waives
        any and all rights which it may have by statute or otherwise which would
        require
        Laurus to do any of the foregoing. Each of the Guarantors further consents
        and
        agrees that Laurus shall be under no obligation to marshal any assets in
        favor
        of Guarantors, or against or in payment of any or all of the Obligations.
        Each
        of the undersigned hereby waives all suretyship defenses and any rights to
        interpose any defense, counterclaim or offset of any nature and description
        which the undersigned may have or which may exist between and among Laurus,
        the
        Debtor and/or the undersigned with respect to the undersigned’s obligations
        under this Guaranty, or which the Debtor may assert on the underlying debt,
        including but not limited to failure of consideration, breach of warranty,
        fraud, payment (other than cash payment in full of the Obligations), statute
        of
        frauds, bankruptcy, infancy, statute of limitations, accord and satisfaction,
        and usury. 

       

      (b)  Each
        of
        the undersigned further waives (i) notice of the acceptance of this Guaranty,
        of
        the extensions of credit, and of all notices and demands of any kind to which
        the undersigned may be entitled, including, without limitation, notice of
        adverse change in the Debtor’s financial condition or of any other fact which
        might materially increase the risk of the undersigned and (ii) presentment
        to or
        demand of payment from anyone whomsoever liable upon any of the Obligations,
        protest, notices of presentment, non-payment or protest and notice of any
        sale
        of collateral security or any default of any sort.

       

      (c)  Notwithstanding
        any payment or payments made by the undersigned hereunder, or any setoff
        or
        application of funds of the undersigned by Laurus, the undersigned shall
        not be
        entitled to be subrogated to any of the rights of Laurus against the Debtor
        or
        against any collateral or guarantee or right of offset held by Laurus for
        the
        payment of the Obligations, nor shall the undersigned seek or be entitled
        to
        seek any contribution or reimbursement from the Debtor in respect of payments
        made by the undersigned hereunder, until all amounts owing to Laurus by the
        Debtor on account of the Obligations are indefeasibly paid in full and Laurus’
        obligation to extend credit pursuant to the Documents has been irrevocably
        terminated. If, notwithstanding the foregoing, any amount shall be paid to
        the
        undersigned on account of such subrogation rights at any time when all of
        the
        Obligations shall not have been paid in full and Laurus’ obligation to extend
        credit pursuant to the Documents shall not have been terminated, such amount
        shall be held by the undersigned in trust for Laurus, segregated from other
        funds of the undersigned, and shall forthwith upon, and in any event within
        two
        (2) business days of, receipt by the undersigned, be turned over to Laurus
        in
        the exact form received by the undersigned (duly endorsed by the undersigned
        to
        Laurus, if required), to be applied against the Obligations, whether matured
        or
        unmatured, in such order as Laurus may determine, subject to the provisions
        of
        the Documents. Any and all present and future obligations and liabilities
        of the
        Debtor to any of the undersigned are hereby waived and postponed in favor
        of,
        and subordinated to the full payment and performance of, all Obligations
        of the
        Debtor to Laurus.

       

      4.  Security.
        All
        sums at any time to the credit of the undersigned and any property of the
        undersigned in Laurus’ possession or in the possession of any bank, financial
        institution or other entity that directly or indirectly, through one or more
        intermediaries, controls or is controlled by, or is under common control
        with,
        Laurus (each such entity, an “Affiliate”) shall be deemed held by Laurus or such
        Affiliate, as the case may be, as security for any and all of the undersigned’s
        obligations and liabilities to Laurus and to any Affiliate of Laurus, no
        matter
        how or when arising and whether under this or any other instrument, agreement
        or
        otherwise. 

       

      5.  Representations
        and Warranties.
        Each of
        the undersigned hereby jointly and severally represents and warrants (all
        of
        which representations and warranties shall survive until all Obligations
        are
        indefeasibly satisfied in full and the Documents, except for the Warrants,
        have
        been irrevocably terminated), that:

       

      (a)  Corporate
        Status.
        It is a
        corporation, partnership or limited liability company, as the case may be,
        duly
        formed, validly existing and in good standing under the laws of its jurisdiction
        of formation indicated on the signature page hereof and has full power,
        authority and legal right to own its property and assets and to transact
        the
        business in which it is engaged.

       

      (b)  Authority
        and Execution.
        It has
        full power, authority and legal right to execute and deliver, and to perform
        its
        obligations under, this Guaranty and has taken all necessary corporate,
        partnership or limited liability company, as the case may be, action to
        authorize the execution, delivery and performance of this Guaranty.

       

      (c)  Legal,
        Valid and Binding Character.
        This
        Guaranty constitutes its legal, valid and binding obligation enforceable
        in
        accordance with its terms, except as enforceability may be limited by applicable
        bankruptcy, insolvency, reorganization, moratorium or other laws of general
        application affecting the enforcement of creditor’s rights and general
        principles of equity that restrict the availability of equitable or legal
        remedies. 

       

      (d)  Violations.
        The
        execution, delivery and performance of this Guaranty will not violate any
        requirement of law applicable to it or any contract, agreement or instrument
        to
        which it is a party or by which it or any of its property is bound or result
        in
        the creation or imposition of any mortgage, lien or other encumbrance other
        than
        in favor of Laurus on any of its property or assets pursuant to the provisions
        of any of the foregoing, which, in any of the foregoing cases, could reasonably
        be expected to have, either individually or in the aggregate, a Material
        Adverse
        Effect.

       

      (e)  Consents
        or Approvals.
        No
        consent of any other person or entity (including, without limitation, any
        creditor of the undersigned) and no consent, license, permit, approval or
        authorization of, exemption by, notice or report to, or registration, filing
        or
        declaration with, any governmental authority is required in connection with
        the
        execution, delivery, performance, validity or enforceability of this Guaranty
        by
        it, except to the extent that the failure to obtain any of the foregoing
        could
        not reasonably be expected to have, either individually or in the aggregate,
        a
        Material Adverse Effect.

       

      (f)  Litigation.
        No
        litigation, arbitration, investigation or administrative proceeding of or
        before
        any court, arbitrator or governmental authority, bureau or agency is currently
        pending or, to the best of its knowledge, threatened (i) with respect to
        this
        Guaranty or any of the transactions contemplated by this Guaranty or (ii)
        against or affecting it, or any of its property or assets, which, in each
        of the
        foregoing cases, if adversely determined, could reasonably be expected to
        have a
        Material Adverse Effect.

       

      (g)  Financial
        Benefit.
        It has
        derived or expects to derive a financial or other advantage from each and
        every
        loan, advance or extension of credit made under the Documents or other
        Obligation incurred by the Debtor and/or the undersigned to Laurus.

       

      (h)  Solvency.
        As of
        the date of this Guaranty, (a) the fair saleable value of its assets exceeds
        its
        liabilities and (b) it is meeting its current liabilities as they
        mature.

       

      6.  Acceleration.

       

      (a)  If
        any
        material breach of any covenant or condition or event of default shall occur
        and
        be continuing under any agreement made by the Debtor or any of the undersigned
        to Laurus, or either of the Debtor or any of the undersigned should at any
        time
        become insolvent, or make a general assignment, or if a proceeding in or
        under
        any Insolvency Law shall be filed or commenced by, or in respect of, any
        of the
        undersigned, or if a notice of any lien, levy, or assessment, other than
        in such
        amounts as permitted in the Securities Purchase Agreement, is filed of record
        with respect to any assets of any of the undersigned by the United States
        of
        America or any department, agency, or instrumentality thereof, or if any
        taxes
        or debts owing at any time or times hereafter to any one of them becomes
        a lien
        or encumbrance upon any assets of the undersigned in Laurus’ possession, or
        otherwise, any and all Obligations shall for purposes hereof, at Laurus’ option,
        be deemed due and payable without notice notwithstanding that any such
        Obligation is not then due and payable by the Debtor and/or the
        undersigned.

       

      (b)  Each
        of
        the undersigned will promptly notify Laurus of any default by such undersigned
        in its respective performance or observance of any term or condition of any
        agreement to which the undersigned is a party if the effect of such default
        is
        to cause, or permit the holder of any obligation under such agreement to
        cause,
        such obligation to become due prior to its stated maturity and, if such an
        event
        occurs, Laurus shall have the right to accelerate such undersigned’s obligations
        hereunder.

       

      7.  Payments
        from Guarantors.
        Laurus,
        in its sole and absolute discretion, with or without notice to the undersigned,
        may apply on account of the Obligations any payment from the undersigned
        or any
        other guarantors, or amounts realized from any security for the Obligations,
        or
        may deposit any and all such amounts realized in a non-interest bearing cash
        collateral deposit account to be maintained as security for the
        Obligations.

       

      8.  Costs.
        The
        undersigned shall pay on demand, all costs, fees and expenses (including
        reasonable expenses for legal services of every kind) relating or incidental
        to
        the enforcement or protection of the rights of Laurus hereunder or under
        any of
        the Obligations.

       

      9.  No
        Termination.
        This is
        a continuing irrevocable guaranty and shall remain in full force and effect
        and
        be binding upon the undersigned, and each of the undersigned’s successors and
        assigns, until all of the Obligations have been indefeasibly paid in full
        and
        Laurus’ obligation to extend credit pursuant to the Documents has been
        irrevocably terminated. If any of the present or future Obligations are
        guarantied by persons, partnerships, corporations or other entities in addition
        to the undersigned, the death, release or discharge in whole or in part or
        the
        bankruptcy, merger, consolidation, incorporation, liquidation or dissolution
        of
        one or more of them shall not discharge or affect the liabilities of any
        undersigned under this Guaranty.

       

      10.  Recapture.
        Anything in this Guaranty to the contrary notwithstanding, if Laurus receives
        any payment or payments on account of the liabilities guaranteed hereby,
        which
        payment or payments or any part thereof are subsequently invalidated, declared
        to be fraudulent or preferential, set aside and/or required to be repaid
        to a
        trustee, receiver, or any other party under any Insolvency Law, common law
        or
        equitable doctrine, then to the extent of any sum not finally retained by
        Laurus, the undersigned’s obligations to Laurus shall be reinstated and this
        Guaranty shall remain in full force and effect (or be reinstated) until payment
        shall have been made to Laurus, which payment shall be due on
        demand.

       

      11.  Books
        and Records.
        The
        books and records of Laurus showing the account between Laurus and the Debtor
        shall be admissible in evidence in any action or proceeding, shall be binding
        upon the undersigned for the purpose of establishing the items therein set
        forth
        and shall constitute prima facie proof thereof.

       

      12.  No
        Waiver.
        No
        failure on the part of Laurus to exercise, and no delay in exercising, any
        right, remedy or power hereunder shall operate as a waiver thereof, nor shall
        any single or partial exercise by Laurus of any right, remedy or power hereunder
        preclude any other or future exercise of any other legal right, remedy or
        power.
        Each and every right, remedy and power hereby granted to Laurus or allowed
        it by
        law or other agreement shall be cumulative and not exclusive of any other,
        and
        may be exercised by Laurus at any time and from time to time.

       

      13.  Waiver
        of Jury Trial.
        EACH OF
        THE UNDERSIGNED DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING
        SUCH
        APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
        OF
        THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH OF THE UNDERSIGNED HERETO WAIVES
        ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
        RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
        LAURUS, AND/OR ANY OF THE UNDERSIGNED ARISING OUT OF, CONNECTED WITH, RELATED
        OR
        INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH
        THIS
        GUARANTY, ANY DOCUMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.

       

      14.  Governing
        Law; Jurisdiction.
        THIS
        GUARANTY CANNOT BE CHANGED OR TERMINATED ORALLY, AND SHALL BE GOVERNED BY
        AND
        CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
        APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD
        TO
        PRINCIPLES OF CONFLICTS OF LAWS. EACH OF THE UNDERSIGNED HEREBY CONSENTS
        AND
        AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK,
        STATE
        OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
        OR DISPUTES BETWEEN ANY OF THE UNDERSIGNED, ON THE ONE HAND, AND LAURUS,
        ON THE
        OTHER HAND, PERTAINING TO THIS GUARANTY OR ANY OF THE DOCUMENTS OR TO ANY
        MATTER
        ARISING OUT OF OR RELATED TO THIS GUARANTY OR ANY OF THE DOCUMENTS; PROVIDED,
        THAT
        EACH OF THE UNDERSIGNED ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY
        HAVE
        TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF
        NEW
        YORK; AND FURTHER PROVIDED,
        THAT
        NOTHING IN THIS GUARANTY SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM
        BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT
        THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
        OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS.
        EACH OF THE UNDERSIGNED EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
        JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
        UNDERSIGNED HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK
        OF
        PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
        NON CONVENIENS.
        EACH OF
        THE UNDERSIGNED HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT
        AND
        OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF
        SUCH
        SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
        MAIL
        ADDRESSED TO SUCH UNDERSIGNED IN ACCORDANCE WITH SECTION 18 AND THAT SERVICE
        SO
        MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH UNDERSIGNED’S ACTUAL
        RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
        POSTAGE PREPAID.

       

      15.  Understanding
        With Respect to Waivers and Consents.
        Each
        Guarantor warrants and agrees that each of the waivers and consents set forth
        in
        this Guaranty is made voluntarily and unconditionally after consultation
        with
        outside legal counsel and with full knowledge of its significance and
        consequences, with the understanding that events giving rise to any defense
        or
        right waived may diminish, destroy or otherwise adversely affect rights which
        such Guarantor otherwise may have against the Debtor, Laurus or any other
        person
        or entity or against any collateral. If, notwithstanding the intent of the
        parties that the terms of this Guaranty shall control in any and all
        circumstances, any such waivers or consents are determined to be unenforceable
        under applicable law, such waivers and consents shall be effective to the
        maximum extent permitted by law.

       

      16.  Severability.
        To the
        extent permitted by applicable law, any provision of this Guaranty which
        is
        prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
        be ineffective to the extent of such prohibition or unenforceability without
        invalidating the remaining provisions hereof, and any such prohibition or
        unenforceability in any jurisdiction shall not invalidate or render
        unenforceable such provision in any other jurisdiction.

       

      17.  Amendments,
        Waivers.
        No
        amendment or waiver of any provision of this Guaranty nor consent to any
        departure by the undersigned therefrom shall in any event be effective unless
        the same shall be in writing executed by each of the undersigned directly
        affected by such amendment and/or waiver and Laurus.

       

      18.  Notice.
        All
        notices, requests and demands to or upon the undersigned, shall be in writing
        and shall be deemed to have been duly given or made (a) when delivered, if
        by
        hand, (b) three (3) business days after being sent, postage prepaid,
        if by
        registered or certified mail, (c) when confirmed electronically, if by
        facsimile, or (d) when delivered, if by a recognized overnight delivery service
        in each event, to the numbers and/or address set forth beneath the signature
        of
        the undersigned.

       

      19.  Successors.
        Laurus
        may, from time to time, with notice to the undersigned, sell, assign, transfer
        or otherwise dispose of all or any part of the Obligations and/or rights
        under
        this Guaranty. Without limiting the generality of the foregoing, Laurus may
        assign, or grant participations to, one or more banks, financial institutions
        or
        other entities all or any part of any of the Obligations, but in no event
        shall
        any assignment hereunder be made to a direct competitor of the Debtor or
        the
        undersigned. In each such event, Laurus, its Affiliates and each and every
        immediate and successive purchaser, assignee, transferee or holder of all
        or any
        part of the Obligations shall have the right to enforce this Guaranty, by
        legal
        action or otherwise, for its own benefit as fully as if such purchaser,
        assignee, transferee or holder were herein by name specifically given such
        right. Laurus shall have an unimpaired right to enforce this Guaranty for
        its
        benefit with respect to that portion of the Obligations which Laurus has
        not
        disposed of, sold, assigned, or otherwise transferred.

       

      20.  Joinder.
        It is
        understood and agreed that any person or entity that desires to become a
        Guarantor hereunder, or is required to execute a counterpart of this Guaranty
        after the date hereof pursuant to the requirements of any Document, shall
        become
        a Guarantor hereunder by (x) executing a joinder agreement in form and substance
        satisfactory to Laurus, (y) delivering supplements to such exhibits
        and
        annexes to such Documents as Laurus shall reasonably request and/or as may
        be
        required by such joinder agreement and (z) taking all actions as specified
        in
        this Guaranty as would have been taken by such Guarantor had it been an original
        party to this Guaranty, in each case with all documents required above to
        be
        delivered to Laurus and with all documents and actions required above to
        be
        taken to the reasonable satisfaction of Laurus.

       

      21.  Release.
        Nothing
        except indefeasible payment in full of the Obligations shall release any
        of the
        undersigned from liability under this Guaranty.

       

      22.  Remedies
        Not Exclusive.
        The
        remedies conferred upon Laurus in this Guaranty are intended to be in addition
        to, and not in limitation of any other remedy or remedies available to Laurus
        under applicable law or otherwise.

       

      23.  Limitation
        of Obligations under this Guaranty.
        Each
        Guarantor and Laurus (by its acceptance of the benefits of this Guaranty)
        hereby
        confirms that it is its intention that this Guaranty not constitute a fraudulent
        transfer or conveyance for purposes of the Bankruptcy Code, the Uniform
        Fraudulent Conveyance Act of any similar Federal or state law. To effectuate
        the
        foregoing intention, each Guarantor and Laurus (by its acceptance of the
        benefits of this Guaranty) hereby irrevocably agrees that the Obligations
        guaranteed by such Guarantor shall be limited to such amount as will, after
        giving effect to such maximum amount and all other (contingent or otherwise)
        liabilities of such Guarantor that are relevant under such laws and after
        giving
        effect to any rights to contribution pursuant to any agreement providing
        for an
        equitable contribution among such Guarantor and the other Guarantors (including
        this Guaranty), result in the Obligations of such Guarantor under this Guaranty
        in respect of such maximum amount not constituting a fraudulent transfer
        or
        conveyance. 

       

      [REMAINDER
        OF THIS PAGE IS BLANK.

       

      SIGNATURE
        PAGE IMMEDIATELY FOLLOWS] 

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      IN
        WITNESS WHEREOF, this Guaranty has been executed by the undersigned as of
        the
        date and year here above written.

       

      

       

      XFONE
        USA, INC.

       

      By:
        ____________________

      Name:
        Wade Spooner

      Title:
        President & CEO

      Address:
        2506 Lakeland Drive Suite 405 

      Jackson,
        Mississippi 39232

       

      EXPETEL
        COMMUNICATIONS, INC.

       

      By:
        ____________________

      Name:
        Wade Spooner

      Title:
        President & CEO

      Address:
        2506 Lakeland Drive Suite 405 

      Jackson,
        Mississippi 39232

       

      GULF
        COAST UTILITIES, INC.

       

      By:
        ____________________

      Name:
        Wade Spooner

      Title:
        President & CEO

      Address:
        2506 Lakeland Drive Suite 405

      Jackson,
        Mississippi 39232Unassociated Document

    Exhibit
      10.56

     

    FUNDS
      ESCROW AGREEMENT

     

    This
      Agreement (this “Agreement”) is dated as of the 27th day of September 2005 among
      XFONE, INC., a Nevada corporation (the “Company”),
      Laurus Master Fund, Ltd. (the "Purchaser"),
      and
      Loeb & Loeb LLP (the "Escrow
      Agent"):

     

    W I T N E S S E T H:

     

    WHEREAS,
      the Purchaser has advised the Escrow Agent that (a) the Company and the
      Purchaser have entered into a Securities Purchase Agreement dated as of the
      date
      hereof (the "Securities
      Purchase Agreement")
      for
      the sale by the Company to the Purchaser of a secured convertible term note
      in
      an aggregate principal amount of US$2,000,000 (the "Term
      Note"),
      (b)
      the Company has issued to the Purchaser a common stock purchase warrant (the
      “Term
      Note Warrant”)
      in
      connection with the issuance of the Term Note, and (c) the Company and the
      Purchaser have entered into a Registration Rights Agreement dated as of the
      date
      hereof covering the registration of the Company’s common stock underlying the
      Term Note and the Term Note Warrant (the “Term
      Note Registration Rights Agreement”);

     

    WHEREAS,
      the Company and the Purchaser wish the Purchaser to deliver to the Escrow Agent
      copies of the Documents (as hereafter defined) and the Escrowed Payment (as
      hereafter defined) to be held and released by Escrow Agent in accordance with
      the terms and conditions of this Agreement; and

     

    WHEREAS,
      the Escrow Agent is willing to serve as escrow agent pursuant to the terms
      and
      conditions of this Agreement;

     

    NOW
      THEREFORE, the parties agree as follows:

     

    ARTICLE
      I  

     

    INTERPRETATION

     

    1.1.  Definitions.
      Whenever used in this Agreement, the following terms shall have the meanings
      set
      forth below.

     

    (a)  "Agreement"
      means this Agreement, as amended, modified and/or supplemented from time to
      time
      by written agreement among the parties hereto.

     

    (b)  "Closing
      Payment" means the closing payment to be paid to Laurus Capital Management,
      LLC,
      the fund manager, as set forth on Schedule A hereto. 

     

    (c)  “Disbursement
      Letter” means that certain letter delivered to the Escrow Agent by each of the
      Purchaser and the Company setting forth wire instructions and amounts to be
      funded at the Closing.

     

    (d)  "Documents"
      means copies of the Disbursement Letter, the Securities Purchase Agreement,
      the
      Term Note, the Term Note Warrant and the Term Note Registration Rights
      Agreement.

     

    (e)  “Escrowed
      Payment" means $2,000,000.

     

    1.2.  Entire
      Agreement.
      This
      Agreement constitutes the entire agreement among the parties hereto with respect
      to the matters contained herein and supersedes all prior agreements,
      understandings, negotiations and discussions of the parties, whether oral or
      written. There are no warranties, representations and other agreements made
      by
      the parties in connection with the subject matter hereof except as specifically
      set forth in this Agreement.

     

    1.3.  Extended
      Meanings.
      In this
      Agreement words importing the singular number include the plural and vice versa;
      words importing the masculine gender include the feminine and neuter genders.
      The word "person" includes an individual, body corporate, partnership, trustee
      or trust or unincorporated association, executor, administrator or legal
      representative.

     

    1.4.  Waivers
      and Amendments.
      This
      Agreement may be amended, modified, superseded, cancelled, renewed or extended,
      and the terms and conditions hereof may be waived, in each case only by a
      written instrument signed by all parties hereto, or, in the case of a waiver,
      by
      the party waiving compliance. Except as expressly stated herein, no delay on
      the
      part of any party in exercising any right, power or privilege hereunder shall
      operate as a waiver thereof, nor shall any waiver on the part of any party
      of
      any right, power or privilege hereunder preclude any other or future exercise
      of
      any other right, power or privilege hereunder.

     

    1.5.  Headings.
      The
      division of this Agreement into articles, sections, subsections and paragraphs
      and the insertion of headings are for convenience of reference only and shall
      not affect the construction or interpretation of this Agreement.

     

    1.6.  Law
      Governing this Agreement; Consent to Jurisdiction.
      THIS
      AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
      THE
      STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. With
      respect to any suit, action or proceeding relating to this Agreement or to
      the
      transactions contemplated hereby (“Proceedings”), each party hereto irrevocably
      submits to the exclusive jurisdiction of the courts of the County of New York,
      State of New York and the United States District court located in the county
      of
      New York in the State of New York. Each party hereto hereby irrevocably and
      unconditionally (a) waives trial by jury in any Proceeding relating to this
      Agreement and for any related counterclaim and (b) waives any objection which
      it
      may have at any time to the laying of venue of any Proceeding brought in any
      such court, waives any claim that such Proceedings have been brought in an
      inconvenient forum and further waives the right to object, with respect to
      such
      Proceedings, that such court does not have jurisdiction over such party. As
      between the Company and the Purchaser, the prevailing party shall be entitled
      to
      recover from the other party its reasonable attorneys’ fees and costs. In the
      event that any provision of this Agreement is determined by a court of competent
      jurisdiction to be invalid or unenforceable, then the remainder of this
      Agreement shall not be affected and shall remain in full force and
      effect.

     

    1.7.  Construction.
      Each
      party acknowledges that its legal counsel participated in the preparation of
      this Agreement and, therefore, stipulates that the rule of construction that
      ambiguities are to be resolved against the drafting party shall not be applied
      in the interpretation of this Agreement to favor any party against the
      other.

     

    ARTICLE
      II  

     

    APPOINTMENT
      OF AND DELIVERIES TO THE ESCROW AGENT

     

    2.1.  Appointment.
      The
      Company and the Purchaser hereby irrevocably designate and appoint the Escrow
      Agent as their escrow agent for the purposes set forth herein, and the Escrow
      Agent by its execution and delivery of this Agreement hereby accepts such
      appointment under the terms and conditions set forth herein.

     

    2.2.  Copies
      of Documents to Escrow Agent.
      On or
      about the date hereof, the Purchaser shall deliver to the Escrow Agent copies
      of
      the Documents executed by the Company to the extent it is a party
      thereto.

     

    2.3.  Delivery
      of Escrowed Payment to Escrow Agent.
      On or
      about the date hereof, the Purchaser shall deliver to the Escrow Agent the
      Escrowed Payment.

     

    2.4.  
      Intention to Create Escrow Over the Escrowed Payment.
      The
      Purchaser and the Company intend that the Escrowed Payment shall be held in
      escrow by the Escrow Agent and released from escrow by the Escrow Agent only
      in
      accordance with the terms and conditions of this Agreement.

     

    1.  
      2.5Conditions
      to Effectiveness. This Escrow Agreement shall become effective when signed
      by
      the Company, the Purchaser and the Escrow Agent.

     

    ARTICLE
      III  

     

    RELEASE
      OF ESCROW

     

    3.1.  Release
      of Escrow.
      Subject
      to the provisions of Section 4.2, the Escrow Agent shall release the Escrowed
      Payment from escrow as follows:

     

    (a)  Promptly
      following receipt by the Escrow Agent of (i) copies of the fully executed
      Documents and this Agreement, (ii) the Escrowed Payment in immediately available
      funds, (iii) a Disbursement Letter executed by the Company and the Purchaser
      setting forth the payment direction instructions with respect to the Escrowed
      Payment and (iv) Escrow Agent’s verbal instructions from David Grin and/or
      Eugene Grin (each of whom is a director of the Purchaser) indicating that all
      closing conditions relating to the Documents have been satisfied and directing
      that the Escrowed Payment be disbursed by the Escrow Agent in accordance with
      the Disbursement Letter, then the Escrowed Payment shall be deemed released
      from
      escrow and shall be promptly disbursed in accordance with the Disbursement
      Letter. The Disbursement Letter shall include, without limitation, Escrow
      Agent’s authorization to retain from the Escrowed Payment Escrow Agent’s fee for
      acting as Escrow Agent hereunder and the Closing Payment for delivery to Laurus
      Capital Management, LLC in accordance with the Disbursement Letter.

     

    (b)  Upon
      receipt by the Escrow Agent of a final and non-appealable judgment, order,
      decree or award of a court of competent jurisdiction (a "Court
      Order")
      relating to the Escrowed Payment, the Escrow Agent shall remit the Escrowed
      Payment in accordance with the Court Order. Any Court Order shall be accompanied
      by an opinion of counsel for the party presenting the Court Order to the Escrow
      Agent (which opinion shall be satisfactory to the Escrow Agent) to the effect
      that the court issuing the Court Order is a court of competent jurisdiction
      and
      that the Court Order is final and non-appealable.

     

    3.2.  Acknowledgement
      of Company and Purchaser; Disputes.
      The
      Company and the Purchaser acknowledge that the only terms and conditions upon
      which the Escrowed Payment are to be released from escrow are as set forth
      in
      Sections 3 and 4 of this Agreement. The Company and the Purchaser reaffirm
      their
      agreement to abide by the terms and conditions of this Agreement with respect
      to
      the release of the Escrowed Payment. Any dispute with respect to the release
      of
      the Escrowed Payment shall be resolved pursuant to Section 4.2 or by written
      agreement between the Company and Purchaser.

     

    ARTICLE
      IV  

     

    CONCERNING
      THE ESCROW AGENT

     

    4.1.  Duties
      and Responsibilities of the Escrow Agent.
      The
      Escrow Agent's duties and responsibilities shall be subject to the following
      terms and conditions:

     

    (a)  The
      Purchaser and the Company acknowledge and agree that the Escrow Agent (i) shall
      not be required to inquire into whether the Purchaser, the Company or any other
      party is entitled to receipt of any Document or all or any portion of the
      Escrowed Payment; (ii) shall not be called upon to construe or review any
      Document or any other document, instrument or agreement entered into in
      connection therewith; (iii) shall be obligated only for the performance of
      such
      duties as are specifically assumed by the Escrow Agent pursuant to this
      Agreement; (iv) may rely on and shall be protected in acting or refraining
      from
      acting upon any written notice, instruction, instrument, statement, request
      or
      document furnished to it hereunder and believed by the Escrow Agent in good
      faith to be genuine and to have been signed or presented by the proper person
      or
      party, without being required to determine the authenticity or correctness
      of
      any fact stated therein or the propriety or validity or the service thereof;
      (v)
      may assume that any person purporting to give notice or make any statement
      or
      execute any document in connection with the provisions hereof has been duly
      authorized to do so; (vi) shall not be responsible for the identity, authority
      or rights of any person, firm or company executing or delivering or purporting
      to execute or deliver this Agreement or any Document or any funds deposited
      hereunder or any endorsement thereon or assignment thereof; (vii) shall not
      be
      under any duty to give the property held by Escrow Agent hereunder any greater
      degree of care than Escrow Agent gives its own similar property; and (viii)
      may
      consult counsel satisfactory to Escrow Agent (including, without limitation,
      Loeb & Loeb, LLP or such other counsel of Escrow Agent’s choosing), the
      opinion of such counsel to be full and complete authorization and protection
      in
      respect of any action taken, suffered or omitted by Escrow Agent hereunder
      in
      good faith and in accordance with the opinion of such counsel.

     

    (b)  The
      Purchaser and the Company acknowledge that the Escrow Agent is acting solely
      as
      a stakeholder at their request and that the Escrow Agent shall not be liable
      for
      any action taken by Escrow Agent in good faith and believed by Escrow Agent
      to
      be authorized or within the rights or powers conferred upon Escrow Agent by
      this
      Agreement. The Purchaser and the Company hereby, jointly and severally,
      indemnify and hold harmless the Escrow Agent and any of Escrow Agent's partners,
      employees, agents and representatives from and against any and all actions
      taken
      or omitted to be taken by Escrow Agent or any of them hereunder and any and
      all
      claims, losses, liabilities, costs, damages and expenses suffered and/or
      incurred by the Escrow Agent arising in any manner whatsoever out of the
      transactions contemplated by this Agreement and/or any transaction related
      in
      any way hereto, including the fees of outside counsel and other costs and
      expenses of defending itself against any claims, losses, liabilities, costs,
      damages and expenses arising in any manner whatsoever out the transactions
      contemplated by this Agreement and/or any transaction related in any way hereto,
      except for such claims, losses, liabilities, costs, damages and expenses
      incurred by reason of the Escrow Agent’s gross negligence or willful misconduct.
      The Escrow Agent shall owe a duty only to the Purchaser and the Company under
      this Agreement and to no other person. 

     

    (c)  The
      Purchaser and the Company shall jointly and severally reimburse the Escrow
      Agent
      for its reasonable out-of-pocket expenses (including counsel fees (which counsel
      may be Loeb & Loeb LLP or such other counsel of the Escrow Agent’s choosing)
      incurred in connection with the performance of its duties and responsibilities
      hereunder, which shall not (subject to Section 4.1(b)) exceed $2,000.

     

    (d)  The
      Escrow Agent may at any time resign as Escrow Agent hereunder by giving five
      (5)
      business days prior written notice of resignation to the Purchaser and the
      Company. Prior to the effective date of resignation as specified in such notice,
      the Purchaser and Company will issue to the Escrow Agent a Joint Instruction
      authorizing delivery of the Documents and the Escrowed Payment to a substitute
      Escrow Agent selected by the Purchaser and the Company. If no successor Escrow
      Agent is named by the Purchaser and the Company, the Escrow Agent may apply
      to a
      court of competent jurisdiction in the State of New York for appointment of
      a
      successor Escrow Agent, and deposit the Documents and the Escrowed Payment
      with
      the clerk of any such court and/or otherwise commence an interpleader or similar
      action for a determination of where to deposit the same.

     

    (e)  The
      Escrow Agent does not have and will not have any interest in the Documents
      and
      the Escrowed Payment, but is serving only as escrow agent, having only
      possession thereof. 

     

    (f)  The
      Escrow Agent shall not be liable for any action taken or omitted by it in good
      faith and reasonably believed by it to be authorized hereby or within the rights
      or powers conferred upon it hereunder, nor for action taken or omitted by it
      in
      good faith, and in accordance with advice of counsel (which counsel may be
      Loeb
& Loeb, LLP or such other counsel of the Escrow Agent’s choosing), and shall
      not be liable for any mistake of fact or error of judgment or for any acts
      or
      omissions of any kind except to the extent any such liability arose from its
      own
      willful misconduct or gross negligence.

     

    (g)  This
      Agreement sets forth exclusively the duties of the Escrow Agent with respect
      to
      any and all matters pertinent thereto and no implied duties or obligations
      shall
      be read into this Agreement.

     

    (h)  The
      Escrow Agent shall be permitted to act as counsel for the Purchaser, in any
      dispute as to the disposition of the Documents and the Escrowed Payment, in
      any
      other dispute between the Purchaser and the Company, whether or not the Escrow
      Agent is then holding the Documents and/or the Escrowed Payment and continues
      to
      act as the Escrow Agent hereunder. 

     

    (i)  The
      provisions of this Section 4.1 shall survive the resignation of the Escrow
      Agent
      or the termination of this Agreement.

     

    4.2.  Dispute
      Resolution; Judgments.
      Resolution of disputes arising under this Agreement shall be subject to the
      following terms and conditions:

     

    (a)  If
      any
      dispute shall arise with respect to the delivery, ownership, right of possession
      or disposition of the Documents and/or the Escrowed Payment, or if the Escrow
      Agent shall in good faith be uncertain as to its duties or rights hereunder,
      the
      Escrow Agent shall be authorized, without liability to anyone, to (i) refrain
      from taking any action other than to continue to hold the Documents and the
      Escrowed Payment pending receipt of a Joint Instruction from the Purchaser
      and
      the Company, (ii) commence an interpleader or similar action, suit or proceeding
      for the resolution of any such dispute; and/or (iii) deposit the Documents
      and
      the Escrowed Payment with any court of competent jurisdiction in the State
      of
      New York, in which event the Escrow Agent shall give written notice thereof
      to
      the Purchaser and the Company and shall thereupon be relieved and discharged
      from all further obligations pursuant to this Agreement. The Escrow Agent may,
      but shall be under no duty to, institute or defend any legal proceedings which
      relate to the Documents and the Escrowed Payment. The Escrow Agent shall have
      the right to retain counsel if it becomes involved in any disagreement, dispute
      or litigation on account of this Agreement or otherwise determines that it
      is
      necessary to consult counsel which such counsel may be Loeb & Loeb
LLP
      or
such
      other counsel of the Escrow Agent’s choosing.

     

    (b)  The
      Escrow Agent is hereby expressly authorized to comply with and obey any Court
      Order. In case the Escrow Agent obeys or complies with a Court Order, the Escrow
      Agent shall not be liable to the Purchaser and the Company or to any other
      person, firm, company or entity by reason of such compliance.

     

    ARTICLE
      V  

     

    GENERAL
      MATTERS

     

    5.1.  Termination.
      This
      escrow shall terminate upon disbursement of the Escrowed Payment in accordance
      with the terms of this Agreement or earlier upon the agreement in writing of
      the
      Purchaser and the Company or resignation of the Escrow Agent in accordance
      with
      the terms hereof.

     

    5.2.  Notices.
      All
      notices, requests, demands and other communications required or permitted
      hereunder shall be in writing and shall be deemed to have been duly given one
      (1) day after being sent by telecopy (with copy delivered by overnight courier,
      regular or certified mail):

     

     

    
      
        	
                 

                If
                  to the Company, to:

              	
                 

                XFONE,
                  INC. 

              
	 	
                c/o
                  Xfone 018 Ltd.

              
	 	
                1
                  Haodem Street, 3rd
                  Floor

              
	
                 

              	
                Kiryat
                  Matalon

              
	
                 

              	
                Petach
                  Tikva, Israel 

              
	 	
                Facsimile:
                  011.972.39238838

              
	
                 

              	
                Attention:
                  Alon Reisser, Adv.

              
	
                With
                  a copy to:

              	 
	 	
                Yitzhak
                  Rosenbaum

              
	 	
                Advocate
                  and Attorney-at-Law 

              
	 	
                Rosenbaum
                  & Co.

              
	 	
                Giron
                  Center, Room 315

              
	 	
                Ra'anana
                  43363

              
	 	
                Israel

              
	 	
                Facsimile:
                  011.972.508966694

              

      

    

     

     

    (b)
      If to
      the Purchaser, to:

    

    LAURUS
      MASTER FUND, LTD. 

    M&C
      Corporate Services Limited, P.O. Box 309 GT, Ugland 

    House,
      South Church Street, George Town, Grand Cayman, 

    Cayman
      Islands, Fax: 345-949-8080

     

    (c) If
      to the
      Escrow Agent, to:

     

    Loeb
      & Loeb LLP

    345
      Park
      Avenue 

    New
      York,
      New York 10154

    Fax:
      (212) 407-4990

    Attention:
      Scott J. Giordano, Esq.

     

    or
      to
      such other address as any of them shall give to the others by notice made
      pursuant to this Section 5.2.

     

    5.3.  Interest.
      The
      Escrowed Payment shall not be held in an interest bearing account nor will
      interest be payable in connection therewith.

     

    5.4.  Assignment;
      Binding Agreement.
      Neither
      this Agreement nor any right or obligation hereunder shall be assignable by
      any
      party without the prior written consent of the other parties hereto. This
      Agreement shall inure to the benefit of and be binding upon the parties hereto
      and their respective legal representatives, successors and assigns.

     

    5.5.  Invalidity.
      In the
      event that any one or more of the provisions contained herein, or the
      application thereof in any circumstance, is held invalid, illegal, or
      unenforceable in any respect for any reason, the validity, legality and
      enforceability of any such provision in every other respect and of the remaining
      provisions contained herein shall not be in any way impaired thereby, it being
      intended that all of the rights and privileges of the parties hereto shall
      be
      enforceable to the fullest extent permitted by law.

     

    5.6.  Counterparts/Execution.
      Subject
      to Section 2.5, this Agreement may be executed in any number of counterparts
      and
      by different signatories hereto on separate counterparts, each of which, when
      so
      executed, shall be deemed an original, but all such counterparts shall
      constitute but one and the same agreement. This Agreement may be executed by
      facsimile transmission.

     

    2.  IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
      date
      and year first above written.

     

    COMPANY:

     

    XFONE,
      INC.

     

    By:_________________________________

    Name:
      Guy
      Nissenson

    Title:
      President & CEO

     

    PURCHASER:

     

    LAURUS
      MASTER FUND, LTD.

     

    By:_________________________________

    Name:

    Title:

     

    ESCROW
      AGENT:

     

    LOEB
      & LOEB LLP

     

    By:_________________________________

    Name:

    Title:

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    SCHEDULE
      A TO FUNDS ESCROW AGREEMENT

     

      

    
      	
              PURCHASER

            	
              PRINCIPAL
                NOTE AMOUNT

            
	
              LAURUS
                MASTER FUND, LTD., 

              M&C
                Corporate Services Limited, P.O. Box 309 GT,
                Ugland

              House,
                South Church Street, George Town,
                Grand Cayman, 

              Cayman
                Islands, Fax: 345-949-8080

            	
              Term
                Note in an aggregate principal amount of $2,000,000.

               

            
	
              TOTAL

            	
              $2,000,000

            

    

     

    

    
      	
              FUND
                MANAGER

            	
              CLOSING
                PAYMENT

            
	
              LAURUS
                CAPITAL MANAGEMENT, L.L.C.

              825
                Third Avenue, 14th
                Floor

              New
                York, New York 10022

              Fax:
                212-541-4434

            	
              Closing
                payment payable in connection with investment by Laurus Master Fund,
                Ltd.
                for which Laurus Capital Management, L.L.C. is the
                Manager.

            
	
              TOTAL

            	
              $72,000

            

    

     

    WARRANTS

     

    

    
      	
              WARRANT
                RECIPIENT

            	
              WARRANTS
                IN CONNECTION WITH OFFERING

            
	
              LAURUS
                MASTER FUND, LTD. 

              M&C
                Corporate Services Limited, P.O. Box 309 GT, Ugland

              House,
                South Church Street, George Town, Grand Cayman, 

              Cayman
                Islands, Fax: 345-949-8080

            	
              Term
                Note Warrant execisable into 157,500 shares of common stock of the
                Company
                issuable in connection with the Term Note. 

            
	
              TOTAL

            	
              Warrants
                exercisable into 157.500 shares of common stock of the
                Company

            

    

     

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Xfone,
      Inc.

    September
      27, 2005

    

     

    Scott
      J.
      Giordano 

    Loeb
      & Loeb LLP 

    345
      Park
      Avenue 

    New
      York,
      New York 10154 

    Direct
      Dial:  (212) 407-4104 

    Fax: 
      (212) 407-4990

     

    
      	 	
              RE:

            	
              XFONE,
                INC.
                -
                Escrow Release 

            

    

    Gross
      Escrow Deposit: $2,000,000

    Dear
      Mr.
      Giordano:

    

    These
      instructions are given to you pursuant to a Funds Escrow Agreement among
XFONE,
      INC.
      (the “Company”), Laurus Master Fund, Ltd. and Loeb & Loeb LLP as Escrow
      Agent. Subject to the terms set forth below, you are instructed to disburse
      $2,000,000 of the investor’s funds received by you to and on the Company’s
      behalf as follows:

     

    

      
        	1.   	$1,590,476.67
                - Xfone, Inc., pursuant to the following wire
                instructions:

      

      
        	
                Bank:

              	
                
                  AmSouth
                    Bank

                

                1900
                  5th Ave N

                Birmingham,
                  AL 35203

              
	
                ABA
                  #:

              	
                062000019

              
	
                Account
                  #:

              	
                0050488686

              
	
                Account
                  Name:

              	
                Xfone,
                  Inc.

              
	
                Reference:

              	 

      

      

      
        	2.  	
                $110,000.00-
                  Oberon
                  Securities,
                  LLC, pursuant to the following wire
                  instructions:

              

      

      
        	
                Bank:

              	
                Bank
                  of New York

                260
                  Madison Ave

                NY,
                  NY 10016

              
	
                ABA#:

              	
                021000018

              
	
                Swift
                  #:

              	
                IRVTUS3N

              
	
                Account
                  #:

              	
                630-2306921

              
	
                Account
                  Name:

              	
                Oberon
                  Securities

              

      

       

      
        	3.  	
                $200,023.33-
                  AmSouth
                  Bank,
                  pursuant to the following wire
                  instructions:

              

      

      
        	
                Bank:

              	
                AmSouth
                  Bank

                1900
                  5th Ave N

                Birmingham,
                  AL 35203

              
	
                ABA#:

              	
                062000019

              
	
                Account
                  #:

              	
                007000005385

              
	
                Account
                  Name:

              	
                eXpeTel
                  Communications, Inc.

              
	
                Reference:

              	
                Xfone
                  USA/ eXpeTel Communications Credit
                  Facility

              

      

       

      
        	4.  	
                $72,000.00
                  -
                  Laurus Capital Management, L.L.C. (management fees), pursuant to
                  the
                  following wire instructions:

              

      

      
        	
                Bank:

              	
                North
                  Fork Bank

                New
                  York, NY 10022

              
	
                ABA#:

              	
                021407912

              
	
                For
                  Credit to: 

              	
                Laurus
                  Capital Management, LL.C.

              
	
                Account
                  Number: 

              	
                2774045278

              

      

       

      

      
        	5.  	
                $25,500.00
                  -
                  Laurus Capital Management, L.L.C. (for payment in full of all due
                  diligence and documentation fees owed by the Company), pursuant
                  to the
                  following wire instructions:

              

      

      
        	
                Bank:

              	
                North
                  Fork Bank

                New
                  York, NY 10022

              
	
                ABA#:

              	
                021407912

              
	
                For
                  Credit to: 

              	
                Laurus
                  Capital Management, LL.C.

              
	
                Account
                  Number: 

              	
                2774045278

              

      

      

      

      
        	6.  	
                $2,000.00
                  -
                  Loeb & Loeb LLP (for escrow agent fee and expenses), pursuant to the
                  following wire instructions:

              

      

    

    
      	
              Bank:

            	
              Citibank,
                N.A.

            
	
              ABA
                No:

            	
              021000089

            
	
              Acct.
                No.: 

            	
              02674308

            
	
              Reference:
                

            	
              Laurus
                Escrow Arrangement

            

    

    

    
       

    

     

    Very
      truly yours,

    

    XFONE,
      INC.

    

    By:_________________________________

    

     

    Accepted
      and Agreed:

     

    Laurus
      Master Fund, Ltd.

     

    By:_______________________

     

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    Schedule
      1

     

    Xfone,
      Inc.

    960
      High
      Road 

    London,
      United Kingdom N12 9RY

     

    Oberon
      Securities, LLC

    79
      Madison Avenue, 6th Floor

    New
      York,
      NY 10016

    

    Laurus
      Capital Management LLC

    825
      3rd
      Ave.
      14th
      Floor

    New
      York,
      NY 10022

    

    Loeb
      & Loeb

    345
      Park
      Avenue

    New
      York,
      NY 10154

    

    AmSouth
      Bank

    1900
      5th
      Ave N

    Birmingham,
      AL 35203

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