SEPARATION AGREEMENT AND RELEASE

This Separation Agreement and Release (this “Agreement”) is entered into as of the 15 ^th day of August 2008, between Wade Spooner (“Spooner”) and Xfone USA, Inc. (the “Company”).

A.           Spooner was employed by the Company as President and Chief Executive Officer pursuant to an Employment Agreement dated March 10, 2005 (the “Employment Agreement”) which expired on March 10, 2008 and Spooner was notified in writing on March 11, 2008 that the Company was not renewing the Employment Agreement and Spooner’s employment with the Company ended at the close of business on March 11, 2008 (the “Employment Expiration Date”).

B.           Spooner and the Company wish to compromise and settle all claims and issues arising from or related to Spooner’s employment with the Company, on the terms and conditions expressed in this Agreement.

NOW, THEREFORE, based upon the foregoing recitals, in consideration of the mutual terms, covenants and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by each party, Spooner and the Company agree as follows:

1.1           In full settlement of any and all claims by Spooner against the Company, the Company shall cause to be paid to Spooner the following:

(i)            Cash Payments .  $210,000.00 payable in twenty four (24) bi-monthly payments of $8,750.00 on the 15 ^th and the last day of each month or on the next business day if a payment date falls on either a weekend or holiday beginning following the date that this Agreement is no longer revocable as provided in Section 19 hereof.  The Company agrees to direct deposit these payments to a bank account specified by Spooner in writing to the Company.

(ii)            New Warrants .  300,000 non-tradable warrants (“New Warrants”) to purchase restricted common stock of Xfone, Inc. (“Xfone Common Stock”) which warrants shall be issued upon and subject to the approval of the American Stock Exchange, the Tel-Aviv Stock Exchange and/or any other applicable exchange or market where the Xfone Common Stock is traded (jointly or severally the “Exchange”).  Spooner acknowledges that the foregoing Exchange approval may be conditional upon the approval of the issuance of the New Warrants by the shareholders of Xfone, Inc., and that Xfone, Inc. shall seek such shareholder approval, if so required by the Exchange, at its 2008 annual meeting of shareholders.  The New Warrants shall provide for a five (5) year term from the date of issuance and be convertible on a one-to-one basis into restricted Xfone Common Stock with a strike price of $3.63 per share.  For a period of five (5) years after the date hereof,  whenever Xfone, Inc. (“Xfone”) proposes to file a registration statement under the Securities Act of 1933, as amended, pertaining to the sale by Xfone of common stock or securities convertible into common stock in an underwritten offering, and the registration form to be used may be used for the registration of the shares underlying the New Warrants granted to Spooner under this Section 1.1(ii) (in this Section 1.1(ii) a "Piggyback Registration"), Xfone will give prompt written notice to Spooner of its intention to effect such a registration and will include in such registration the shares underlying Spooner’s New Warrants issued under this Section 1.1(ii) unless Spooner objects to inclusion of such shares by a written notice to Xfone within two (2) business days after the receipt of Xfone’s notice to Spooner.  If a Piggyback Registration is an underwritten primary registration on behalf of Xfone, and the managing underwriters advise Xfone in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, Xfone will include in such registration (i) first, the securities Xfone proposes to sell, and (ii) second, the shares underlying New Warrants of Spooner requested to be included in such registration and securities held by other persons having piggyback registration rights, if any, pro rata among the holders of such securities on the basis of the number of shares of registerable securities held by such holders.  Xfone will pay the Registration Expenses with respect to all Piggyback Registrations.  The term "Registration Expenses" means expenses incident to registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses and fees and disbursements of counsel for Xfone and all independent certified public accountants, and other persons retained by Xfone.  Spooner shall pay, with respect to the underlying shares registered and proposed to be resold by him, all applicable underwriting or brokerage fees, as well as the fees and disbursements of any counsel employed by him in connection with such registration statement.  Spooner shall cooperate with Xfone with respect to the preparation and filing of the registration statement, and shall complete and execute any required questionnaire.

Spooner acknowledges and agrees that his 500,000 unvested options for Xfone Common Stock which were granted pursuant to Section 3.3 of the Employment Agreement were terminated on March 11, 2008, and that the remaining 100,000 vested options terminated on June 11, 2008 and he does not hold and is not due any other options under the Employment Agreement or otherwise.

(iii)            WS Telecom Merger Warrants .  Spooner and the Company agree that Spooner was issued 304,725 warrants for restricted Xfone Common Stock with a strike price of $3.63 and a term of 5 years from the date of issue on March 10, 2005 (the “WS Telecom Merger Xfone Warrants”) in connection with the consummation of the merger of WS Telecom, Inc. with and into Xfone USA, Inc. on March 10, 2005 pursuant to the Agreement and Plan of Merger dated May 28, 2004 (the “WS Telecom Merger Agreement”).

Spooner and the Company agree that pursuant to Xfone’s Registration Statement on Form SB-2 (File No. 333-139024) which was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on December 12, 2006, that 304,725 shares of Xfone Common Stock which may be issued in the event of exercise of the WS Telecom Merger Xfone Warrants were registered.

Within fourteen (14) business days of receipt by Xfone’s transfer agent (the “Transfer Agent”) of the original warrant certificate(s) evidencing the 304,725 WS Telecom Merger Xfone Warrants the Company shall cause the Transfer Agent to issue a replacement warrant certificate for 304,725 Xfone warrants exercisable on a one for one basis into unrestricted Xfone Common Stock with an expiration date of March 10, 2010 and a strike price of $3.63 per share.

(iv)            Acquisition Bonus Warrants .  Pursuant to Section 3.4 of the Employment Agreement, Spooner was to receive acquisition warrants (the “Acquisition Bonus Warrants”) for restricted Xfone Common Stock with a value equal to 1.334% of the Aggregate Transaction Consideration (as defined in the Employment Agreement) of each acquisition closed during Spooner’s employment period, with the value of the warrants received to be calculated by Xfone one day prior to the closing of each acquisition assuming a 90% volatility of the underlying Parent Common Stock pursuant to the Black Scholes option-pricing model, with vesting six months from the date of issue.  The warrants were to be convertible on a one-to-one basis into restricted Xfone Common Stock with a term of five years and a strike price equal to 10% above the closing price of the Parent Common Stock one day prior to the closing date of each acquisition.  Spooner was issued 32,390 Acquisition Bonus Warrants on July 11, 2006 which warrants are exercisable on a one to one basis into restricted Xfone Common Stock with an exercise price of $3.285 per share and an expiration date of July 11, 2011.  Pursuant to Xfone’s Registration Statement on Form SB-2 (File No. 333-139024) which was declared effective by the SEC on December 12, 2006, 32,390 shares of Xfone Common Stock which may be issued in the event of the exercise of the 32,390 Acquisition Bonus Warrants were registered.

The parties to this Agreement disagree as to the total number of Acquisition Bonus Warrants that Spooner was entitled to receive under Section 3.4 of his Employment Agreement for acquisitions completed by the Company during the term of his employment.  The parties agree that in full settlement and satisfaction of any Acquisition Bonus Warrants due to Spooner under Section 3.4 of the Employment Agreement, Xfone shall issue to Spooner an additional 21,452 non-tradable warrants convertible on a one to one basis into restricted Xfone Common Stock with 2,483 of the warrants to have an expiration date of December 30, 2010 with a strike price of $3.04 per share and 18,969 of the warrants to have an expiration date of March 31, 2011 with a strike price of $3.26 per share (the “Additional Acquisition Bonus Warrants”).  The Additional Acquisition Bonus Warrants shall be issued upon and subject to the approval of the Exchange.  Spooner acknowledges that the foregoing Exchange approval may be conditional upon the approval of the issuance of the Additional Acquisition Bonus Warrants by the shareholders of Xfone and that Xfone shall seek such shareholder approval, if so required by the Exchange, at its 2008 annual meeting of shareholders.  Through the expiration date of the Additional Acquisition Bonus Warrants, whenever Xfone proposes to file a registration statement under the Securities Act of 1933, as amended, pertaining to the sale by Xfone of common stock or securities convertible into common stock in an underwritten offering, and the registration form to be used may be used for the registration of the shares underlying the unexpired Additional Acquisition Bonus Warrants granted to Spooner under this Section 1.1(iv) (in this Section 1.1(iv) a "Piggyback Registration"), Xfone will give prompt written notice to Spooner of its intention to effect such a registration and will include in such registration the shares underlying Spooner’s unexpired Additional Acquisition Bonus Warrants issued under this Section 1.1(iv) unless Spooner objects to inclusion of such shares by a written notice to Xfone within two (2) business days after the receipt of Xfone’s notice to Spooner.  If a Piggyback Registration is an underwritten primary registration on behalf of Xfone, and the managing underwriters advise Xfone in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, Xfone will include in such registration (i) first, the securities Xfone proposes to sell, and (ii) second, the shares underlying unexpired Additional Acquisition Bonus Warrants of Spooner requested to be included in such registration and securities held by other persons having piggyback registration rights, if any, pro rata among the holders of such securities on the basis of the number of shares of registerable securities held by such holders.  Xfone will pay the Registration Expenses with respect to all Piggyback Registrations.  The term "Registration Expenses" means expenses incident to registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses and fees and disbursements of counsel for Xfone and all independent certified public accountants, and other persons retained by Xfone.  Spooner shall pay, with respect to the underlying shares proposed to be resold by him, all applicable underwriting or brokerage fees, as well as the fees and disbursements of any counsel employed by him in connection with such registration statement.  Spooner shall cooperate with Xfone with respect to the preparation and filing of the registration statement, and shall complete and execute any required questionnaire.

(v)           Xfone shall use commercially reasonable efforts to obtain the Exchange approval and shareholder approval, if required for the issuance of the New Warrants and Additional Acquisition Bonus Warrants.

1.2           From and after the Employment Expiration Date, Spooner is not eligible to participate in any employee benefit plans