Exhibit 10.5

Arbinet-thexchange, Inc.

Non-Qualified Stock Option Agreement

Granted Under 2004 Stock Incentive Plan

 

1. Grant of Option.

This Non-Qualified Stock Option Agreement (the “Agreement”) evidences the grant
by Arbinet-thexchange, Inc., a Delaware corporation (the “Company”), on
[            ], 200[ ] (the “Grant Date”) to [            ], an
[employee]/[consultant]/[director] of the Company (the “Participant”), of an
option to purchase, in whole or in part, on the terms provided herein and in the
Company’s 2004 Stock Incentive Plan, as amended through the date hereof (the
“Plan”), a total of [            ] shares (the “Shares”) of common stock, $0.001
par value per share, of the Company (“Common Stock”) at $[            ] per
Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern
time, on [            ] (the “Final Exercise Date”).

It is intended that the option evidenced by this Agreement shall not be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder (the “Code”).
Except as otherwise indicated by the context, the term “Participant”, as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.

 

2. Vesting Schedule.

This option will become exercisable (“vest”) as to [            ]% of the
original number of Shares on the [            ] anniversary of the Grant Date
and pro-rata thereafter on a monthly basis at the end of each successive
[            ] following the first anniversary of the Grant Date until the
[            ] anniversary of the Grant Date.

The right of exercise shall be cumulative so that to the extent the option is
not exercised in any period to the maximum extent permissible it shall continue
to be exercisable, in whole or in part, with respect to all Shares for which it
is vested until the earlier of the Final Exercise Date or the termination of
this option under Section 3 hereof or the Plan.

 

3. Exercise of Option.

(a) The Participant may exercise this option only in the following manner: from
time to time on or prior to the Final Exercise Date of this option, the
Participant may give written notice to the Company of his or her election to
purchase some or all of the Shares purchasable at the time of such notice. This
notice shall specify the number of Shares to be purchased.

Payment of the purchase price for the Shares may be made by one or more of the
following methods: (i) in cash or by check or, payable to the order of the
Company; (ii) by the Participant delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company cash or a check payable and acceptable to the Company to
pay the option purchase price and any required tax withholding; (iii) through
the delivery of shares of Common Stock that have been purchased by the
Participant on the open market or that are beneficially owned by the Participant
and are not then subject to any restrictions under any Company plan and that
otherwise satisfy any holding periods as may be required by the Board; or (iv) a
combination of (i), (ii) and (iii) above. Payment instruments will be received
subject to collection.

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(b) Continuous Relationship with the Company Required. Except as otherwise
provided in this Section 3, this option may not be exercised unless the
Participant, at the time he or she exercises this option, is, and has been at
all times since the Grant Date, an employee or director of, or consultant or
advisor to, the Company or a subsidiary (an “Eligible Participant”).

(c) Termination of Relationship with the Company. If the Participant ceases to
be an Eligible Participant for any reason, then, except as provided in
Section 3(d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), provided that this option shall be exercisable only to the extent that
the Participant was entitled to exercise this option on the date of such
cessation.

(d) Exercise Period Upon Death or Disability. If the Participant dies or becomes
disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final
Exercise Date while he or she is an Eligible Participant and the Company has not
terminated such relationship for “cause” as specified in Section 3(e) below,
this option shall be exercisable, within the period of one year following the
date of death or disability of the Participant, by the Participant (or in the
case of death by an authorized transferee), provided that this option shall be
exercisable only to the extent that this option was exercisable by the
Participant on the date of his or her death or disability, and further provided
that this option shall not be exercisable after the Final Exercise Date.

(e) Discharge for Cause. If the Participant, prior to the Final Exercise Date,
is discharged by the Company for “cause” (as defined below), the right to
exercise this option shall terminate immediately upon the effective date of such
discharge. “Cause” shall mean willful misconduct by the Participant or willful
failure by the Participant to perform his or her responsibilities to the Company
(including, without limitation, breach by the Participant of any provision of
any employment, consulting, advisory, nondisclosure, non-competition or other
similar agreement between the Participant and the Company), as determined by the
Company, which determination shall be conclusive. The Participant shall be
considered to have been discharged for “cause” if the Company determines, within
30 days after the Participant’s resignation, that discharge for cause was
warranted.

The Board’s determination of the reason for termination of the Participant’s
employment shall be conclusive and binding on the Participant and his or her
representatives or legatees.

 

4. Withholding.

The Participant shall, not later than the date as of which the exercise of these
options becomes a taxable event for Federal income tax purposes, pay to the
Company or make arrangements satisfactory to the Committee for payment of any
Federal, state, and local taxes required by law to be withheld on account of
such taxable event. The Participant may elect to have such tax withholding
obligation satisfied, in whole or in part, by authorizing the Company to
withhold from shares of Stock to be issued.

 

5. Nontransferability of Option.

This option may not be sold, assigned, transferred, pledged or otherwise
encumbered by the Participant, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and, during the lifetime of the
Participant, this option shall be exercisable only by the Participant.

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6. Provisions of the Plan.

This option is subject to the provisions of the Plan, a copy of which is
furnished to the Participant with this option. Capitalized terms in this
Agreement shall have the meaning specified in the Plan, unless a different
meaning is specified herein. However, in applying the provisions of
Section 10(b) of the Plan, the following special terms shall be in effect for
this option and shall be controlling with respect to any Reorganization Event
(as hereinafter defined), notwithstanding any provision to the contrary in such
Section 10(b) of the Plan:

A. For purposes of this option, the term “Reorganization Event” shall mean a
change in ownership or control of the Company effected through any of the
following transactions:

(i) a merger, consolidation or other reorganization approved by the Company’s
stockholders, unless securities representing more than fifty percent (50%) of
the total combined voting power of the voting securities of the successor
corporation are immediately thereafter beneficially owned, directly or
indirectly and in substantially the same proportion, by the persons who
beneficially owned the Company’s outstanding voting securities immediately prior
to such transaction, or

(ii) a stockholder-approved sale, transfer or other disposition of all or
substantially all of the Company’s assets, or

(iii) the closing of any transaction or series of related transactions pursuant
to which any person or any group of persons comprising a “group” within the
meaning of Rule 13d-5(b)(1) of the Securities Exchange Act of 1934 Act (other
than the Company or a person that, prior to such transaction or series of
related transactions, directly or indirectly controls, is controlled by or is
under common control with, the Company) becomes directly or indirectly the
beneficial owner (within the meaning of Rule 13d-3 of the Securities Exchange
Act of 1934) of securities possessing (or convertible into or exercisable for
securities possessing) more than fifty percent (50%) of the total combined
voting power of the Company’s securities (as measured in terms of the power to
vote with respect to the election of Board members) outstanding immediately
after the consummation of such transaction or series of related transactions,
whether such transaction involves a direct issuance from the Company or the
acquisition of outstanding securities held by one or more of the Company’s
existing stockholders.

B. Should a Reorganization Event occur while the Participant remains in service
as an Eligible Participant, then this option, to the extent outstanding at the
time of that Reorganization Event but not otherwise fully vested and
exercisable, shall automatically vest on an accelerated basis so that this
option shall, immediately prior to the effective date of such Reorganization
Event, vest and become exercisable as to fifty percent (50%) of the Shares for
which this option would not otherwise at that time be vested and exercisable in
accordance with the normal vesting schedule set forth in Section 2 of this
Agreement and may be exercised for any or all of those accelerated Shares as
fully vested shares of Common Stock. This option shall vest and become
exercisable for the remaining fifty percent (50%) of the unvested Shares equally
over the remaining vesting term as set forth in Section 2 of this Agreement.
However, this option shall, immediately prior to the effective date of a
Reorganization Event, vest and become exercisable as to all the Shares at the
time subject to this option and may be exercised for any or all of those
accelerated Shares as fully vested shares of Common Stock, if and to the extent:
(i) this option is not to be assumed by the successor corporation (or parent
thereof) or is not

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otherwise to be continued in full force and effect after the Reorganization
Event or (ii) this option is not to be replaced with a program of the successor
corporation which preserves the spread existing at the time of the
Reorganization Event on any Shares as to which this option is not otherwise at
that time vested and exercisable (the excess of the fair market value of those
unvested Shares over the aggregate Exercise Price payable for such Shares) and
provides for subsequent payout of that spread in accordance with the same
vesting schedule for those Shares as set forth in Section 2 of this Agreement.
At the effective time of the Reorganization Event, this option shall terminate
and cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof) or otherwise continued in effect after the
Reorganization Event. Notwithstanding anything to the contrary herein, the
Company shall have the right, but not the obligation, in connection with a
Reorganization Event, to make or provide for a cash payment to the Participant,
in exchange for the cancellation of this option, in an amount equal to the
difference between (x) the value as determined by the Board of the consideration
payable or otherwise to be received by the Company’s stockholders, per share of
Common Stock, in connection with the Reorganization Event, multiplied by the
number of Shares subject to the option and (y) the aggregate exercise prices of
Shares subject to the option.

C. To the extent this option does not, at the time of the Reorganization Event,
vest and become exercisable as to all the Shares at that time subject to this
option, then this option shall be subject to accelerated vesting in accordance
with the following provision:

- Should the Participant’s service as an Eligible Participant be terminated by
the Company other than for Cause on or within twelve (12) months after the
effective date of that Reorganization Event, then this option shall immediately
vest and become exercisable as to all the Shares at the time subject to this
option and may be exercised for any or all of those accelerated Shares as fully
vested shares of Common Stock until the earlier of (i) the Final Exercise Date
or (ii) the sooner termination of this option pursuant to Paragraph 3 of this
Agreement.

If the option is replaced with a program of the successor corporation as set
forth above, the accelerated vesting provided by this Paragraph 6.C shall apply
equally to the replacement cash incentive program.

D. If this option is assumed in connection with a Reorganization Event or
otherwise continued in effect, then this option shall be appropriately adjusted,
immediately after such Reorganization Event, to apply to the number and class of
securities which would have been issuable to Participant in consummation of such
Reorganization Event had the option been exercised immediately prior to such
Reorganization Event, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same. To
the extent the actual holders of the Company’s outstanding Common Stock receive
cash consideration for their Common Stock in consummation of the Reorganization
Event, the successor corporation may, in connection with the assumption or
continuation of this option, substitute one or more shares of its own common
stock with a fair market value equivalent to the cash consideration paid per
share of Common Stock in such Reorganization Event, provided such common stock
is readily tradable on an established U.S. securities exchange or market.

 

7. No Obligation to Continue Employment.

Neither the Company nor any subsidiary is obligated by or as a result of the
Plan or this Agreement to continue the Participant in employment and neither the
Plan nor this Agreement shall interfere in any way with the right of the Company
or any subsidiary to terminate the employment of the Participant at any time.

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8. Notices.

Notices hereunder shall be mailed or delivered to the Company at its principal
place of business and shall be mailed or delivered to the Participant at the
address on file with the Company or, in either case, at such other address as
one party may subsequently furnish to the other party in writing.

 

9. Amendment.

This Agreement may be amended or modified only by a written instrument executed
by both the Company and the Participant.

 

10. Governing Law.

This Agreement shall be construed, interpreted and enforced in accordance with
the internal laws of the State of New Jersey without regard to any applicable
conflicts of laws.

 

11. Participant’s Acknowledgments.

The Participant acknowledges that he: (i) has read this Agreement; (ii) has been
represented in the preparation, negotiation and execution of this Agreement by
legal counsel of the Participant’s own choice or has voluntarily declined to
seek such counsel; (iii) understands the terms and consequences of this
Agreement; and (iv) is fully aware of the legal and binding effect of this
Agreement.

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IN WITNESS WHEREOF, the Company has caused this option to be executed under its
corporate seal by its duly authorized officer. This option shall take effect as
a sealed instrument.

 

    ARBINET-THEXCHANGE, INC. Dated:                              By:  

 

    Name:  

 

    Title:  

 

PARTICIPANT’S ACCEPTANCE

The undersigned hereby accepts the foregoing option and agrees to the terms and
conditions thereof. The undersigned hereby acknowledges receipt of a copy of the
Company’s 2004 Stock Incentive Plan, as amended.

 

    PARTICIPANT:    

 

    Address: