Document:

exv10w3

 

Exhibit 10.3

THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO VOIP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

Right to
Purchase 625,000 shares of Common
Stock       

of VoIP, Inc. (subject to adjustment as provided herein)

COMMON STOCK PURCHASE WARRANT

Issue Date: August 3, 2005

     VOIP, INC., a corporation organized under the laws of the State of Texas (the “Company”),
hereby certifies that, for value received, WQN, Inc., 14911 Quorum Drive, Suite 140, Dallas, Texas
75201, or its assigns (the “Holder”), is entitled, subject to the terms set forth below, to
purchase from the Company at any time after the Issue Date until July 27, 2006 (the “Expiration
Date”), up to 625,000 fully paid and nonassessable shares of Common Stock at a per share purchase
price of $1.37; provided, however, this Warrant shall automatically terminate and
be of no further force and effect in the event the transactions (the “Transactions”) contemplated
by the Asset Purchase Agreement (as defined below) are terminated pursuant to Section 2.5 of that
certain asset purchase agreement (the “Asset Purchase Agreement”), of even date herewith, entered
into by the Company and Holder. The aforedescribed purchase price per share, as adjusted from time
to time as herein provided, is referred to herein as the “Purchase Price.” The number and
character of such shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein. The Company may reduce the Purchase Price without the consent of the Holder.
Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the
Asset Purchase Agreement.

     As used herein the following terms, unless the context otherwise requires, have the following
respective meanings:

     (a) The term “Company” shall include VoIP, Inc. and any corporation which shall succeed or
assume the obligations of VoIP, Inc. hereunder.

     (b) The term “Common Stock” includes (a) the Company’s common stock, $.001 par value per share
(the “Common Stock”), as authorized on the date hereof, and (b) any other securities into which or
for which the Common Stock may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.

     (c) The term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the holder of the
Warrant at any time shall be entitled to receive, or shall have

 

 

received, on the exercise of the
Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 5 or otherwise.

     (d) The term “Warrant Shares” shall mean the Common Stock issuable upon exercise of this
Warrant.

     1. Exercise of Warrant.

     1.1. Number of Shares Issuable upon Exercise. From and after the date hereof, through
and including the Expiration Date, the Holder hereof shall be entitled to receive, upon exercise of
this Warrant in whole in accordance with the terms of Subsection 1.2 or upon exercise of this
Warrant in part in accordance with Subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.

     1.2. Full Exercise. This Warrant may be exercised in full by the Holder hereof by
delivery of an original or facsimile copy of the form of subscription attached as Exhibit A hereto
(the “Subscription Form”) duly executed by such Holder and surrender of the original Warrant within
four (4) days of exercise, to the Company at its principal office or at the office of its Warrant
Agent (as hereinafter defined), accompanied by payment, in cash, wire transfer or by certified or
official bank check payable to the order of the Company, in the amount obtained by multiplying the
number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price
then in effect.

     1.3. Partial Exercise. This Warrant may be exercised in part (but not for a
fractional share) by surrender of this Warrant in the manner and at the place provided in
subsection 1.2 except that the amount payable by the Holder on such partial exercise shall be the
amount obtained by multiplying (a) the number of whole shares of Common Stock designated by the
Holder in the Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the
Holder hereof a new Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may request, the whole number of shares of
Common Stock for which such Warrant may still be exercised.

     1.4. Company Acknowledgment. The Company will, at the time of the exercise of the
Warrant, upon the request of the Holder hereof acknowledge in writing its continuing obligation to
afford to such Holder any rights to which such Holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant. If the Holder shall fail to make any
such request, such failure shall not affect the continuing obligation of the Company to afford to
such Holder any such rights.

     1.5. Delivery of Stock Certificates, etc. on Exercise. The Company agrees that the
shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be
issued to the Holder hereof as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered and payment made for such shares as
aforesaid. As soon as practicable after the exercise of this Warrant in full

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or in part, and in any
event within four (4) business days thereafter, the Company at its expense (including the payment
by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the
Holder hereof, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may
direct in compliance with applicable securities laws, a certificate or certificates for the number
of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such Holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share of Common Stock, together with any other
stock or other securities and property (including cash, where applicable) to which such Holder is
entitled upon such exercise pursuant to Section 1 or otherwise.

     1.6.  Cashless Exercise.

     (a) At the option of the Holder, exercise of this Warrant may be made in whole or part
by delivery of Common Stock issuable upon exercise of the Warrants in accordance with
Section (b) below for the number of Common Stock specified in such form (as such exercise
number shall be adjusted to reflect any adjustment in the total number of shares of Common
Stock issuable to the holder per the terms of this Warrant) and the holder shall thereupon
be entitled to receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock determined as provided herein.

     (b) If the Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising this Warrant
for cash, the holder may elect to receive shares equal to the value (as determined below)
of this Warrant (or the portion thereof being cancelled) by surrender of this Warrant at
the principal office of the Company together with the properly endorsed Subscription Form
in which event the Company shall issue to the holder a number of shares of Common Stock
computed using the following formula:

	 	 	 	 	 	 	 
	 

	 	X=
	 	Y (A-B)
	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	A	 	 

	 	 	 	 	 
	 

	 	Where X=
	 	the number of shares of Common Stock to be issued
to the holder

	 	 	 	 	 
	 

	 	Y=
	 	the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being exercised (at the
date of such calculation)
	 
	 	 	 	 
	 

	 	A=
	 	the Fair Market Value of one share of the Company’s
Common Stock (at the date of such calculation)
	 
	 	 	 	 
	 

	 	B=
	 	Purchase Price (as adjusted to the date of such calculation)

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     (c) “Fair Market Value” shall mean the closing or last sale price, respectively,
reported for the last business day immediately preceding the date of exercise on the
Company’s principal trading market.

     2. Adjustment for Certain Corporate Events.

     2.1. Reorganization, Consolidation, Merger, etc. In case at any time or from time to
time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other
person or (c) transfer all or substantially all of its properties or assets to any other person
under any plan or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and adequate provision shall
be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in
Section 1, at any time after the consummation of such reorganization, consolidation or merger or
the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common
Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective
date, the stock and other securities and property (including cash) to which such Holder would have
been entitled upon such consummation or in connection with such dissolution, as the case may be, if
such Holder had so exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 2.3 and Section 3.

     2.2. Dissolution. In the event of any dissolution of the Company following the
transfer of all or substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock and other securities
and property (including cash, where applicable) receivable by the Holder of the Warrants after the
effective date of such dissolution pursuant to this Section 2 to a bank or trust company (a
“Trustee”) having its principal office in New York, NY, as trustee for the Holder of the Warrants.

     2.3. Adjustments to Purchase Price for Diluting Issues.

     (a) Special Definitions. For purposes of this Section 2.3, the following
definitions shall apply:

     (i) “Option” shall mean rights, options or warrants to subscribe for, purchase
or otherwise acquire Common Stock or Convertible Securities (as defined below),
excluding rights or options granted to employees, directors or consultants of the
Company pursuant to an option plan adopted by the Board of Directors of the Company
to acquire up to that number of shares of Common Stock as is equal to fifteen (15%)
percent of the Common Stock outstanding (provided that, for purposes of this
Subsection 2.3(a)(i), all shares of Common Stock issuable upon (A) exercise of
options granted or available for grant under plans
approved by the Board of Directors, (B) conversion of shares of Preferred
Stock, or (C) conversion of Preferred Stock issuable upon conversion or exchange of
any Convertible Security, shall be deemed to be outstanding).

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     (ii) “Original Issue Date” shall mean the date of this Warrant.

     (iii) “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable
for Common Stock.

     (iv) “Additional Shares of Common Stock” shall mean all shares of Common Stock
issued (or, pursuant to Section 2.3(c) below, deemed to be issued) by the Company
after the Original Issue Date and other than shares of Common Stock issued or
issuable:

               (A) as a dividend or distribution on the Preferred Stock;

               (B) by reason of a dividend, stock split, split-up or other distribution on shares of
Common Stock excluded from the definition of Additional Shares of Common Stock by the
foregoing clause (A);

               (C) upon the exercise of options excluded from the definition of “Option” in Section
2.3(a)(i); or

               (D) upon conversion of shares of the Preferred Stock.

     (v) “Rights to Acquire Common Stock” (or “Rights”) shall mean all rights
issued by the Company to acquire common stock whatever by exercise of a warrant,
option or similar call or conversion of any existing instruments, in either case
for consideration fixed, in amount or by formula, as of the date of issuance.

     (b) No Adjustment of Conversion Rate. No adjustment in the number of shares
of Common Stock into which this Warrant is exercisable shall be made, by adjustment in the
Purchase Price thereof unless the consideration per share (determined pursuant to Section
2.3(e) below for an Additional Share of Common Stock issued or deemed to be issued by the
Company is less than the applicable Purchase Price in effect on the date of, and
immediately prior to, the issue of such additional shares.

     (c) Issue of Securities Deemed Issue of Additional Shares of Common Stock. If
the Company at any time or from time to time after the Original Issue Date shall issue any
Options or Convertible Securities or other Rights to Acquire Common Stock, then the maximum
number of shares of Common Stock (as set forth in the instrument relating thereto without
regard to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options, Rights or, in the case of Convertible
Securities, the conversion or exchange of such Convertible Securities, shall be deemed to
be Additional Shares
of Common Stock issued as of the time of such issue, provided that Additional Shares
of Common Stock shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 2.3(e) hereof) of such Additional Shares of Common Stock
would be less than the applicable Purchase

5

 

Price in effect on the date of and immediately
prior to such issue, or such record date, as the case may be, and provided further that in
any such case in which Additional Shares of Common Stock are deemed to be issued:

     (i) No further adjustment in the Purchase Price shall be made upon the
subsequent issue of shares of Common Stock upon the exercise of such Rights or
conversion or exchange of such Convertible Securities;

     (ii) Upon the expiration or termination of any unexercised Option or Right,
the Purchase Price shall not be readjusted, but the Additional Shares of Common
Stock deemed issued as the result of the original issue of such Option or Right
shall not be deemed issued for the purposes of any subsequent adjustment of the
Purchase Price; and

     (iii) In the event of any change in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange of any Option, Right or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Purchase Price then in effect shall forthwith
be readjusted to such Purchase Price as would have obtained had the adjustment that
was made upon the issuance of such Option, Right or Convertible Security not
exercised or converted prior to such change been made upon the basis of such
change, but no further adjustment shall be made for the actual issuance of Common
Stock upon the exercise or conversion of any such Option, Right or Convertible
Security.

     (d)  Adjustment of Purchase Price upon Issuance of Additional Shares of Common
Stock. If the Company shall at any time after the Original Issue Date issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 2.3(c), but excluding shares issued as a dividend or distribution or
upon a stock split or combination as provided in Section 3), without consideration or for a
consideration per share less than the applicable Purchase Price in effect on the date of
and immediately prior to such issue, then and in such event, such Purchase Price shall be
reduced, concurrently with such issue to a price (calculated to the nearest cent)
determined by multiplying such Purchase Price by a fraction, (i) the numerator of which
shall be (A) the number of shares of Common Stock outstanding immediately after such issue
plus (B) the number of shares of Common Stock which the aggregate consideration received by
the Company for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Rate; and (ii) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issue.

     (e) Determination of Consideration. For purposes of this Section 2.3(e), the
consideration received by the Company for the issue of any Additional Shares of Common
Stock shall be computed as follows:

6

 

     (i) Cash and Property: Such consideration shall:

               (A) insofar as it consists of cash, be computed at the aggregate of cash received by
the Company, excluding amounts paid or payable for accrued interest or accrued dividends;

               (B) insofar as it consists of property other than cash, be computed at the fair market
value thereof at the time of such issue, as determined in good faith by the Board of
Directors; and

               (C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration which covers both, be
the proportion of such consideration so received, computed as provided in clauses (A) and
(B) above, as determined in good faith by the Board of Directors.

          (ii) Options, Rights and Convertible Securities. The consideration per share
received by the Company for Additional Shares of Common Stock deemed to have been issued
pursuant to Section 2.3(c), relating to Options, Rights and Convertible Securities, shall
be determined by dividing,

               (A) the total amount, if any, received or receivable by the Company as consideration
for the issue of such Options, Rights or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise of such Options, Rights or the
conversion or exchange of such Convertible Securities, by

               (B) the maximum number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.

     3. Extraordinary Events Regarding Common Stock. In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding
Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding
shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be the Purchase
Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner
upon the happening of any successive event or events described herein in this

7

 

Section 4. The number
of shares of Common Stock that the Holder of this Warrant shall thereafter, on the exercise hereof
as provided in Section 1, be entitled to receive shall be adjusted to a number determined by
multiplying the number of shares of Common Stock that would otherwise (but for the provisions of
this Section 3) be issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 3) be in effect, and
(b) the denominator is the Purchase Price in effect on the date of such exercise.

     4. Certificate as to Adjustments. In each case of any adjustment or readjustment in
the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the
Company, at its expense, will promptly cause its Chief Financial Officer or other appropriate
designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and
prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based, including a statement of (a) the consideration
received or receivable by the Company for any additional shares of Common Stock (or Other
Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of
Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase
Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in
effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as
provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the
Holder of the Warrant.

     5. Reservation of Stock, etc. Issuable on Exercise of Warrant. The Company will at
all times reserve and keep available, solely for issuance and delivery on the exercise of the
Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the
exercise of the Warrant.

     6. Assignment; Exchange of Warrant. Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered Holder
hereof (a “Transferor”). On the surrender for exchange of this Warrant, with the Transferor’s
endorsement in the form of Exhibit B attached hereto (the “Transferor Endorsement Form”)
and together with an opinion of counsel reasonably satisfactory to the Company that the transfer of
this Warrant will be in compliance with applicable securities laws, the Company at Transferor’s
expense but with payment by the Transferor of any applicable transfer taxes, will issue and deliver
to or on the order of the Transferor thereof a new Warrant or Warrants of like tenor, in the name
of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form, calling
in the aggregate on the face or faces thereof for the number of shares of Common Stock called for
on the face or faces of the Warrant so surrendered by the Transferor. No such transfers shall
result in a public distribution of the Warrant.

     7. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in the
case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company or, in the case of
any such mutilation, on surrender and cancellation of this Warrant, the

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Company at its expense,
twice only, will execute and deliver, in lieu thereof, a new Warrant of like tenor.

     8. Transfer on the Company’s Books. Until this Warrant is transferred on the books of
the Company, the Company may treat the registered holder hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.

     9. Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless otherwise specified
herein, shall be (a) personally served, (b) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (c) delivered by reputable air courier service with charges
prepaid, or (d) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below
or to such other address as such party shall have specified most recently by written notice. Any
notice or other communication required or permitted to be given hereunder shall be deemed effective
(x) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (y) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for such communications
shall be: (i) if to the Company to: VoIP, Inc., 12330 SW53 Street, Suite 712, Fort Lauderdale,
Florida 33330, Attn: Steven Ivester, President and CEO, telecopier: (954) 434-2877, with a copy by
telecopier only to: Ronald L. Brown, Andrews Kurth LLP, 1717 Main Street, Suite 3700, Dallas,
Texas 75201, telecopier: (214) 659-4819, (ii) if to the Holder, to the address and telecopier
number listed on the first paragraph of this Warrant.

     10. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be
construed and enforced in accordance with and governed by the laws of Texas. Any dispute relating
to this Warrant shall be adjudicated in Dallas County in the State of Texas. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.

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     IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above.

	 	 	 	 	 
	 	 	VOIP, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Steven Ivester
	 

	 	 	 	 
	 

	 	 	 	Name: Steven Ivester
	 

	 	 	 	Title: Chief Executive Officer

	 	 	 	 	 
	 	Witness:

 	 
	 	/s/ Osvaldo Pitters
 	 
	 	 	 
	 	 	 

 

 

	 	 	 	 	 

Exhibit A

FORM OF SUBSCRIPTION

(to be signed only on exercise of Warrant)

TO: VOIP, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant (No.                    ), hereby
irrevocably elects to purchase (check applicable box):

                                              shares of the Common Stock covered by such Warrant; or

                         the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless
exercise procedure set forth in Section 2.

The undersigned herewith makes payment of the full purchase price for such shares at the price per
share provided for in such Warrant, which is $                    . Such payment takes the form of (check
applicable box or boxes):

                         $                                        
in lawful money of the United States; and/or

                         the cancellation of such portion of the attached Warrant as is exercisable for a total of
                     shares of Common Stock (using a Fair Market Value of $
                     per share for purposes of
this calculation); and/or

                         the cancellation of such number of shares of Common Stock as is necessary, in accordance with
the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of
shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned requests that the certificates for such shares be issued in the name of, and delivered to                                                                                                        whose address is

 

 

 

[Number of Shares of Common Stock Beneficially Owned on the date of exercise: Less than five
percent (5%) of the outstanding Common Stock of VoIP, Inc.]

A -1

 

The undersigned represents and warrants that all offers and sales by the undersigned of the
securities issuable upon exercise of the within Warrant shall be made pursuant to registration of
the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”), or pursuant
to an exemption from registration under the Securities Act.

	 	 	 
	Dated:                                        

	 	  

	 

	 	(Signature must conform to name of holder
as specified on the face of the Warrant)
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 
	 

	 	(Address)

A -2

 

Exhibit B

FORM OF TRANSFEROR ENDORSEMENT

(To be signed only on transfer of Warrant)

     For value received, the undersigned hereby sells, assigns, and transfers unto the person(s)
named below under the heading “Transferees” the right represented by the within Warrant to purchase
the percentage and number of shares of Common Stock of VOIP, INC. to which the within Warrant
relates specified under the headings “Percentage Transferred” and “Number Transferred,”
respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to
transfer its respective right on the books of VOIP, INC. with full power of substitution in the
premises.

	 	 	 	 	 
	Transferees	 	Percentage Transferred	 	Number Transferred
	 
	 	 	 	 
	 

	 	 

	 	 

	 
	 	 	 	 
	 

	 	 

	 	 

	 
	 	 	 	 
	 

	 	 

	 	 

	 	 	 
	Dated:                                         ,                     

	 	  

	 

	 	(Signature must conform to name of holder
as specified on the face of the warrant)
	 
	 	 
	Signed in the presence of:
	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 

	 
	 	 
	 

	 	 

	 

	 	(Address)
	 
	 	 
	ACCEPTED AND AGREED:
	 	 
	[TRANSFEREE]
	 	 
	 
	 	 
	 

	 	 
	 
	 	 
	 

	 	 

	 
	 	 
	 

	 	 

	 

	 	(Address)

B -1exv10w4

 

Exhibit 10.4

SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (the “Agreement”), is entered into and made effective as of
August 3, 2005, by and between VOIP, INC. (the “Company”) and WQN, INC. (the “Secured
Party”).

     WHEREAS, the Company shall issue to the Secured Party a secured promissory note in the
principal amount of Three Million Seven Hundred Thousand ($3,700,000) (the “Purchase
Note”) and that certain promissory note, in the principal amount of $1,000,000 (the
“Bridge Note,” together with the Purchase Note, the “Notes”); and

     WHEREAS, to induce the Secured Party to enter into the Notes, the Company hereby grants to the
Secured Party a security interest in and to all of the assets of the Company until the satisfaction
of the Obligations (as defined herein).

     NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained,
and for other good and valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereto hereby agree as follows:

ARTICLE 1.

DEFINITIONS AND INTERPRETATIONS

     Section 1.1 Recitals.

     The above recitals are true and correct and are incorporated herein, in their entirety, by
this reference.

     Section 1.2 Interpretations.

     Nothing herein expressed or implied is intended or shall be construed to confer upon any
person other than the Secured Party any right, remedy or claim under or by reason hereof.

     Section 1.3 Obligations Secured.

     The obligations secured hereby are any and all obligations of the Company now existing or
hereinafter incurred to the Secured Party, whether oral or written and whether arising before, on
or after the date hereof including, without limitation, those obligations of the Company to the
Secured Party under this Agreement, the Notes and that certain Asset Purchase Agreement, by and
between the Company and the Secured Party, dated the date hereof (the “Asset Purchase
Agreement”), and any other amounts now or hereafter owed to the Secured Party by the Company
thereunder or hereunder (collectively, the “Obligations”). This Agreement, the Notes and
the Asset Purchase Agreement are collectively referred to herein as the “Transaction
Documents.”

 

 

ARTICLE 2.

PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL 

AND TERMINATION OF SECURITY INTEREST

     Section 2.1 Pledged Property.

          (a) The Company hereby pledges to the Secured Party, and creates in the Secured Party for its
benefit, a security interest in and to all of the assets of the Company and the products thereof
and the proceeds of all such items (collectively, the “Pledged Property”) for such time
until the Obligations are paid in full.

          (b) Simultaneously with the execution and delivery of this Agreement, the Company shall make,
execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably
requested by the Secured Party to perfect its security interest in the Pledged Property.
Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute,
acknowledge and deliver to the Secured Party such documents and instruments, including, without
limitation, financing statements, certificates, affidavits and forms as may, in the Secured Party’s
reasonable judgment, be necessary to effectuate, complete or perfect, or to continue and preserve,
the security interest of the Secured Party in the Pledged Property, and the Secured Party shall
hold such documents and instruments as secured party, subject to the terms and conditions contained
herein.

     Section 2.2 Rights; Interests; Etc.

          (a) So long as no Event of Default (as defined in each of the Notes) under either of the Notes
shall have occurred and be continuing:

               (i) the Company shall be entitled to exercise any and all rights pertaining to the
Pledged Property or any part thereof for any purpose not inconsistent with the terms hereof; and

               (ii) the Company shall be entitled to receive and retain any and all payments paid
or made in respect of the Pledged Property.

          (b) Upon the occurrence and during the continuance of an Event of Default:

               (i) All rights of the Company to exercise the rights which it would otherwise be
entitled to exercise pursuant to Section 2.2(a)(i) hereof and to receive payments which it would
otherwise be authorized to receive and retain pursuant to Section 2.2(a)(ii) hereof shall be
suspended, and all such rights shall thereupon become vested in the Secured Party, who shall
thereupon have the sole right to exercise such rights and to receive and hold as Pledged Property
such payments; provided, however, that if the Secured Party shall become entitled and shall elect
to exercise its right to realize on the Pledged Property pursuant to Article 5 hereof, then all
cash sums received by the Secured Party, or held by Company for the benefit of the Secured Party
and paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any outstanding
Obligations; and

 

 

               (ii) All interest, dividends, income and other payments and distributions which are
received by the Company contrary to the provisions of Section 2.2(b)(i) hereof shall be received in
trust for the benefit of the Secured Party, shall be segregated from other property of the Company
and shall be forthwith paid over to the Secured Party; or

               (iii) The Secured Party in its sole discretion shall be authorized to sell any or
all of the Pledged Property at public or private sale in order to recoup all of the outstanding
principal plus accrued interest owed pursuant to the Notes as described herein.

     Section 2.3 Subordination. Secured Party acknowledges and agrees that its security
interest in the Pledged Property shall be subordinate to securities interests in existence as of
the date hereof, including the security interests in the Pledged Property in favor of Cedar
Boulevard Lease Funding, LLC (“Cedar”), and agrees that Secured Party shall subordinate its
security interest in the Pledged Property, to the security interests of any future Senior Creditor
(as defined below) to the extent such security interests secure Senior Debt (as defined below. For
purposes of this Agreement (i) “Senior Creditors” shall mean a bank, insurance company,
pension fund, or accredited investor, or a syndicate of such institutional lenders that provides
Senior Debt financing to the Company and its subsidiaries, including any party refinancing the
obligations of the Company and its subsidiaries to Cedar; provided, that Senior Creditor shall not
include any officer, director, or insider of the Company or any of its subsidiaries, or any
affiliate of the foregoing, except upon the express written consent of Secured Party, (ii)
“Senior Debt” shall mean any and all indebtedness and obligations for borrowed money
(including principal, premium (if any), interest, fees, charges, expenses, costs, professional fees
and expenses, and reimbursement obligations) at any time owing by the Company to Senior Creditor
under the Senior Loan Documents (as defined below), including such amounts as may accrue or be
incurred before or after default or workout or the commencement of any liquidation, dissolution,
bankruptcy, receivership or reorganization by or against Borrower and any obligations of the
Company and its subsidiaries incurred in connection with refinancing the obligations to Cedar;
provided, that Senior Debt shall not include debt exceeding ten million and No/100 Dollars
($10,000,000.00) outstanding at any one time, and (iii) “Senior Loan Documents” means a
loan agreement between Borrower and Senior Creditor and any other agreement, security agreement,
document, promissory note, UCC financing statement, or instrument executed by Borrower in favor of
Senior Creditor pursuant to or in connection with the Senior Debt, as the same may from time to
time be amended, modified, supplemented, extended, renewed, restated or replaced.

ARTICLE 3.

ATTORNEY-IN-FACT; PERFORMANCE

     Section 3.1 Secured Party Appointed Attorney-In-Fact.

     Upon the occurrence of an Event of Default, the Company hereby appoints the Secured Party as
its attorney-in-fact, with full authority in the place and stead of the Company and in the name of
the Company or otherwise, from time to time in the Secured Party’s discretion to take any action
and to execute any instrument which the Secured Party may reasonably deem necessary to accomplish
the purposes of this Agreement, including, without limitation, to receive

 

 

and collect all instruments made payable to the Company representing any payments in respect
of the Pledged Property or any part thereof and to give full discharge for the same. The Secured
Party may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize
on the Pledged Property as and when the Secured Party may determine. To facilitate collection, the
Secured Party may notify account debtors and obligors on any Pledged Property to make payments
directly to the Secured Party.

     Section 3.2 Secured Party May Perform.

     If the Company fails to perform any agreement contained herein, the Secured Party, at its
option, may itself perform, or cause performance of, such agreement, and the expenses of the
Secured Party incurred in connection therewith shall be included in the Obligations secured hereby
and payable by the Company under Section 7.3.

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES

     The Company represents and warrants to the Secured Party that, in addition to the
representations and warranties in the Transaction Documents, the Company warrants and represents
that it is the legal and beneficial owner of the Pledged Property free and clear of any lien,
security interest, option or other charge or encumbrance except for the security interest created
by this Agreement.

ARTICLE 5.

DEFAULT; REMEDIES

     Section 5.1 Default and Remedies.

          (a) If an Event of Default described in Section 3.1 of the Purchase Note or Section 6(a) of
the Bridge Note occurs, then in each such case the Secured Party may declare the Obligations to be
due and payable immediately, by a notice in writing to the Company, and upon any such declaration,
the Obligations shall become immediately due and payable and the Secured Party can immediately
exercise any of its rights and remedies pursuant to the Transaction Documents or under any
applicable law. If an Event of Default described in Sections 3.2. 3.3 or 3.4 of the Purchase Note
or under Section 6(c) of the Bridge Note occurs and is continuing for the period set forth therein,
then the Obligations shall automatically become immediately due and payable without declaration or
other act on the part of the Secured Party and the Secured Party can immediately exercise any of
its rights and remedies pursuant to the Transaction Documents and under any applicable law.

          (b) Upon the occurrence of an Event of Default, the Secured Party shall be entitled to (i)
receive all distributions with respect to the Pledged Property, (ii) cause the Pledged Property to
be transferred into the name of the Secured Party or its nominee, (iii) dispose of the Pledged
Property, (iv) realize upon any and all rights in the Pledged Property then held by the Secured
Party, and (v) exercise any of its rights and remedies pursuant to the Transaction Documents and
any applicable law.

 

 

     Section 5.2 Method of Realizing Upon the Pledged Property; Other Remedies.

     Upon the occurrence of an Event of Default, in addition to any rights and remedies available
at law or in equity, the following provisions shall govern the Secured Party’s right to realize
upon the Pledged Property:

          (a) Any item of the Pledged Property may be sold for cash or other value in any number of lots
at brokers board, public auction or private sale and may be sold without demand, advertisement or
notice (except that the Secured Party shall give the Company ten (10) days’ prior written notice of
the time and place or of the time after which a private sale may be made), which notice period is
hereby agreed to be commercially reasonable. At any sale or sales of the Pledged Property, the
Company may bid for and purchase the whole or any part of the Pledged Property and, upon compliance
with the terms of such sale, may hold, exploit and dispose of the same without further
accountability to the Secured Party. The Company will execute and deliver, or cause to be executed
and delivered, such instruments, documents, assignments, waivers, certificates, and affidavits and
supply or cause to be supplied such further information and take such further action as the Secured
Party reasonably shall require in connection with any such sale.

          (b) Any cash being held by the Secured Party as Pledged Property and all cash proceeds
received by the Secured Party in respect of, sale of, collection from, or other realization upon
all or any part of the Pledged Property shall be applied as determined by the Secured Party.

          (c) In addition to all of the rights and remedies which the Secured Party may have pursuant to
this Agreement, the Secured Party shall have all of the rights and remedies provided by law,
including, without limitation, those under the Uniform Commercial Code.

               (i) If the Company fails to pay such amounts due upon the occurrence of an Event of
Default which is continuing, then the Secured Party may institute a judicial proceeding for the
collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree
and may enforce the same against the Company and collect the monies adjudged or decreed to be
payable in the manner provided by law out of the property of Company, wherever situated.

               (ii) The Company agrees that it shall be liable for any reasonable fees, expenses
and costs incurred by the Secured Party in connection with enforcement, collection and preservation
of the Transaction Documents, including, without limitation, reasonable legal fees and expenses,
and such amounts shall be deemed included as Obligations secured hereby and payable as set forth in
Section 8.3 hereof.

     Section 5.3 Proofs of Claim.

     In case of the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial proceeding relating to the
Company or the property of the Company or of such other obligor or its creditors, the Secured Party
(irrespective of whether the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall have made any

 

 

demand on the Company for the payment of the Obligations) shall be entitled and empowered, by
intervention in such proceeding or otherwise:

          (a) to file and prove a claim for the whole amount of the Obligations and to file such other
papers or documents as may be necessary or advisable in order to have the claims of the Secured
Party (including any claim for the reasonable legal fees and expenses and other expenses paid or
incurred by the Secured Party permitted hereunder and of the Secured Party allowed in such judicial
proceeding); and

          (b) to collect and receive any monies or other property payable or deliverable on any such
claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby authorized by the
Secured Party to make such payments to the Secured Party and, in the event that the Secured Party
shall consent to the making of such payments directed to the Secured Party, to pay to the Secured
Party any amounts for expenses due it hereunder.

     Section 5.4 Duties Regarding Pledged Property.

     The Secured Party shall have no duty as to the collection or protection of the Pledged
Property or any income thereon or as to the preservation of any rights pertaining thereto, beyond
the safe custody and reasonable care of any of the Pledged Property actually in the Secured Party’s
possession.

ARTICLE 6.

NEGATIVE COVENANTS

     The Company covenants and agrees that, from the date hereof until the Obligations have been
fully paid and satisfied, the Company shall not, unless the Secured Party shall consent otherwise
in writing, directly or indirectly make, create, incur, assume or permit to exist any assignment,
transfer, pledge, mortgage, security interest or other lien or encumbrance of any nature in, to or
against any part of the Pledged Property or of the Company’s capital stock, or offer or agree to do
so, or own or acquire or agree to acquire any asset or property of any character subject to any of
the foregoing encumbrances (including any conditional sale contract or other title retention
agreement), or assign, pledge or in any way transfer or encumber its right to receive any income or
other distribution or proceeds from any part of the Pledged Property or the Company’s capital
stock; or enter into any sale-leaseback financing respecting any part of the Pledged Property as
lessee, or cause or assist the inception or continuation of any of the foregoing.

ARTICLE 7.

MISCELLANEOUS

     Section 7.1 Notices.

     All notices or other communications required or permitted to be given pursuant to this
Agreement shall be in writing and shall be considered as duly given on: (a) the date of delivery,

 

 

if delivered in person, by nationally recognized overnight delivery service or (b) five (5)
days after mailing if mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:

	 	 	 	 	 
	 

	 	If to the Secured Party:
	 	WQN, Inc.
	 

	 	 	 	14911 Quorum Drive, Suite 140
	 

	 	 	 	Dallas, TX 75254
	 

	 	 	 	Attention:
	 

	 	 	 	Telecopy No.:
	 

	 	 	 	Telephone No.:
	 
	 	 	 	 
	 

	 	with a copy to:	 	 
	 

	 	 	 	Patton Boggs LLP
	 

	 	 	 	2100 Ross Avenue Suite 3000
	 

	 	 	 	Dallas, Texas 75201
	 

	 	 	 	Attention: Charles Miller, Esq.
	 

	 	 	 	Telecopy No.: 214-758-1550
	 

	 	 	 	Telephone No.: 214-758-1500
	 
	 	 	 	 
	 

	 	and if to the Company:
	 	VoIP, Inc.
	 

	 	 	 	12330 SW 53rd Street, Suite 712
	 

	 	 	 	Fort Lauderdale, FL 33330
	 

	 	 	 	Attention: Steven Ivester
	 

	 	 	 	Telephone: (954) 434-2000
	 

	 	 	 	Facsimile: (954) 434-4454
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Andrews Kurth LLP
	 

	 	 	 	1717 Main Street, Suite 3700
	 

	 	 	 	Dallas, TX 75201
	 

	 	 	 	Attention: Ronald L. Brown, Esq.
	 

	 	 	 	Telephone: (214) 659-4469
	 

	 	 	 	Facsimile: (214) 659-4819

     Any party may change its address by giving notice to the other party stating its new address.
Commencing on the tenth (10th) day after the giving of such notice, such newly
designated address shall be such party’s address for the purpose of all notices or other
communications required or permitted to be given pursuant to this Agreement.

     Section 7.2 Severability.

     If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision and shall not in any manner affect or render
invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall
be carried out as if any such invalid or unenforceable provision were not contained herein.

 

 

     Section 7.3 Expenses.

     In the event of an Event of Default, the Company will pay to the Secured Party the amount of
any and all reasonable expenses, including the reasonable fees and expenses of its counsel, which
the Secured Party may incur in connection with: (i) the custody or preservation of, or the sale,
collection from, or other realization upon, any of the Pledged Property; (ii) the exercise or
enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by the Company
to perform or observe any of the provisions hereof.

     Section 7.4 Waivers, Amendments, Etc.

     The Secured Party’s delay or failure at any time or times hereafter to require strict
performance by Company of any undertakings, agreements or covenants shall not waiver, affect, or
diminish any right of the Secured Party under this Agreement to demand strict compliance and
performance herewith. Any waiver by the Secured Party of any Event of Default shall not waive or
affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and
whether of the same or a different type. None of the undertakings, agreements and covenants of the
Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived
by the Secured Party, nor may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing specifying such waiver,
amendment, change or modification and signed by the Secured Party.

     Section 7.5 Continuing Security Interest.

     This Agreement shall create a continuing security interest in the Pledged Property and shall:
(i) remain in full force and effect until payment in full of the Obligations; and (ii) be binding
upon the Company and its successors and heirs and (iii) inure to the benefit of the Secured Party
and its successors and assigns. Upon the payment or satisfaction in full of the Obligations, the
Company shall be entitled to the return, at its expense, of such of the Pledged Property as shall
not have been sold in accordance with Section 5.2 hereof or otherwise applied pursuant to the terms
hereof.

     Section 7.6 Independent Representation.

     Each party hereto acknowledges and agrees that it has received or has had the opportunity to
receive independent legal counsel of its own choice and that it has been sufficiently apprised of
its rights and responsibilities with regard to the substance of this Agreement.

     Section 7.7 Applicable Law: Jurisdiction.

     This Agreement shall be governed by and interpreted in accordance with the laws of the State
of Texas without regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Dallas County, Texas.

 

 

     Section 7.8 Waiver of Jury Trial.

     AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE
FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS
RELATED TO THIS TRANSACTION.

     Section 7.9 Entire Agreement.

     This Agreement constitutes the entire agreement among the parties and supersedes any prior
agreement or understanding among them with respect to the subject matter hereof.

     Section 7.10 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which taken together shall constitute one and
the same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

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

	 	 	 	 	 
	 	 	VOIP, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Steven Ivester
	 

	 	 	 	 
	 	 	Name: Steven Ivester
	 	 	Title: Chief Executive Officer
	 
	 	 	 	 
	 	 	WQN, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ B. Michael Adler
	 

	 	 	 	 
	 	 	Name: B. Michael Adler
	 	 	Title: CEO

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