8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report Pursuant
to Section 13 or 15(d) of the
Securities and Exchange Act of 1934

Date of Report (Date of earliest event reported): August 25, 2005 (August 25, 2005)

WQN, INC.

(Name of Registrant)

Delaware	000-27751	75-2838415
(State or other jurisdiction of	(Commission	(I.R.S. Employer
incorporation or organization)	File Number)	Identification Number)

14911 Quorum Drive, Suite 140, Dallas, Texas, U.S.A.
(Address of principal executive officers)

75254
(Zip Code)

972-361-1980
(Registrant’s telephone number,
including area code)

N/A
(Former address of principal executive offices)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

(a)	We have entered into an employment agreement (the “Hartman Employment Agreement”), to be effective upon completion of the sale of the Voice-Over-Internet Protocol business of WQN (the “Proposed Transaction”), with Scott W. Hartman (“Hartman”) to serve as our Chief Executive Officer for a term of three years. Base compensation, if any, will be set by resolution of our board of directors. Upon completion of the Proposed Transaction, we will grant Hartman a 10-year stock option to purchase 220,000 shares of our common stock under our 2001 Stock Option Plan. One-third of the stock options will vest on the effective date of the Hartman Employment Agreement and one-third on each of the first and second anniversary of the effective date. The Hartman Employment Agreement is filed herewith as Exhibit 10.1.
	We have also entered into an employment agreement (the “Montoya Employment Agreement”), to be effective upon completion of the Proposed Transaction, with David S. Montoya (“Montoya”) to serve as our Chief Operating Officer for a term of three years. Base compensation, if any, will be set by resolution of our board of directors. Upon completion of the Proposed Transaction, we will grant Montoya a 10-year stock option to purchase 220,000 shares of our common stock under our 2001 Stock Option Plan. One-third of the stock options will vest on the effective date of the Montoya Employment Agreement and one-third on each of the first and second anniversary of the effective date. The Montoya Employment Agreement is filed herewith as Exhibit 10.2.
	We have also entered into a definitive management agreement (the “Management Agreement”), to be effective upon completion of the Proposed Transaction, with WQN Capital Advisors, LLC (“Advisors”), a newly formed Delaware limited liability company in which Scott W. Hartman, B. Michael Adler, E. Denton Jones and David S. Montoya have a direct material interest, pursuant to which Advisors will provide us with office facilities and day-to-day management services. We will pay management fees to Advisors based on a percentage of our assets plus incentive fees based on a percentage of our investment income and capital gains. The term of the Management Agreement is ten years. The Management Agreement is filed herewith as Exhibit 10.3.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits.

10.1	Employment Agreement by and between WQN, Inc. and Scott W. Hartman.
10.2	Employment Agreement by and between WQN, Inc. and David S. Montoya.
10.3	Management Agreement by and between WQN, Inc. and WQN Capital Advisors, LLC.

SIGNATURE

     Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: August 25, 2005	WQN, INC.
	By:	/s/  B. Michael Adler
		B. Michael Adler
		Chief Executive Officer

EX-10.1

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

     AGREEMENT, dated as of the 25^th day of August, 2005, by and between WQN, INC., a Delaware corporation with an office located at 14911 Quorom Drive, Suite 140, Dallas, Texas 75254 (the “Company”), and SCOTT W. HARTMAN, an individual (the “Employee”).

W I T N E S S E T H:

     WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company to employ the Employee and the Employee desires to be employed by the Company; and

     WHEREAS, the Company and the Employee desire to set forth in this Agreement the terms and conditions of the Employee’s employment.

     NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows:

     1. EMPLOYMENT

     The Company hereby employs and engages the Employee to serve as the Chief Executive Officer of the Company, and the Employee hereby accepts such employment with the Company, on the terms and conditions herein set forth. The Employee’s conduct and performance shall be consistent with what would be expected of senior executives at other institutions of similar size and type. Except as otherwise provided herein, the Employee shall devote such business time, attention, and skill to the business of the Company and perform such responsibilities as are customary for an employee holding a Chief Executive Officer position and that are assigned to the Employee by the Board of Directors in accordance with the standards and policies that the Company may from time to time establish. The Employee shall use his reasonable best efforts to further the interests of the Company, and to discharge diligently his duties and responsibilities to the Company under this Agreement. As of the date of this Agreement, the Employee represents that he is not subject to any legal obligations or restrictions that would prevent or limit the Employee from performing his responsibilities under this Agreement. Notwithstanding the foregoing, this Agreement shall not be construed or applied to prevent the Employee from engaging in any other business or investment activities, including those which may be similar to the investments or business of the Company.

     2. COMMENCEMENT; TERM OF AGREEMENT

          2.01 The term of employment hereunder shall commence effective as of the date of the closing of the Company’s asset sale to VOIP, Inc. (the “Commencement Date”), and shall continue until the third anniversary of the Commencement Date (the “Employment Period”) unless terminated sooner pursuant to the express provisions hereof.

     3. DUTIES

          3.01 During the Employment Period, the Employee shall be employed in an executive capacity as the Chief Executive Officer of the Company, with the authority and responsibilities appropriate and customary to such position.

          3.02 The Employee shall report and be responsible to the Board of Directors of the Company.

          3.03 On the date hereof, and at each annual meeting of stockholders during which the Employee is serving as the Chief Executive Officer of the Company, the Company shall cause the Employee to be nominated to the Board of Directors of the Company and shall use its reasonable best efforts to have the Employee elected to the Board of Directors of the Company.

     4. COMPENSATION

          4.01 The Employee shall be eligible to receive compensation in accordance with resolutions adopted by the Board of Directors, including fees payable to the members of the Board of Directors (so long as, and to the extent that, Employee is a director of the Company). Further, upon the Commencement Date, the Company shall grant to the Employee, pursuant to the Company’s 2001 Stock Option Plan, a 10-year stock option (“Option”) to purchase 220,000 shares of the Company’s common stock at an exercise price of $1.41 per share.

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Such options shall vest as follows: (i) one-third on the date hereof, (ii) one-third on the first anniversary date of this Agreement; provided that the Employee is then in the employ of the Company, and (iii) the remainder on the second anniversary date of this Agreement, provided that the Employee is then in the employ of the Company. However, if the Employee’s employment is terminated pursuant to Section 5.04 hereof or if the Employee leaves the employ of the Company for Good Reason, the Option shall fully vest and the Employee shall have one (1) year thereafter to exercise the Option.

For purposes of this Agreement, “Good Reason” shall mean the following:

          (a) a material default or breach by the Company of any obligation, representation, warranty, covenant or agreement made by the Company herein, including, but not limited to: (i) a reduction of the duties of the Employee; (ii) a change in the reporting responsibility of the Employee to the Board of Directors or (iii) the Company’s failure to maintain in full force and effect Directors & Officers Insurance in accordance with Section 4.02(i) of this Agreement; or

          (b) the Company requiring the Employee to be based anywhere other than the New York City, New York metropolitan area, except for required travel on business; or

          (c) a material default or breach by the Company, of the Management Agreement by and between the Company and WQN Capital Advisors, LLC (the “Management Company”), dated on or about the date hereof (the “Management Agreement”) (a termination in accordance with Section 11 of the Management Agreement shall not constitute a material default or breach by the Company).

          4.02 The Employee shall be entitled, during the Employment Period, to, (i) Director’s and Officer’s Insurance, in an initial amount equal to that which is normal and customary for a business the type of which the Company is engaged in, which amount shall be reviewed by the Board of Directors and the Employee from time to time, and (ii) the maximum indemnification by the Company that may be provided for officers/directors under the laws of the Company’s state of incorporation and the Company’s certificate of incorporation and bylaws.

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     5. TERMINATION

          5.01 The Employee’s employment hereunder shall terminate automatically and without notice upon the death of the Employee or the Employee voluntarily leaving the employ of the Company.

          5.02 The Company may terminate the Employee’s employment hereunder, upon written notice to the Employee, in the event of the Employee’s Incapacity. For the purpose of this Agreement, Incapacity shall be deemed to refer to and include (i) the suffering of any mental or physical illness, disability or incapacity to the extent that the Employee shall be unable to perform his duties pursuant to this Agreement and such illness, disability or incapacity shall be deemed by a licensed physician chosen by the Company to be of a permanent nature, or (ii) the Employee shall not have performed his duties hereunder on a full-time basis for a continuous period of 90 days or a period of 150 days in any one year period, and the Company, and its option, elects to treat such illness, disability or incapacity as permanent in nature.

          5.03 The Company may terminate the Employee’s employment hereunder, upon written notice to the Employee, for Cause. For purposes of this Agreement, “Cause” shall mean the following:

                    (a) the Employee’s conviction of a felony in a court of law of any crime or offense involving money; or

                    (b) the Employee’s failure or refusal to substantially perform his duties hereunder (other than any such failure or refusal resulting from his Incapacity or the failure to meet specific growth and profit targets), or the Employee’s failure or refusal to carry out the reasonable business directives of the Board of Directors, or the willful taking of any action by the Employee which results in material damage to the Company, or the material default or breach by the Employee of any obligation, representation, warranty, covenant or agreement made by the Employee herein; provided, however, that the Company shall have given the Employee written notice of any such Cause for termination pursuant to this Section 5.03(b) and the Employee shall have failed to cure such Cause within fifteen (15) days after the date of such notice. If the Cause for termination is cured within the fifteen (15) day period, it shall be deemed for all purposes that Cause for termination has not occurred; or

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                    (c) the Board of Directors of the Company determines in good faith that the Employee, as a member or manager of the Management Company, has caused a material breach or default by the Management Company of the Management Agreement.

          5.04 The Company or the Employee may terminate the Employee’s employment hereunder without Cause.

     6. SURVIVAL

          The covenants and agreements contained in or made pursuant to this Agreement shall survive the Employee’s termination of employment, irrespective of any investigation made by or on behalf of any party.

     7. ENTIRE AGREEMENT; MODIFICATION

          This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, and may be modified, supplemented or discharged only by a written instrument duly executed by each party.

     8. NOTICES

          Any notices or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified or registered mail, return receipt requested, or personally delivered against receipt to the party to whom it is to be given at the address of such party set forth in the preamble to this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 8). Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party’s address which shall be deemed given at the time of receipt thereof.

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     9. WAIVER

          Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing.

     10. BINDING EFFECT

          The Employee’s rights and obligations under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of the Employee’s creditors, and any attempt to do any of the foregoing shall be void. The provisions of this Agreement shall be binding upon and inure to the benefit of the Employee, his heirs, executors, and administrators, and shall be binding upon and inure to the benefit of the Company and its successors and assigns.

     11. HEADINGS

          The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement.

     12. COUNTERPARTS; GOVERNING LAW

          This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any doctrine pertaining to the conflict of laws.

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year above written.

SCOTT W. HARTMAN
WQN, INC.
By:
	Robert Farmer, Chairman

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

     AGREEMENT, dated as of the 25^th day of August, 2005, by and between WQN, INC., a Delaware corporation with an office located at 14911 Quorom Drive, Suite 140, Dallas, Texas 75254 (the “Company”), and DAVID S. MONTOYA, an individual (the “Employee”).

W I T N E S S E T H:

     WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company to employ the Employee and the Employee desires to be employed by the Company; and

     WHEREAS, the Company and the Employee desire to set forth in this Agreement the terms and conditions of the Employee’s employment.

     NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows:

1. EMPLOYMENT

     The Company hereby employs and engages the Employee to serve as the Chief Financial Officer of the Company, and the Employee hereby accepts such employment with the Company, on the terms and conditions herein set forth. The Employee’s conduct and performance shall be consistent with what would be expected of senior executives at other institutions of similar size and type. Except as otherwise provided herein, the Employee shall devote such business time, attention, and skill to the business of the Company and perform such responsibilities as are customary for an employee holding a Chief Financial Officer position and that are assigned to the Employee by the Board of Directors in accordance with the standards and policies that the Company may from time to time establish. The Employee shall use his reasonable best efforts to further the interests of the Company, and to discharge diligently his duties and responsibilities to the Company under this Agreement. As of the date of this Agreement, the Employee represents that he is not subject to any legal obligations or restrictions that would prevent or limit the Employee from performing his responsibilities under this Agreement. Notwithstanding the foregoing, this

Agreement shall not be construed or applied to prevent the Employee from engaging in any other business or investment activities, including those which may be similar to the investments or business of the Company.

2. COMMENCEMENT; TERM OF AGREEMENT

          2.01 The term of employment hereunder shall commence effective as of the date of the closing of the Company’s asset sale to VOIP, Inc. (the “Commencement Date”), and shall continue until the third anniversary of the Commencement Date (the “Employment Period”) unless terminated sooner pursuant to the express provisions hereof.

     3. DUTIES

          3.01 During the Employment Period, the Employee shall be employed in an executive capacity as the Chief Financial Officer of the Company, with the authority and responsibilities appropriate and customary to such position.

          3.02 The Employee shall report and be responsible to the Board of Directors of the Company.

          3.03 On the date hereof, and at each annual meeting of stockholders during which the Employee is serving as the Chief Financial Officer of the Company, the Company shall cause the Employee to be nominated to the Board of Directors of the Company and shall use its reasonable best efforts to have the Employee elected to the Board of Directors of the Company.

     4. COMPENSATION

          4.01 The Employee shall be eligible to receive compensation in accordance with resolutions adopted by the Board of Directors, including fees payable to the members of the Board of Directors (so long as, and to the extent that, Employee is a director of the Company). Further, upon the Commencement Date, the Company shall grant to the Employee, pursuant to the Company’s 2001 Stock Option Plan, a 10-year stock option (“Option”)

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to purchase 220,000 shares of the Company’s common stock at an exercise price of $1.41 per share. Such options shall vest as follows: (i) one-third on the date hereof, (ii) one-third on the first anniversary date of this Agreement; provided that the Employee is then in the employ of the Company, and (iii) the remainder on the second anniversary date of this Agreement, provided that the Employee is then in the employ of the Company. However, if the Employee’s employment is terminated pursuant to Section 5.04 hereof or if the Employee leaves the employ of the Company for Good Reason, the Option shall fully vest and the Employee shall have one (1) year thereafter to exercise the Option.

For purposes of this Agreement, “Good Reason” shall mean the following:

          (a) a material default or breach by the Company of any obligation, representation, warranty, covenant or agreement made by the Company herein, including, but not limited to: (i) a reduction of the duties of the Employee; (ii) a change in the reporting responsibility of the Employee to the Board of Directors or (iii) the Company’s failure to maintain in full force and effect Directors & Officers Insurance in accordance with Section 4.02(i) of this Agreement; or

          (b) the Company requiring the Employee to be based anywhere other than the New York City, New York metropolitan area, except for required travel on business; or

          (c) a material default or breach by the Company, of the Management Agreement by and between the Company and WQN Capital Advisors, LLC (the “Management Company”), dated on or about the date hereof (the “Management Agreement”) (a termination in accordance with Section 11 of the Management Agreement shall not constitute a material default or breach by the Company).

          4.02 The Employee shall be entitled, during the Employment Period, to, (i) Director’s and Officer’s Insurance, in an initial amount equal to that which is normal and customary for a business the type of which the Company is engaged in, which amount shall be reviewed by the Board of Directors and the Employee from time to time, and (ii) the maximum indemnification by

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the Company that may be provided for officers/directors under the laws of the Company’s state of incorporation and the Company’s certificate of incorporation and bylaws.

     5. TERMINATION

          5.01 The Employee’s employment hereunder shall terminate automatically and without notice upon the death of the Employee or the Employee voluntarily leaving the employ of the Company.

          5.02 The Company may terminate the Employee’s employment hereunder, upon written notice to the Employee, in the event of the Employee’s Incapacity. For the purpose of this Agreement, Incapacity shall be deemed to refer to and include (i) the suffering of any mental or physical illness, disability or incapacity to the extent that the Employee shall be unable to perform his duties pursuant to this Agreement and such illness, disability or incapacity shall be deemed by a licensed physician chosen by the Company to be of a permanent nature, or (ii) the Employee shall not have performed his duties hereunder on a full-time basis for a continuous period of 90 days or a period of 150 days in any one year period, and the Company, and its option, elects to treat such illness, disability or incapacity as permanent in nature.

          5.03 The Company may terminate the Employee’s employment hereunder, upon written notice to the Employee, for Cause. For purposes of this Agreement, “Cause” shall mean the following:

                   (a) the Employee’s conviction of a felony in a court of law of any crime or offense involving money; or

                   (b) the Employee’s failure or refusal to substantially perform his duties hereunder (other than any such failure or refusal resulting from his Incapacity or the failure to meet specific growth and profit targets), or the Employee’s failure or refusal to carry out the reasonable business directives of the Board of Directors, or the willful taking of any action by the Employee which results in material damage to the Company, or the material default or breach by the

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Employee of any obligation, representation, warranty, covenant or agreement made by the Employee herein; provided, however, that the Company shall have given the Employee written notice of any such Cause for termination pursuant to this Section 5.03(b) and the Employee shall have failed to cure such Cause within fifteen (15) days after the date of such notice. If the Cause for termination is cured within the fifteen (15) day period, it shall be deemed for all purposes that Cause for termination has not occurred; or

                    (c) the Board of Directors of the Company determines in good faith that the Employee, as a member or manager of the Management Company, has caused a material breach or default by the Management Company of the Management Agreement.

           5.04 The Company or the Employee may terminate the Employee’s employment hereunder without Cause.

     6. SURVIVAL

          The covenants and agreements contained in or made pursuant to this Agreement shall survive the Employee’s termination of employment, irrespective of any investigation made by or on behalf of any party.

     7. ENTIRE AGREEMENT; MODIFICATION

          This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, and may be modified, supplemented or discharged only by a written instrument duly executed by each party.

     8. NOTICES

          Any notices or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified or registered mail, return receipt requested, or personally delivered against receipt to the party to whom it is to be given at the address of such

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party set forth in the preamble to this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 8). Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party’s address which shall be deemed given at the time of receipt thereof.

     9. WAIVER

          Any waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing.

     10. BINDING EFFECT

          The Employee’s rights and obligations under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of the Employee’s creditors, and any attempt to do any of the foregoing shall be void. The provisions of this Agreement shall be binding upon and inure to the benefit of the Employee, his heirs, executors, and administrators, and shall be binding upon and inure to the benefit of the Company and its successors and assigns.

     11. HEADINGS

          The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement.

     12. COUNTERPARTS; GOVERNING LAW

          This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This

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Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any doctrine pertaining to the conflict of laws.

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year above written.

DAVID S. MONTOYA
WQN, INC.
By:
	Robert Farmer, Chairman

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EX-10.3

EXHIBIT 10.3

MANAGEMENT AGREEMENT

     THIS MANAGEMENT AGREEMENT (this “Agreement") is made this 25th day of August, 2005, by and among WQN Capital Advisors, LLC, a to be formed Delaware limited liability company having an address at 509 Madison Avenue, New York, New York (the “Management Company") and WQN, Inc., a Delaware corporation, having an address at 14911 Quorom Drive, Suite 140, Dallas, TX 75254 (the “Company").

W I T N E S S E T H:

     WHEREAS, the Company is being reorganized as a specialty finance company;

     WHEREAS, the Company requires the services of qualified professionals who can manage and operate the affairs of the Company, and provide suitable facilities; and

     WHEREAS, the Management Company can provide the Company with a fully-equipped office, all appropriate office services, and experienced professionals who can take full responsibility for managing and operating the affairs of the Company.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

     Section 1. Services To Be Provided By The Management Company.

          (a) The Management Company hereby agrees to provide to the Company suitable experienced professionals to enable the Company to conduct its operations.

          (b) The Management Company hereby agrees to provide to the Company, as soon as practicable, an office facility, located within the New York City, New York metropolitan area, to enable the Company to conduct its business operations. Such office will be furnished with office equipment (including computers and software) and furniture suitable to enable the Company to conduct its business operations. The Management Company also agrees to furnish all janitorial service, utility service, local and long distance telephone, high speed internet connections and fax service, and other similar services necessary to the conduct of such operations.

          (c) The Management Company shall seek suitable investment opportunities and manage the investment policy of the Company; perform day-to-day investment and business operations of the Company; provide investment advice; and prepare and disseminate all necessary reports and financial statements to the Company’s management and Board of Directors.

          (d) The authority delegated to the Management Company pursuant to this Agreement will be exercised in conformity with the terms and conditions of this Agreement.

Notwithstanding the foregoing, without the written approval of the board of directors of the Company the Management Company shall not commit, or enter into any agreement on behalf of the Company, with respect to (i) the incurrence by the Company of any indebtedness for borrowed money; (ii) any investment by the Company, other than the investment of cash in short-term permitted investments in the ordinary course of business; or (iii) any other material contract to which the Company is a party.

     Section 2. Term.

          2.1. Length. This Agreement shall commence as of the date of the closing of the Company’s asset sale to VoIP, Inc. (the “Commencement Date”) and shall continue in effect until the earlier of (i) ten (10) years from the Commencement Date, or (ii) termination of this Agreement by either party in accordance with Section 11 hereof (the “Term”).

           2.2. Surrender. Upon termination of this Agreement, the Company shall at its expense, (i) promptly surrender to the Management Company possession of the above-described offices in good order and repair (ordinary wear and tear excepted) and broom clean; (ii) repair any damage to such offices caused by such removal, and (iii) if this Agreement is terminated otherwise than (x) pursuant to Section 11 hereof or (y) as a result of the expiration of the Term, promptly pay the Management Company a fee equal to three percent (3%) of Total Assets (as hereinafter defined), of the Company, calculated as of the date of termination; plus the Fair Market Value (as defined below) of the Incentive Fee and the Capital Gains Fee (as defined in Section 3 hereof) as of the date of termination. As used herein, “Fair Market Value” means the value of the then unpaid amount of the Incentive Fee and the Capital Gains Fee as determined, taking into account appropriate discounts for limitations on voting rights, minority interests, illiquidity and restrictions on transfer of the underlying investments, by an appraisal performed by an investment banking firm of national standing selected by the Company; provided that (i) such appraiser shall be directed to determine fair market value of such security as soon as practicable, but in no event later than thirty (30) days from the date of its selection and (ii) the costs and expense of the appraiser shall be paid by the Company.

     Section 3. Compensation. In consideration for the services to be provided to the Company by the Management Company hereunder, the Company shall pay to the Management Company management fees as follows:

(i)	one-half of one percent (.5%) of Total Assets (as defined below), payable on May 15, August 15, November 15 and March 31, based on the financial statements of the Company at the end of the fiscal quarter immediately preceding the payment date (the “Base Management Fee”); and
(ii)	an incentive fee equal to 20% of the excess, if any, of the Company’s Net Investment Income (as defined below) for each fiscal quarter of the Company that exceeds the Priority Return (as defined below), payable on May 15, August 15, November 15 and March 31, based on the

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financial statements of the Company determined in accordance with generally accepted accounting principles, consistently applied, at the end of the fiscal quarter immediately preceding the payment date (the “Incentive Fee”); and

(iii)

an incentive fee (“Capital Gains Fee”) equal to 20% of the Company’s net Realized Capital Gains (Realized Capital Gains (as defined below) less Realized Capital Losses (as defined below)) on a cumulative basis for each fiscal year of the Company following the Commencement Date, minus any Unrealized Capital Depreciation (as defined below) at the end of such fiscal year and minus the aggregate amount of all Capital Gains Fees paid to the Management Company in prior fiscal years of the Company, payable on April 15 of each year based on the Company’s audited financial statements for the prior fiscal year of the Company ; provided, however, that no Capital Gains Fees shall be paid to the Management Company with respect to the Company’s investment in Seaview Mezzanine Fund LP (“Seaview”).

As used herein, “Total Assets” means the amount of gross assets of the Company as set forth on the applicable financial statements of the Company at the end of the fiscal quarter immediately preceding the payment date, as determined in accordance with generally accepted accounting principles, consistently applied; provided, however, that in computing Total Assets the gross book value with respect to the Company’s investment in Seaview shall be excluded from the calculation of Total Assets.

As used herein, “Net Investment Income” shall mean the interest income, dividend income, and any other income (including any other fees such as commitment, origination, syndication, structuring, diligence, managerial assistance, monitoring, and consulting fees or other fees that the Company receives from portfolio companies or investments) which are collected during the fiscal quarter of the Company; minus the Company’s operating expenses for the fiscal quarter (including the Base Management Fee and any interest expense, but excluding the Incentive Fee and the Capital Gains Fee); provided, however, that any Net Investment Income with respect to the Company’s investment in Seaview shall be excluded from the calculation of Net Investment Income. Net Investment Income does not include Realized Capital Gains, Realized Capital Losses or Unrealized Capital Depreciation.

As used herein, “Priority Return” means a rate equal to 1.5% (6% annualized) of the Company’s Total Assets.

As used herein, “Realized Capital Gains” on each investment of the Company will be calculated as the excess of the net amount realized from the sale or other disposition of such investment over the original cost of the investment (less any Unrealized Capital Depreciation with respect to such investment which was deducted with respect to the payment of any Capital Gains Fees in any prior fiscal year).

As used herein, “Realized Capital Losses” on each investment of the Company will be calculated as the amount by which the net amount realized from the sale or other disposition of such investment is less than the original cost of such investment.

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As used herein, “Unrealized Capital Depreciation” on each investment will be calculated as the amount by which the original cost of such investment exceeds the fair value of such investment as of the end of a fiscal year of the Company.

     Section 4. Payment of Expenses. The Management Company shall be responsible for the payment of: (i) the compensation of all professional and other employees of the Management Company; (ii) the cost of providing support, management and general services to the Company (other than the costs paid by the Company as provided below), including, without limitation: (a) office expenses; (b) travel; (c) business development; (d) office and equipment rental; (e) bookkeeping; and (f) the development, underwriting, due diligence, investigation and monitoring of investments.

     The Company shall pay all of its expenses directly, including, but not limited to, financial printing, legal and independent auditor costs, directors and officers insurance, board of directors expenses for the Company’s board of directors, any other expenses related to the Company being a “publicly reporting company”, direct transaction expenses and the rental of facilities, other than the office facility being provided by the Management Company pursuant to Section 1(b) hereof.

     Section 5. Use and Operation of the Office. The Company shall occupy and use the office provided by the Management Company only for the operation of the Company. The Company shall use such premises for no other purpose, unless approved in advance in writing by the Management Company; such approval may be withheld at the sole discretion of the Management Company. The Company covenants and agrees that it shall observe and comply with all laws, orders, ordinances, rules, requirements and regulations of any and all governmental departments, bodies, bureaus, agencies, and officers, and all rules, directions, requirements and reasonable recommendations of the Management Company’s and the Company’s insurers and of any fire insurance underwriters or rating organization, and of the state and local health departments, and of any other bodies or agencies now or hereafter exercising similar functions in the location in which the Company’s office is situated, which pertain to the use and occupancy thereof.

     Section 6. Indemnification of Management Company. To the fullest extent permitted by law and by the Company’s certificate of incorporation or bylaws, the Company shall indemnify and hold harmless the Management Company, its current and past members, managers, employees, agents and assigns and any of their respective affiliates, from and against any and all liabilities, claims, damages, actions or proceedings arising out of the activities of, or relating to, the Company.

     Section 7. Assignment. Neither the Company nor the Management Company shall have any right to assign this Agreement, rights or obligations hereunder, without the prior written consent of the other party. Any such assignment made without the written consent of the non-assigning party shall be void and deemed ineffective.

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     Section 8. Other Activities. This Agreement shall not be construed or applied to prevent the Management Company from engaging in any other business or investment activities, including those which may be similar to the investments or business of the Company.

     Section 9. Notices. Any notice, demand, consent, approval, request or other communication or document to be provided hereunder to a party hereto shall be given in writing, and shall be deemed to have been given forty-eight (48) hours after being sent as certified or registered mail in the United States mails, postage prepaid, return receipt requested, to the address of such party set forth hereinabove or to such other address in the United States as such party may designate from time to time by notice to the other parties.

     Section 10. General.

          10.1. Effectiveness. This Agreement shall become effective upon its execution and delivery by each party hereto.

          10.2. Complete Understanding. This Agreement represents the complete understanding between the parties hereto as to the subject matter hereof, and supersedes all prior and contemporaneous written or oral negotiations, representations, warranties, statements or agreements between the parties hereto as to the subject matter hereof.

          10.3. Amendment. This Agreement may be amended only by an instrument executed and delivered by each party hereto.

          10.4. Applicable Law. This Agreement shall be given effect and construed by application of the law of New York.

     Section 11. Termination. Either the Company or the Management Company may terminate this Agreement as a result of a material breach by the other party of the terms and conditions of this Agreement by providing written notice to the breaching party setting forth in reasonable detail the material breach (a “Notice of Breach”). Upon receipt of a Notice of Breach, the recipient shall have (i) ten days to cure such material breach if such material breach relates to the failure to pay amounts due to the non-breaching party pursuant to this Agreement (a “Payment Default”); or (ii) thirty days to cure such material breach if such material breach relates to any material breach of this Agreement other than a Payment Breach. Notwithstanding the foregoing, (i) if the Total Assets, for two consecutive fiscal quarters, are not at least equal to 60% of the Total Assets on the Commencement Date (net of any amounts payable by the Company as of the Commencement Date), (ii) if E. Denton Jones, Michael B. Adler, David S. Montoya or Scott W. Hartman withdraw as members (whether they own their interest directly or indirectly) of the Management Company, other than as a result of death or disability or (iii) either Scott W. Hartman or David S. Montoya voluntarily terminates their employment with the Company or voluntarily resigns as an officer of the Company (each, a “Triggering Event”), the Company may terminate this Agreement at any time upon written notice to the Management Company during the thirty-day period following the occurrence of the Triggering Event.

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(Signatures on following page)

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     IN WITNESS WHEREOF, each party hereto has executed and sealed this Agreement, or caused it to be executed and sealed on its behalf by its duly authorized representatives, the day and year first above written.

WQN Capital Advisors, LLC
(a to-be-formed entity)
By:
Its:	Managing Member
WQN, Inc.
By:
Its:	Robert Farmer, Chairman

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