Document:

Exhibit 10.03

 

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE  NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933  OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT PURSUANT TO A REGISTRATION OR
AN EXEMPTION FROM SUCH REGISTRATION.

 

PURCHASE WARRANT

 

Issued to:

 

 

Exercisable to Purchase

 

________ Shares of Common Stock

 

of

 

SONUS PHARMACEUTICALS, INC.

 

Void after August 15, 2010

 

 

This
is to certify that, for the value described herein and subject to the terms and
conditions set forth below, the Warrantholder is entitled to purchase, and the
Company promises and agrees to sell and issue to the Warrantholder, at any time
on or after August 15, 2005 (the “Effective Date”), pursuant to Section 3
hereof, up to           shares
of the Company’s Common Stock at the Exercise Price.

 

This
Warrant certificate is issued subject to the following terms and conditions:

 

1.                                       Definitions of Certain Terms. 
Except as may be otherwise clearly required by the context, the
following terms have the following meanings:

 

(a)                                  “Common Stock” means the common
stock, $0.001 par value, of the Company.

 

(b)                                 “Company” means Sonus
Pharmaceuticals, Inc., a Delaware corporation.

 

(c)                                  “Effective Date” has the meaning
set forth in the preamble to this Agreement.

 

(d)                                 “Exercise Period” means the period
of time commencing on the Effective Date and ending at 5 p.m. Pacific Standard
Time on the earlier of (i) the fifth anniversary of the Effective Date or (ii) the
tenth day following receipt of a Mandatory Exercise Notice from the Company
with respect to all shares of Common Stock remaining as exercisable under the
Warrant; provided, that if the number of Shares exercisable under the Warrant
is limited by Section 9, then the Exercise Period shall be the fifth
anniversary of the Effective Date.

 

(e)                                  “Exercise Price” means the price
at which the Warrantholder may purchase one Share upon exercise of Warrants as
determined from time to time pursuant to the provisions hereof.  The initial Exercise Price is $4.15 per
Share, which is equal to 110% of the purchase price per share of Common Stock
paid by Warrantholder under the Securities Purchase Agreement.

 

(f)                                    “Mandatory Exercise Notice” means
the notice delivered by the Company to the Warrantholder advising the
Warrantholder that the closing sale price of the Company’s Common Stock, as
reported by the Nasdaq National Market or other securities exchange on which
the Company’s Common Stock is then listed, has been equal to or greater than the
percentage of the Exercise Price (as adjusted for splits, reverse splits, stock
dividends, share combinations and the like) set forth in Section 3(b) for
twenty (20) consecutive trading days out of any 30 consecutive trading day
period.

 

(g)                                 “Securities Act” means the
Securities Act of 1933, as amended.

 

(h)                                 “Securities Purchase Agreement”
means the Securities Purchase Agreement dated as of August 15, 2005 among
the Company and the Investors referenced therein.

 

2

 

(i)                                     “Share” or “Shares” refers
to one or more shares of Common Stock issuable on exercise of the Warrant.

 

(j)                                     “Warrant” means the warrant
evidenced by this certificate or any certificate obtained upon transfer or
partial exercise of the Warrant evidenced by any such certificate.

 

(k)                                  “Warrantholder” means a record
holder of the Warrant or Shares.  The
initial Warrantholder is _________.

 

2.                                       Purchase of Warrant. 
Concurrently with the issuance hereof, the Warrantholder shall pay to
the Company as consideration for the Warrant the sum of $0.125 per Share
issuable upon exercise of the Warrant, or $                  
in the aggregate.

 

3.                                       Exercise of Warrants.

 

(a)                                  All or any part of the Warrant may be
exercised during the Exercise Period pursuant to Section 3(d) or by surrendering
the Warrant, together with appropriate instructions, duly executed by the
Warrantholder or by its duly authorized attorney, and delivery of payment in
full by the Warrantholder, in lawful money of the United States, of the Exercise
Price payable with respect to the Shares being purchased at the office of the
Company, 22026 20th Avenue S.E., Bothell, Washington, 98021, Attention:
President, or at such other office or agency as the Company may designate.  The date on which such instructions and the Exercise
Price are received by the Company shall be the date of exercise.  Upon receipt of notice of exercise and the
Exercise Price, the Company shall immediately instruct its transfer agent to
prepare certificates for the Shares to be received by the Warrantholder and shall
use commercially reasonable efforts to cause such certificates to be prepared
and delivered to the Warrantholder in accordance with the Warrantholder’s
instructions within three business days after the date of exercise.  If the Warrantholder shall provide the Company
with an opinion of counsel to the effect that the legend set forth on the face
of this Warrant is not required, such certificates shall not bear a legend with
respect to the Securities Act.

 

(b)                                 Within three (3) business days
following the first consecutive twenty (20) trading day period of time during
the Exercise Period during which the closing sale price of the Company’s Common
Stock, as reported by the Nasdaq National Market or other securities exchange
on which the Company’s Common Stock is then listed, is equal to or greater than
150% of the Exercise Price (as adjusted for splits, reverse splits, stock
dividends, share combinations and the like) on each day during such period, the
Company shall deliver to the Warrantholder a Mandatory Exercise Notice,
together with a computation demonstrating the basis for such Mandatory Exercise
Notice.  In such event, notwithstanding
anything to the contrary in Section 3(a) above, but subject to Section 9,
the Warrantholder agrees to exercise this Warrant with respect to 50% of the
shares of Common Stock covered by this Warrant within ten (10) days
following receipt of such Mandatory Exercise Notice from the Company.  To the extent that this Warrant is not so
exercised, the number of shares of Common Stock exercisable under this Warrant
shall be reduced, subject to Section 9, automatically without any action
of any party by 50%.  Within three (3) business
days following the first consecutive twenty (20) trading day period of time
during the Exercise

 

3

 

Period during
which the closing sale price of the Company’s Common Stock, as reported by the
Nasdaq National Market or other securities exchange on which the Company’s Common
Stock is then listed, is equal to or greater than 200% of the Exercise Price
(as adjusted for splits, reverse splits, stock dividends, share combinations
and the like) on each day during such period, the Company shall deliver to the
Warrantholder a second Mandatory Exercise Notice, together with a computation
demonstrating the basis for such Mandatory Exercise Notice.  In such event, notwithstanding anything to
the contrary in Section 3(a) above, but subject to Section 9,
the Warrantholder agrees to exercise this Warrant in full with respect to all
of the remaining shares of Common Stock covered by this Warrant within ten (10) days
following receipt of such Mandatory Exercise Notice from the Company.  To the extent that this Warrant is not so
exercised, it shall expire and be of no further force or effect, subject to Section 9.

 

(c)                                  If fewer than all the Shares purchasable
under the Warrant are purchased, the Company will, upon such partial exercise,
execute and deliver to the Warrantholder a new Warrant certificate (dated the
date hereof), in form and tenor similar to this Warrant certificate, evidencing
that portion of the Warrant not exercised. 
The Shares to be obtained on exercise of the Warrant will be deemed to
have been issued, and any person exercising the Warrants will be deemed to have
become a holder of record of those Shares, as of the date of the payment of the
Exercise Price.

 

(d)                                 In addition to and without limiting the
rights of the Warrantholder under the terms of this Warrant, the Warrantholder
shall have the right, upon its written request delivered or transmitted to the
Company together with this Warrant, to exchange this Warrant, in whole or in
part at any time or from time to time during the Exercise Period, for the
number of shares of Common Stock equal to the quotient obtained by dividing [(A-B)
(X)] by (A), rounded down to the nearest share, where:

 

(A) =                    the per share closing sale
price of the Company’s Common Stock, as reported by the Nasdaq National Market
or other securities exchange on which the Company’s Common Stock is then
listed, on the trading day immediately preceding the date of such election;

 

(B) =                      the Exercise
Price of this Warrant, as adjusted; and

 

(X)
=                     the number of
Shares issuable upon exercise of this Warrant in accordance with the terms of
this Warrant by means of a cash exercise rather than a cashless exercise.

 

If a balance of
purchasable Shares remains after such exchange, the Company shall execute and
deliver to the Warrantholder a new Warrant evidencing the right of the Warrantholder
to purchase such balance of Shares.  No
payment of any cash or other consideration shall be required.  Such exchange shall be effective upon the
date of receipt by the Company of the original Warrant surrendered for
cancellation and a written request from the Warrantholder that the exchange
pursuant to this Subsection be made, or at such
later date as may be specified in such request.

 

4

 

4.                                       Adjustments in Certain Events. 
The number, class, and price of the Shares for which this Warrant is
exercisable are subject to adjustment from time to time upon the happening of
certain events as follows:

 

(a)                                  If the outstanding shares of the Company’s
Common Stock are divided into a greater number of shares or a dividend in stock
is paid on the Common Stock, the number of Shares for which the Warrant is then
exercisable will be proportionately increased and the Exercise Price will be
proportionately reduced; and, conversely, if the outstanding shares of Common
Stock are combined into a smaller number of shares of Common Stock, the number
of Shares for which the Warrant is then exercisable will be proportionately
reduced and the Exercise Price will be proportionately increased.  The increases and reductions provided for in
this subsection 4(a) will be made with the intent and, as nearly as
practicable, the effect that neither the percentage of the total equity of the
Company obtainable on exercise of the Warrants nor the price payable for such
percentage upon such exercise will be affected by any event described in this
subsection 4(a).

 

(b)                                 In case of any change in the Common Stock
through merger, consolidation, reclassification, reorganization, partial or
complete liquidation, purchase of substantially all the assets of the Company,
or other change in the capital structure of the Company, then, as a condition
of such change, lawful and adequate provision will be made so that the holder
of this Warrant will have the right thereafter to receive upon the exercise of
the Warrant the kind and amount of shares of stock or other securities or
property to which he would have been entitled if, immediately prior to such
event, he had held the number of Shares obtainable upon the exercise of the
Warrant.  In any such case, appropriate
adjustment will be made in the application of the provisions set forth herein
with respect to the rights and interest thereafter of the Warrantholder, to the
end that the provisions set forth herein will thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the exercise of the Warrant.  The Company will not permit any change in its
capital structure to occur unless the issuer of the shares of stock or other
securities to be received by the holder of this Warrant, if not the Company,
agrees to be bound by and comply with the provisions of this Warrant.

 

(c)                                  When any adjustment is required to be
made in the number of Shares or other securities or property purchasable upon
exercise of the Warrant, the Company will promptly determine the new number of
such Shares or other securities or property purchasable upon exercise of the
Warrant and (i) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the new number of such Shares
or other securities or property purchasable upon exercise of the Warrant and (ii) cause
a copy of such statement to be mailed to the Warrantholder within thirty (30)
days after the date of the event giving rise to the adjustment.

 

(d)                                 No fractional shares of Common Stock or
other securities will be issued in connection with the exercise of the Warrant,
but the Company will pay, in lieu of fractional shares, a cash payment therefor
on the basis of the mean between the bid and asked prices of the Common Stock
in the over-the-counter market or the closing price on a national securities
exchange on the day immediately prior to exercise.

 

5

 

(e)                                  If securities of the Company or
securities of any subsidiary of the Company are distributed pro rata to holders
of Common Stock, such number of such securities will be distributed to the
Warrantholder or his assignee upon exercise of this Warrant as the Warrantholder
or assignee would have been entitled to if the portion of the Warrant evidenced
by this Warrant certificate had been exercised prior to the record date for
such distribution.  The provisions with
respect to adjustment of the Common Stock provided in this Section 4 will
also apply to the securities to which the Warrantholder or his assignee is
entitled under this subsection 4(e).

 

(f)                                    In the event (i) the Company
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution or (ii) there
occurs any change in the Common Stock through merger, consolidation,
reclassification, reorganization, partial or complete liquidation, purchase of
substantially all of the assets of the Company or other change in the capital
structure of the Company, the Company shall give to the holder hereof a notice
specifying (a) the date of such record date for the purpose of such
dividend or distribution and a description of such dividend or distribution, (b) the
date on which any such merger, consolidation, reclassification, reorganization,
sale, liquidation or other change in the capital structure of the Company is
expected to become effective, and (c) the time, if any, that is to be
fixed, as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such merger,
consolidation, reclassification, reorganization, sale, liquidation or other
change in the capital structure of the Company. 
Such written notice shall be given to the holder of this Warrant at
least twenty (20) days prior to the date specified in such notice on which any
such action is to be taken.

 

5.                                       Reservation of Shares. 
The Company agrees that the number of shares of Common Stock or other
securities sufficient to provide for the exercise of the Warrant upon the basis
set forth above will at all times during the term of the Warrant be reserved
for exercise.  If at any time the Company
does not have a sufficient number of shares of Common Stock or other securities
authorized to provide for the exercise of the Warrant, the Company shall take
such actions as may be reasonably necessary to increase the number of
authorized shares of Common Stock or other securities to provide for exercise
of the Warrant.

 

6.                                       Validity of Shares. 
All Shares or other securities delivered upon the exercise of the
Warrant will be duly and validly issued in accordance with their terms, and, in
the case of capital stock, will, when issued and delivered in accordance with
their terms against payment therefor as provided in the Warrant, be fully paid
and nonassessable, and the Company will pay all documentary and transfer taxes,
if any, in respect of the original issuance thereof upon exercise of the
Warrant.

 

7.                                       Restrictions on Transfer. This Warrant may not be sold,
transferred, assigned or hypothecated except as permitted pursuant to Section 2.6
of the Securities Purchase Agreement. 
The Warrant may be divided or combined, upon request to the Company by
the Warrantholder, into a certificate or certificates evidencing the same
aggregate number of Warrants.

 

6

 

8.                                       No Rights as a Stockholder. 
Except as otherwise provided herein, the Warrantholder will not, by
virtue of ownership of the Warrant, be entitled to any rights of a stockholder
of the Company but will, upon written request to the Company, be entitled to
receive such quarterly or annual reports as the Company distributes to its
stockholders.

 

9.                                       Restriction on Exercise by the
Warrantholder; Covenant Against Additional Purchases.

 

(a)                                  Notwithstanding anything herein to the
contrary, in no event shall the Warrantholder have the right or be required to
exercise this Warrant to the extent, and only to the extent, that as a result
of such exercise, the aggregate number of shares of Common Stock beneficially
owned by such Warrantholder, its Affiliates and any “group” (as defined in accordance
with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) of which the Warrantholder may be deemed to be a party
(collectively the “Warrantholder Affiliates”) would exceed 9.99% of the
outstanding shares of the Common Stock following such exercise.  For purposes of this Section 9,
beneficial ownership shall be calculated in accordance with Sections 13(d) and
Section 16(a) of the Exchange Act. 
The provisions of this Section 9 may be waived by a Warrantholder
as to itself (and solely as to itself) upon not less than sixty-five (65) days
prior written notice to the Company, and the provisions of this Section 9
shall continue to apply until such 65th day (or later, if stated in the notice
of waiver).  In no event shall the
Company have any liability under the terms of this Warrant or otherwise to the
Warrantholder or any permitted assign in the event that such Warrantholder or
permitted assign, upon the exercise of all or a portion of this Warrant,
beneficially owns more than 9.99% of the outstanding shares of Common Stock
following exercise.

 

(b)                                 The Warrantholder agrees that the
Warrantholder will not, and will use reasonable efforts to cause its Affiliates
not to, purchase or acquire any beneficial interest in any share of Common Stock
of the Company after the date hereof other than pursuant to the Securities
Purchase Agreement or any warrant issued pursuant to the Securities Purchase
Agreement held by any Warrantholder Affiliate, if such purchase or acquisition
would be reasonably likely, taking into account factors such as the
then-current closing sale price of the Company’s Common Stock, to limit the
ability of the Company to cause a mandatory exercise of this Warrant in full
pursuant to Section 3(b) hereof. 
For purposes hereof, “reasonable efforts” shall mean that the
Warrantholder places the Company’s Common Stock on its watch list or restricted
list for employees and entities controlled by or under common control with the
Warrantholder.  Warrantholder shall take
such actions as may be reasonably necessary to enforce compliance with the
restrictions imposed by its watch list and restricted list.

 

10.                                 Notice.  Any notices
required or permitted to be given under the terms of this Warrant must be sent
by certified or registered mail (return receipt requested) or delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile and will be effective five (5) days after being placed in the
mail, if mailed by regular U.S. mail, or upon receipt, if delivered personally,
by courier (including a recognized overnight delivery service) or by facsimile,
in each case addressed to a party.  The
addresses for such communications are:

 

7

 

If
to the Company:

 

Chief Financial Officer

Sonus Pharmaceuticals, Inc.

22026 20th Avenue S.E.

Bothell, Washington 98021

fax                                 (425) 489-0626

 

If
to a Warrantholder:  to the address set
forth immediately below the Warrantholder’s name on the signature pages hereto.

 

Each party will provide written notice to the other parties of any
change in its address.

 

11.                                 Applicable Law. 
This Warrant will be governed by and construed in accordance with the
laws of the State of New York, without reference to conflict of laws principles
thereunder.

 

12.                                 Entire Agreement. 
This Warrant, the exhibits and schedules hereto, and the documents
referred to herein, constitute the entire agreement and understanding of the
parties hereto with respect to the subject matter hereof, and supersede all
prior and contemporaneous agreements and understandings, whether oral or
written, between the parties hereto with respect to the subject matter hereof.

 

13.                                 Waiver; Consent. 
This Warrant may not be changed, amended, terminated, augmented,
rescinded or discharged (other than by performance), in whole or in part,
except by a writing executed by the parties hereto, and no waiver of any of the
provisions or conditions of this Warrant or any of the rights of a party hereto
shall be effective or binding unless such waiver shall be in writing and signed
by the party claimed to have given or consented thereto.

 

14.                                 No Impairment. 
The Company will not, by amendment of its Charter or by any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrantholder of
this Warrant against impairment.

 

15.                                 Remedies.  The Company
stipulates that the remedies at law of the Warrantholder of this Warrant in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this Warrant are not adequate and may be
enforced by a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms hereof or
otherwise.

 

16.                                 Severability. 
If one or more provisions of this Warrant are held to be unenforceable
under applicable law, such provision shall be excluded from this Warrant and
the balance of the Warrant shall be interpreted as if such provision were so
excluded and the balance shall be enforceable in accordance with its terms.

 

8

 

IN
WITNESS WHEREOF, the parties hereto have executed this Warrant effective as of
the date set forth below.

 

	
  Dated as of August     , 2005

  
	
   

  
	
  SONUS PHARMACEUTICALS, INC.

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Agreed and Accepted as of August     , 2005

  
	
   

  
	
  [WARRANTHOLDER]

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  
				

 

 

NOTICE OF EXERCISE

 

To:                              SONUS PHARMACEUTICALS, INC.

 

The
undersigned hereby elects to purchase               
shares of Common Stock (the “Shares”) of Sonus Pharmaceuticals, Inc.,
a Delaware corporation (the “Company”) pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price pursuant
to the terms of the Warrant.

 

Please
issue certificates representing the Common Stock purchased hereunder in the
names and in the denominations indicated below.

 

Please
issue a new Warrant for the unexercised portion of the attached Warrant, if
any, in the name of the undersigned.

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  No. Warrant Shares:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
  Print Name of

  	
   

  
	
  Stockholder:

  	
   

  	
   

  	
  Title:Exhibit 10.1

 

Execution Copy

 

VISTULA COMMUNICATIONS SERVICES, INC.

 

CONSULTING AGREEMENT

 

This Consulting Agreement (this “Agreement”)
is made and entered into as of August 17, 2005, by and between
Vistula Communications Services, Inc., a Delaware corporation (the “Company”),
and Executive Management Services Limited, a company incorporated under the
laws of the British Virgin Islands (“Consultant”).

 

1.                                       Engagement
And Responsibilities

 

(a)           Upon the terms and subject to the conditions set forth in
this Agreement, the Company hereby engages Consultant as a consultant, and
Consultant hereby accepts such engagement.

 

(b)           Consultant hereby agrees that all duties and
responsibilities of Consultant set forth in this Agreement shall be performed
by Rupert Galliers-Pratt (“Galliers-Pratt”).

 

(c)           Galliers-Pratt shall have the title of President and Chief
Executive Officer. Galliers-Pratt shall be entitled to serve on the board of
directors of the Company and its subsidiaries (and to serve as chairman of any
such board of directors) in accordance with the certificate of incorporation,
by-laws or other equivalent documents of the Company and its subsidiaries.

 

(d)           Galliers-Pratt shall devote all of his business time, energy
and efforts to the business of the Company and will use his best efforts and
abilities faithfully and diligently to promote the Company’s business
interests. Galliers-Pratt’s duties and responsibilities shall be those incident
to those which are normally and customarily vested in the offices of president
and chief executive officer of a U.S. SEC reporting corporation. In addition,
Galliers-Pratt’s duties shall include those duties and services for the Company
and its affiliates as the Board shall, in its sole and absolute discretion,
from time to time reasonably direct which are not inconsistent with
Galliers-Pratt’s positions described in Section 1(c).  Notwithstanding the foregoing, but subject to
Section 1(e) of this Agreement, Galliers-Pratt shall be permitted to
serve on the board of directors of, or in a similar capacity with, other
Persons ( as defined below) and to manage his personal investments.

 

(e)           For so long as Consultant is engaged by the Company, neither
Consultant nor Galliers-Pratt shall, directly or indirectly, either as an
employee, employer, consultant, agent, investor, principal, partner,
stockholder (except as the holder of less than 5% of the issued and outstanding
stock of a publicly held corporation), officer or director, or in any other
individual or representative capacity, engage or participate in any business
that is in competition in any manner whatsoever with the business of the
Company Group, as such businesses are now or hereafter conducted.

 

 

2.                                       Definitions

 

“Board” shall mean the Board of Directors of
the Company.

 

“Company Group” shall mean the Company and
each Person that the Company directly or indirectly controls, is controlled by,
or is under common control with, such person.

 

“Disability,” with respect to Galliers-Pratt,
shall mean that, for physical or mental reasons, Galliers-Pratt is unable to
perform the essential functions of his duties under this Agreement for sixty
(60) consecutive days, or ninety (90) days during any twelve (12 ) month
period. Galliers-Pratt agrees to submit to a reasonable number of examinations
by a medical doctor advising the Company as to whether he shall have suffered a
disability and Galliers-Pratt hereby authorizes the disclosure and release to
the Company and its agents and representatives of all supporting medical
records. If Galliers-Pratt is not legally competent, his legal guardian or duly
authorized attorney-in-fact will act in his stead for the purposes of
submitting him to the examinations, and providing the authorization of
disclosure.

 

“For Cause” shall mean, in the context of a
basis for termination of Consultant’s engagement with the Company, that:

 

(a)           Consultant or Galliers-Pratt breach any of their respective
obligations, duties or agreements under this Agreement, which breach is not
cured or corrected within fifteen (15) days of written notice thereof from the
Company (except for breaches of Sections 1(e) and 6 of this Agreement,
which cannot be cured and for which the Company need not give any opportunity
to cure); or

 

(b)           Galliers-Pratt commits any act of personal dishonesty,
fraud, misappropriation of assets, embezzlement, willful misfeasance, breach of
fiduciary duty or trust against the Company Group or breaches the insider
trading polices of the Company or any applicable securities laws, rules or
regulations including rules of the SEC or any other regulatory authority
(including the NASD or any stock exchange) in connection with the trading of
securities; or

 

(c)           Galliers-Pratt is indicted for, or convicted of, or pleads
guilty or nolo contendere with respect to, theft, fraud, a crime involving
moral turpitude, or a felony under federal or applicable state law; or

 

(d)           Galliers-Pratt commits any act of personal conduct that, in
the reasonable opinion of majority of the Board, gives rise to any member of
the Company Group of a material risk of liability under federal or applicable
state law for discrimination or sexual or other forms of harassment or other
similar liabilities to subordinate employees; or

 

(e)           Galliers-Pratt commits a substantive violation of specific
written directions of the Board, which directions are consistent with this
Agreement and Galliers-Pratt’s position as a senior or executive officer of the
Company, a substantive failure to perform duties assigned by or pursuant to
this Agreement, or a material breach of the policies, programs, budgets,
procedures, and directions established from time to time by the Company
including, without limitation, the Company’s code of ethics.

 

2

 

“Person” shall mean an individual or a
partnership, corporation, trust, association, limited liability company,
governmental authority or other entity.

 

“SEC” shall mean the United States Securities
Exchange Commission.

 

3.             Compensation And Benefits

 

For so long as Consultant shall be engaged by
the Company as a consultant, Consultant shall receive the compensation set
forth in this Section 3.

 

(a)           The Company shall pay Consultant consulting fees at an
annual rate of $240,000. The Company may, but shall not be obligated to, increase
the consulting fees from time to time. The consulting fees shall be payable in
installments in the same manner and at the same times the Company pays salaries
to executive officers of the Company, but in no event less frequently than
equal monthly installments.

 

(b)           Consultant shall be entitled to reimbursement from the
Company for the reasonable out-of-pocket costs and expenses that Consultant
incurs in connection with the performance of Consultant’s duties and
obligations under this Agreement in a manner consistent with the Company’s
practices and policies therefor.  Without
limiting the generality of the foregoing, Consultant shall be reimbursed for
the cost of first class airfares for travel by Galliers-Pratt in connection
with the performance of duties assigned by or pursuant to this Agreement;
provided that Galliers-Pratt reasonably considers first class travel, in light
of the circumstances, to be reasonable and appropriate.  Consultant shall submit complete and proper
expense reimbursement documentation and supporting receipts on a timely basis.

 

(c)           If and to the extent permitted by the relevant plan,
Galliers-Pratt shall be entitled to participate in any pension, savings and
group term life, medical, dental, disability, and other group benefit plans
that the Company makes available to its employees generally (the “Company
Benefit Plans”). If Galliers-Pratt is not entitled to participate in such
plans, the Company shall reimburse the Consultant for the reasonable cost of
equivalent benefits for Galliers-Pratt to those available under the Company
Benefit Plans.

 

(d)           Galliers-Pratt shall be entitled to four (4) weeks paid
vacation, which shall accrue in a manner consistent with the Company’s standard
vacation accrual policy.

 

(e)           The Company shall reimburse Consultant for all reasonable
costs (not to exceed $2,500 per month) incurred by Consultant in connection
with the lease of a motor vehicle for use by Galliers-Pratt in connection the
performance of duties assigned by or pursuant to this Agreement.

 

(f)            In the event of any Disability,
if Consultant or Galliers-Pratt shall receive payments as a result of such
Disability under any disability plan maintained by the Company, Consultant or
from any government agency, the Company shall be entitled to deduct the amount
of such payments received from base salary payable to Consultant during the
period of such Disability.

 

3

 

(g)           The Company shall grant to Consultant an option to purchase
650,000 shares of the Company’s common stock, at an exercise price of $0.45 per
share; provided that such option has not been granted prior to the date of this
Agreement.  Such option shall be
exercisable in full immediately upon grant. The option shall be substantially
in the form attached hereto as Exhibit A.

 

(h)           The Company may deduct from any compensation payable to
Consultant (including payments made pursuant to Section 5 of this
Agreement in connection with or following termination of the engagement of
Consultant hereunder) amounts it believes are required to be withheld under
federal and state law, including applicable federal, state and/or local income
tax withholding, social security payments, state disability and other insurance
premiums and payments.

 

4.                                       Term Of
Engagement

 

Consultant’s term of engagement pursuant to
this Agreement shall commence as of the date hereof and shall terminate on the
earliest to occur of the following (the “Date of Termination”):

 

(a)           Upon the expiration of a period of two years from the date of
this Agreement (the “Term”); provided that the Term shall be automatically
extended for an additional periods of one year unless Consultant or the Company
give the other party written notice of termination at least ninety (90) days
prior to the end of the Term.

 

(b)           upon the date set forth in a written notice of termination
from Consultant to the Company (which date shall at least ninety (90) days
after the delivery of that notice); provided, however, that in the event
Consultant delivers such notice to the Company, the Company shall have the
right to accelerate such termination by written notice thereof to Consultant
(and such termination by the Company shall be deemed to be a termination of
engagement pursuant to this Section 4(b), and not a termination pursuant
to Section 4(e) or 4(f) hereof);

 

(c)           upon the death of Galliers-Pratt;

 

(d)           upon delivery to Consultant of written notice of termination
by the Company if Galliers-Pratt shall suffer a Disability;

 

(e)           upon delivery to Consultant of written notice of termination
by the Company For Cause; or

 

(f)            upon delivery to Consultant of
written notice of termination by the Company without cause.

 

It is understood that termination by the
Company because Galliers-Pratt does not personally perform the services
required of Consultant shall be termination For Cause.

 

4

 

5.                                       Severance
Compensation

 

(a)           If Consultant’s engagement is terminated pursuant to Section 4(f) (by
the Company without cause), the Company shall, for a period of two (2) years
commencing on the Date of Termination, continue to (i) pay to Consultant
consulting fees at the rate in effect on the Date of Termination, and (ii) pay
for Galliers-Pratt’s participation in group medical, life, dental, disability
and similar plans to the extent permitted by the plan(s).

 

(b)           If Consultant’s engagement is terminated for any reason
other than by the Company without cause, the Company shall pay to Consultant
any unpaid consulting fees through the Date of Termination. All rights and
benefits which Galliers-Pratt or his estate may have under the Company’s
benefit plans in which Galliers-Pratt shall be participating at the date of
termination of engagement shall be determined in accordance with such plans.

 

(c)           If Consultant’s engagement is terminated by the Company
pursuant to Section 4(e) (by the Company For Cause), and subject to
applicable law and regulations, the Company shall be entitled to offset against
any payments due Consultant any loss or damage which the Company shall suffer
as a result of the acts or omissions of Consultant or Galliers-Pratt giving
rise to termination under Section 4(e).

 

(d)           Consultant acknowledges that the Company has the right to
terminate Consultant’s engagement without cause and that such termination shall
not be a breach of this Agreement or any other express or implied agreement
between the Company and Consultant. Accordingly, in the event of such
termination, Consultant shall be entitled only to those benefits specifically
provided in this Section 5, and shall not have any other rights to any
compensation or damages from the Company for breach of contract.

 

(e)           Consultant acknowledges that in the event of termination of
Consultant’s engagement for any reason, Consultant shall not be entitled to any
severance or other compensation from the Company except as specifically
provided in this Section 5. Without limitation on the generality of the
foregoing, this Section supersedes any plan or policy of the Company that
provides for severance to its officers or Consultant, and Consultant shall not
be entitled to any benefits under any such plan or policy.

 

6.                                       Confidentiality;
Non-Competition.

 

(a)           Neither Consultant nor Galliers-Pratt shall, directly or
indirectly, at any time (whether during the Term or thereafter), disclose any
Confidential Information (defined below) to any person, association, or other
entity (other than the Affiliated Companies, as defined below), or use, or
permit or assist any person, association, or other entity (other than an
Affiliated Company) to use, any Confidential Information, excepting only: (i) Confidential
Information which (A) is then generally available to or obtainable by the
public and which did not become so available or obtainable through the breach
of any provision of this Agreement by Consultant or Galliers-Pratt, or (B) is
obtained by Consultant or Galliers-Pratt on a non-confidential basis from a
source other than an Affiliated Company or any agent or other representative of
an Affiliated Company and such source had the right to disclose such 

 

5

 

Confidential Information to
Consultant or Galliers-Pratt without violating any legal, contractual,
fiduciary, or other obligation; and (ii) disclosures required by
applicable law.

 

(b)           Upon termination of Consultant’s engagement under this
Agreement for any reason, Consultant and Galliers-Pratt shall immediately
deliver to the Company all documents and other materials containing any
Confidential Information which are in his possession or under his control.

 

(c)           During the Restricted Period (defined below), neither
Consultant nor Galliers-Pratt shall, directly or indirectly (whether
individually or as a shareholder or other owner, partner, member, director,
officer, employee, consultant, creditor or agent of any person, association, or
other entity):

 

(i)                                     Enter into, engage in, or
promote or assist (financially or otherwise), directly or indirectly, any
business which competes with the business of any Affiliated Company (the “Business”),
provided that the foregoing shall not preclude Consultant or Galliers-Pratt
from owning less than 1% of the outstanding capital stock of any corporation
whose shares are publicly traded on a national securities exchange or system;

 

(ii)                                  Solicit or attempt to solicit
business in competition with the Business from any person or entity (in any
such case, a “Restricted Company”), or interfere or attempt to interfere with
any relationship of any Affiliated Company with any Restricted Company;

 

(iii)                               Induce or encourage any
employee, officer, director, agent, supplier, or independent contractor of any
Affiliated Company to terminate its relationship with any such Affiliated
Company, or otherwise interfere or attempt to interfere in any way with any
Affiliated Company’s relationships with its employees, officers, directors,
agents, suppliers, independent contractors, or others;

 

(iv)                              Employ or engage any person who,
at any time within the one-year period immediately preceding such employment or
engagement, was an employee, officer, director, or agent of any Affiliated
Company; or

 

(v)                                 Make any statement (oral or
written) or take any other action which would tend to disparage or diminish the
reputation of any Affiliated Company.

 

(d)           For purposes of this Agreement:

 

(i)                                     “Affiliated Company” shall
include the Company and all subsidiaries or affiliates of the Company;

 

(ii)                                  “Confidential Information” shall
mean all trade secrets, proprietary data, and other confidential information of
any Affiliated Company, including without limitation financial information,
information relating to business operations, services, promotional practices,
suppliers, employees, 

 

6

 

independent contractors, or other parties, and any information which
any Affiliated Company is obligated to treat as confidential pursuant to any
course of dealing or any agreement to which it is a party or otherwise bound;

 

(iii)                               “Restricted Period” shall mean
the period beginning on the date hereof and ending on the second anniversary of
the date (the “Termination Date”) of termination (for any reason) of Consultant’s
engagement hereunder (whether pursuant to this Agreement or otherwise); and

 

(e)           Consultant and Galliers-Pratt acknowledge and agree that (1) the
provisions of this section are fundamental and essential for the
protection of the Company’s legitimate business and proprietary interests, (2) such
provisions are reasonable and appropriate in all respects, and (3) in the
event of any violation by Consultant or Galliers-Pratt of any of such
provisions, the Company would suffer irreparable harm and its remedies at law
would be inadequate.  In the event of any
violation or attempted violation of such provisions by Consultant or
Galliers-Pratt, the Company shall be entitled to a temporary restraining order,
temporary and permanent injunctions, specific performance, and other equitable
relief, without any showing of irreparable harm or damage or the posting of any
bond, in addition to any other rights or remedies which may then be available
to the Company.

 

7.                                       Developments.

 

(a)           Consultant and Galliers-Pratt agree that all originals and
all copies of all manuscripts, drawings, prints, manuals, diagrams, letters,
notes, notebooks, reports, models, and all other materials containing,
representing, evidencing, recording, or constituting any Confidential
Information (as defined in Section 6 hereof) however and whenever produced
(whether by Consultant, Galliers-Pratt or others), shall be the sole property
of the Company.

 

(b)           Consultant and Galliers-Pratt agree that all Confidential
Information and all other discoveries, inventions, ideas, concepts, research
and other information, processes, products, methods and improvements, or parts
thereof conceived, developed, or otherwise made by Consultant or Galliers-Pratt
alone or jointly with others and in any way relating to any Affiliated Company’s
present or proposed products, programs or services or to tasks assigned by or
pursuant to this Agreement, whether or not patentable or subject to copyright
protection and whether or not reduced to tangible form or reduced to practice
during the period of the engagement hereunder, whether or not made during
regular working hours, and whether or not disclosed by Consultant or
Galliers-Pratt to the Company (hereinafter referred to as “Developments”),
together with all products or services which embody or emulate such
Developments, shall be the sole property of the Company.  Consultant and Galliers-Pratt agree to, and hereby
do assign to the Company, all their respective right, title and interest
throughout the world in and to all Developments and to anything tangible which
evidences, incorporates, constitutes, represents or records any such
Developments.  Consultant and
Galliers-Pratt agree that all such Developments shall constitute works made for
hire under the copyright laws of the United States and hereby assign and, to
the extent any such assignment cannot be made at present, Consultant and
Galliers-Pratt hereby agree to assign to the Company all copyrights, patents,
and other proprietary rights he may have in any such Developments, together
with the 

 

7

 

right to file for
and/or own wholly without restriction United States and foreign patents,
trademarks, and copyrights.  Consultant
and Galliers-Pratt agree to waive, and hereby waive, all moral rights or
proprietary rights in or to any Developments and, to the extent that such
rights may not be waived, agree not to assert such rights against any
Affiliated Company or its licensees, successors or assigns.

 

8.             Miscellaneous

 

(a)           Consultant and Galliers-Pratt each represent and warrant
that they are not subject to any agreement, order, judgment or decree of any
kind which would prevent them from entering into this Agreement or performing
fully their respective obligations hereunder. Consultant and Galliers-Pratt
each acknowledge being instructed:  (a) that
it is the Company’s policy not to seek access to or make use of trade secrets
or confidential business information belonging to other persons or
organizations, including but not limited to competitors or former employers;
and (b) that Consultant and Galliers-Pratt should not, under any
circumstances, reveal to the Company or any Affiliated Company or make use of
trade secrets or confidential business information belonging to any other
person or organization.  Consultant and
Galliers-Pratt each represent and warrant that they have not violated and shall
not violate such instructions.

 

(b)           All rights and remedies of any party under this Agreement
are cumulative and in addition to all other rights and remedies which may be
available to that party from time to time, whether under any other agreement,
at law, or in equity.

 

(c)           The termination of the engagement hereunder (for any reason)
shall not relieve any party of any of that party’s obligations under this
Agreement existing at, arising as a result of, or relating to acts or omissions
occurring prior to, such termination. 
Without limiting the generality of the preceding sentence, in no event
shall the termination of such engagement modify or affect any obligations of
Consultant and Galliers-Pratt or rights of the Company under Sections 6, 7 and
8 of this Agreement, all of which shall survive the termination of such
engagement.

 

(d)           All notices and other communications under this Agreement to
any party shall be in writing and shall be deemed given when delivered
personally, telecopied (which is confirmed) to that party at the telecopy
number for that party set forth below, mailed by certified mail (return receipt
requested) to that party at the address for that party (or at such other
address for such party as such party shall have specified in notice to the
other party) or delivered to Federal Express, UPS, or any similar express
delivery service for delivery to that party at that address:

 

(i)            If to the Company:

 

Vistula
Communications Services, Inc.

Suite 801,
405 Park Avenue

New York, NY
10022

Telecopy
No.:  (212) 832-7563

Attention:
Chief Financial Officer

 

8

 

with a copy to:

 

Foley Hoag LLP

155 Seaport Boulevard

Boston, MA 02210

Attention: Paul Bork, Esq.

Telecopy No.: (617) 832-7000

 

(ii)           If to Consultant:

 

Palm Chambers

Main Street 197

P.O. Box 3174

Tortola, B.V.I.

Attention: Oriel F. Kennion

Telecopy: +284 494 71 53

 

(iii)          If to Galliers-Pratt:

 

Mawley Hall

Cleobury Mortimer

Worcestershire, DY14 8PN

United Kingdom

Telecopy: +44 (0)1299 270022

 

(e)           The intention of the parties is to comply fully with all
rules, laws, and public policies to the extent possible.  If and to the extent that any court of
competent jurisdiction is unable so to construe any provision of this Agreement
and holds that provision to be invalid, such invalidity shall not affect the
remaining provisions of this Agreement, which shall remain in full force and
effect.  With respect to any provision in
this Agreement finally determined by such a court to be invalid or unenforceable,
such court shall have jurisdiction to reform this Agreement to the extent
necessary to make such provision valid and enforceable, and, as reformed, such
provision shall be binding on the parties.

 

(f)            No failure by any party to
insist upon strict compliance with any term of this Agreement, to exercise any
option, to enforce any right, or to seek any remedy upon any default of another
party shall affect, or constitute a waiver of, the other party’s right to
insist upon such strict compliance, exercise that option, enforce that right,
or seek that remedy with respect to that default or any prior, contemporaneous,
or subsequent default.  No custom or
practice of the parties at variance with any provision of this Agreement shall
affect, or constitute a waiver of, any party’s right to demand strict
compliance with all provisions of this Agreement.

 

(g)           This Agreement and all documents referred to in this
Agreement, all of which are hereby incorporated herein by reference, contain
the entire Agreement between the parties and supersede all other agreements and
understandings between the parties with respect to the subject matter of this
Agreement.  No alterations, additions, or
other changes to this Agreement shall be made or be binding unless made in
writing and signed by both parties.

 

9

 

(h)           This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law.  Consultant and
Galliers-Pratt hereby consent to the exclusive jurisdiction of the courts of
the State of New York in the event of any dispute arising hereunder.

 

(i)            The captions of the various
sections of this Agreement are not part of the context of this Agreement, are
only guides to assist in locating those sections, and shall be ignored in
construing this Agreement.

 

(j)            No rights or obligations of
Consultant or Galliers-Pratt under this Agreement may be assigned by Consultant
or Galliers-Pratt to any third party. 
Any assignment or attempted assignment by Consultant or Galliers-Pratt
in violation of the preceding sentence shall be null and void.  Subject to the foregoing, this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by and
against the successors and assigns of each party.

 

[remainder of page intentionally left blank]

 

10

 

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

 

	
   

  	
  Vistula
  Communications Services, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ George Vaughn

  	
   

  
	
   

  	
  Name:

  	
  George
  Vaughn

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Executive
  Management Services Limited

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Berta de Patton

  	
   

  
	
   

  	
  Name: Berta
  de Patton

  
	
   

  	
  Title:   Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  This
  Agreement is executed by Rupert Galliers-

  Pratt solely for purpose of making the agreements 

  set forth in Sections 1(e), 6, 7 and 8.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Rupert
  Galliers-Pratt

  	
   

  
	
   

  	
  Rupert Galliers-Pratt

  
					

 

11

 

Exhibit A

 

Effective Date:

 

NON-STATUTORY STOCK OPTION

 

Granted by

 

Vistula Communications Services, Inc.

 

Under the

 

2004 Stock Incentive Plan

 

For valuable consideration, the receipt of
which is hereby acknowledged, Vistula Communications Services, Inc., a
Delaware corporation (hereinafter together with its subsidiaries, where the
context permits, referred to as the “Company”), hereby grants to the Holder
named in Schedule A attached hereto the following Non-Statutory Stock
Option (the “Option”):

 

Section 1.  Grant of Option.  Subject to the terms and conditions hereinafter
set forth, the Holder is hereby given the right and option to purchase from the
Company shares of the Company’s Common Stock, $.001 par value per share (the “Common
Stock”).  Schedule A attached hereto
and hereby incorporated herein sets forth, with respect to this Option, (i) its
expiration date, (ii) its exercise price per share, (iii) the maximum
number of shares that the Holder may purchase upon exercise hereof, and (iv) the
vesting schedule.  It also sets forth
applicable conditions that the Company may wish to incorporate herein.  This Option shall terminate in all respects,
and all rights and options to purchase shares hereunder shall terminate, ten
years from the Effective Date set forth above. 
The right to purchase shares hereunder shall be cumulative.

 

Section 2.  Exercise of Option.  Each Option hereunder may be exercised only
to the extent such Option has vested pursuant to the terms of Section 1.  Purchase of any shares hereunder shall be
made by delivery to the Company of a written notice of exercise specifying the
number of shares with respect to which the Option is to be exercised and the
address to which the certificate representing such shares is to be mailed,
accompanied by:

 

(i)  cash, certified or bank check or postal money order payable
to the order of the Company for an amount equal to the Option price of such
shares;

 

(ii)  with the consent of the Company, shares of Common Stock of
the Company which (a) either have been purchased by the Holder on the open
market, or (b) have been beneficially owned by the Holder for a period of
at least six months and are not then subject to restriction under any Company
plan (“mature shares”); such surrendered shares shall have a fair market value
equal to or less than the Option price of such shares and 

 

12

 

shall be accompanied by cash or a certified
or bank check or postal money order in an amount equal to the difference, if
any, between the Option price of such shares and the fair market value of such
shares;

 

(iii)  with the consent of the Company, a personal recourse note
issued by the Holder to the Company in a principal amount equal to such
aggregate exercise price and with such other terms, including interest rate and
maturity, as the Company may determine in its discretion, provided that the
interest rate borne by such note shall not be less than the lowest applicable
federal rate, as defined in Section 1274(d) of the Internal Revenue
Code of 1986, as amended;

 

(iv)  with the consent of the Company, if the class of Common
Stock is registered under the Securities Exchange Act of 1934 (the “Exchange
Act”) at that time, subject to rules as may be established by the Board of
Directors of the Company (the “Board”), irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable to the
Company for the purchase price;

 

(v)  with the consent of the Company, instructions to reduce the
number of shares otherwise issuable to the Holder upon the exercise of the
Option by a number of shares of Common Stock having a fair market equal to the
aggregate exercise price; provided, however, that the Holder otherwise owns an
equal number of mature shares; or

 

(vi)  with the consent of the Company, a combination of (i), (ii),
(iii), (iv)     and/or (v).

 

For the purpose of the foregoing, the fair
market value of the shares of Common Stock which may be delivered to the
Company upon exercise of the Option shall be determined in accordance with
procedures adopted by Board.

 

Section 3.  Conditions and
Limitations.  As a condition
precedent to any exercise of this Option, the Holder (or if any other
individual or individuals are exercising this Option, such individual or
individuals) shall deliver to the Company an investment letter in form and
substance satisfactory to the Company and its counsel which shall contain,
among other things, a statement in writing to the following effects (to the
extent then applicable):  (i) that
the Option is then being exercised for the account of the Holder and only with
a view to investment in, and not for, in connection with or with a view to the
disposition of, the shares with respect to which the Option is then being
exercised; (ii) that the Holder acknowledges that the rights of first refusal
and repurchase set forth in Section 9 hereof apply to such shares; (iii) that
the Holder has been advised that Rule 144 of the Securities and Exchange
Commission (the “Commission”), which permits the resale, subject to various
terms and conditions, of small amounts of “restricted securities” (as therein
defined) after they have been held for one year, does not now apply to the
Company because the Company is not now required to file, and does not file,
current reports under the Exchange Act, nor is there publicly available
information concerning the Company substantially equivalent to that which would
be available if the Company were required to file such reports; (iv) that
the Holder understands that there is no assurance that the Company will ever
become a reporting company under the Exchange Act and that the Company has no
obligation to the Holder to do so; (v) that the Holder and Holder’s
representatives have fully 

 

13

 

investigated
the Company and the business and financial conditions concerning it and have
knowledge of the Company’s then current corporate activities and financial
condition; and (vi) that the Holder believes that the nature and amount of
the shares being purchased are consistent with Holder’s investment objectives,
abilities and resources.  The
restrictions imposed by this Section and any investment representation
made pursuant to this Section shall be inoperative upon the registration
with the Commission of the stock subject to this Option or acquired through the
exercise of this Option.

 

The Holder also agrees for a period of up to
180 days from the effective date of any registration of securities of the
Company under the Securities Act of 1933, as amended (the “Securities Act”),
upon request of the Company or the underwriters managing any underwritten
offering of the Company’s securities, not to sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any shares
issued pursuant to the exercise of this Option, without the prior written
consent of the Company and such underwriters.

 

Section 4.  Delivery of Shares.  Within a reasonable time following the
receipt by the Company of the written notice and payment of the Option price
for the shares to be purchased thereunder and, if applicable, the investment
letter referred to in Section 3, the Company will deliver or cause to be
delivered to the Holder (or if any other individual or individuals are
exercising this Option, to such individual or individuals) at the address
specified pursuant to Section 2 hereof a certificate or certificates for
the number of shares with respect to which the Option is then being exercised,
registered in the name of the Holder (or the name or names of the individual or
individuals exercising the Option, either alone or jointly with another person
or persons with rights of survivorship, as the individual or individuals
exercising the Option shall prescribe in writing to the Company); provided,
however, that such delivery shall be deemed effected for all purposes when a
stock transfer agent or the Company shall have deposited such certificate or
certificates in the United States mail, addressed to the Holder (or such
individual or individuals) at the address so specified; and provided further
that if any law, regulation or order of the Commission or other body having
jurisdiction in the premises shall require the Company or the Holder (or the
individual or individuals exercising this Option) to take any action in
connection with the sale of the shares then being purchased, then, subject to
the other provisions of this paragraph, the date on which such sale shall be
deemed to have occurred and the date for the delivery of the certificates for
such shares shall be extended for the period necessary to take and complete
such action, it being understood that the Company shall have no obligation to
take and complete any such action.

 

Section 5.  Adjustments Upon Changes
in Capitalization.  The
existence of this Option shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company’s capital
structure or its business, or any merger or consolidation of the Company, or
any issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.

 

If the Company shall effect a subdivision or
consolidation of shares or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of 

 

14

 

shares of the
Common Stock outstanding, without receiving compensation therefor in money,
services or property, then the number, class, and per share price of shares of
stock subject to this Option shall be appropriately adjusted in such a manner
as to entitle the Holder to receive upon exercise of this Option, for the same
aggregate cash consideration, the same total number and class of shares that
the owner of an equal number of outstanding shares of Common Stock would own as
a result of the event requiring the adjustment.

 

Except as hereinbefore expressly provided,
the issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number
or price of shares of Common Stock then subject to this Option.

 

Section 6.  Effect of Certain
Transactions.  If the Company
is a party to a merger or reorganization with one or more other corporations,
whether or not the Company is the surviving or resulting corporation, or if the
Company consolidates with or into one or more other corporations, or if the
Company is liquidated or sells or otherwise disposes of substantially all of
its assets to another corporation (each hereinafter referred to as a “Transaction”),
in any case while this Option remains outstanding:

 

(i) after the effective date of such
Transaction this Option shall remain outstanding and shall be exercisable in shares
of Common Stock or, if applicable, shares of such stock or other securities,
cash or property as the holders of shares of Common Stock received pursuant to
the terms of such Transaction;

 

(ii) the Board may accelerate the time
for exercise of this Option, so that from and after a date prior to the
effective date of such Transaction this Option shall be exercisable in full;

 

(iii) this Option may be cancelled by
the Board as of the effective date of the Transaction, provided that (a) notice
of such cancellation shall have been given to the Holder and (b) the
Holder shall have the right to exercise this Option to the extent the same is
then exercisable or, if the Board shall have accelerated the time for exercise
of this Option, in full during the thirty-day period preceding the effective
date of the Transaction; or

 

(iv) in the event of a Transaction under
the terms of which holders of Common Stock of the Company receive upon
consummation thereof a cash payment for each share surrendered (the “Transaction
Price”), the Holder shall be provided a cash payment equal to the difference
between (a) the Transaction Price times the number of shares of Common
Stock subject to this Option (to the extent the exercise price is not in excess
of the Transaction Price) and (b) the aggregate exercise price of all such
shares of Common Stock subject to this Option, in exchange for the termination
of this Option.

 

Section 7.  Rights of Holder.  No person shall, by virtue of the granting of
this Option to the Holder, be deemed to be a holder of any shares purchasable
under this Option or to be 

 

15

 

entitled to
the rights or privileges of a holder of such shares unless and until this
Option has been exercised with respect to such shares and they have been issued
pursuant to that exercise of this Option.

 

The granting of this Option shall not impose
upon the Company any obligations to continue the Holder’s services to the
Company; and the right of the Company to terminate the services of the Holder
shall not be diminished or affected by reason of the fact that this Option has
been granted to the Holder.

 

Nothing herein contained shall impose any
obligation upon the Holder to exercise this Option.

 

At all times while any portion of this Option
is outstanding, the Company shall: reserve and keep available, out of shares of
its authorized and unissued stock or reacquired shares, a sufficient number of
shares of its Common Stock to satisfy the requirements of this Option; comply
with the terms of this Option promptly upon exercise of the Option rights; and
pay all fees or expenses necessarily incurred by the Company in connection with
the issuance and delivery of shares pursuant to the exercise of this Option.

 

Section 8.  Transfer and Termination.  This Option is not transferable by the Holder
otherwise than by will or the laws of descent and distribution.

 

This Option is exercisable, during the Holder’s
lifetime, only by him, and by him only while he is providing services to the
Company, except that in the event that the Holder’s services to the Company
terminate for any reason other than death, disability or termination for cause,
the Holder shall have the right to exercise this Option within a period of
sixty days after said termination (but not later than the expiration date of
this Option) with respect to the shares which were purchasable by him by
exercise of this Option at the time of such termination of services.

 

In the event of the permanent and total
disability or the death of the Holder prior to termination of the Holder’s
services to the Company or a parent or subsidiary of the Company and before the
date of expiration of this Option, the Holder, or in the event of death, his
executors, administrators, heirs or legatees, as the case may be, shall have
the right to exercise this Option at any time within one year after said
disability or death (but not after the termination date of this Option) with
respect to the shares which were purchasable by the Holder at the date of his disability
or death.  The Holder shall be considered
permanently and totally disabled if he is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to last for a continuous period of not less
than 12 months.

 

If the Holder’s services to the Company are
terminated by the Company for Cause, this Option shall immediately terminate
and shall thereafter be of no further force and effect.  The term “cause” shall mean (a) any
material breach by the Holder of any agreement to which the Holder and the
Company are both parties, (b) any act (other than retirement) or omission
to act by the Holder which may have a material and adverse effect on the
Company’s business or on the Holder’s ability to perform services for the
Company, including, without limitation, the commission of any crime (other than
minor traffic violations), (c) any material misconduct or 

 

16

 

material
neglect of duties by the Holder in connection with the business or affairs of
the Company or any Parent, Subsidiary or affiliate of the Company; or (d) “cause”
as defined in the consulting agreement by and between the Company and the
Holder.  The Board shall have sole authority
and discretion to determine whether the Holder’s services have been terminated
for Cause.

 

Section 9.  Right of First Refusal.  Until such time as the Company shall have
affected a public offering of its Common Stock, in the event that, at any time
when the Holder (which term for purposes of this Section 9 shall mean the
Holder and his executors, administrators and any other person to whom this may
be transferred by will or the laws of descent and distribution) is permitted to
do so, the Holder desires to sell, assign or otherwise transfer any of the
shares issued upon the exercise of this Option, the Holder shall first offer
such shares to the Company by giving written notice of the Holder’s desire so
to sell, assign or transfer such shares. 
The notice shall state the number of shares offered, the name of the
person or persons to whom it is proposed to sell, assign or transfer such
shares and the price at which such shares are intended to be sold, assigned or
transferred.  Such notice shall constitute
an offer to the Company for the Company to purchase the number of shares set
forth in the notice at a price per share equal to the price stated
therein.  The Company may accept the
offer as to all, but not less than all, such shares by notifying the Holder in
writing within 30 days after receipt of such notice of its acceptance of the
offer.  If the offer is accepted, the
Company shall have 60 days within which to purchase the offered shares at a
price per share as aforesaid.  If within
the applicable time periods the Holder does not receive notice of the Company’s
intention to purchase the offered shares, or if payment in full of the purchase
price is not made by the Company, the offer shall be deemed to have been
rejected and the Holder may transfer title to such shares within 90 days from
the date of the Holder’s written notice to the Company of the Holder’s
intention to sell, but such transfer shall be made only to the proposed
transferee and at the proposed price as stated in such notice and after compliance
with any other provisions of this Option applicable to the transfer of such
shares.  Shares that are so transferred
to such transferee shall remain subject to the rights of the Company set forth
in this Section 9.  No sale,
assignment, pledge or transfer of any of the shares covered by this Option
shall be effective or given effect on the books of the Company unless all of
the applicable provisions of this Section 9 have been duly complied with,
and the Company may inscribe on the face of any certificate representing any of
such shares a legend referring to the provisions of this Section 9.  If any transfer of shares is made or
attempted in violation of the foregoing restrictions, or if shares are not
offered to the Company as required hereby, the Company shall have the right to
purchase such shares from the owner thereof or his transferee at any time
before or after the transfer, as herein provided.  In addition to any other legal or equitable
remedies which it may have, the Company may enforce its rights by actions for
specific performance (to the extent permitted by law) and may refuse to
recognize any transferee as one of its stockholders for any purpose, including,
without limitation, for purposes of dividend and voting rights, until all
applicable provisions hereof have been complied with.

 

For purposes of the Right of First Refusal
pursuant to this Section 9, the term “shares” shall mean any and all new,
substituted or additional securities or other property issued to the Holder, by
reason of his ownership of Common Stock pursuant to the exercise of this
Option, in connection with any stock dividend, liquidating dividend, stock
split or other change in the character or amount of any of the outstanding
securities of the Company, or any consolidation, merger or sale of all or
substantially all of the assets of the Company.

 

17

 

Any certificate representing shares of stock
subject to the provisions of this Section 9 may have endorsed thereon one
or more legends, substantially as follows:

 

(i)                                     “Any disposition
of any interest in the securities represented by this certificate is subject to
restrictions, and the securities represented by this certificate are subject to
certain options, contained in a certain agreement between the record holder
hereof and the Company, a copy of which will be mailed to any holder of this
certificate without charge upon receipt by the Company of a written request
therefor.”

 

(ii)                                  “The shares of stock
represented by this certificate have not been registered under the Securities
Act of 1933 or under the securities laws of any state and may not be pledged,
hypothecated, sold or otherwise transferred except upon such registration or
upon receipt by the Company of an opinion of counsel satisfactory to the
Company, in form and substance satisfactory to the Company, that such
registration is not required.”

 

The restrictions imposed by this Section 9
shall terminate in all respects upon the effective date of a registration
statement under the Securities Act covering the Company’s Common Stock.

 

Section 10.  Notice.  Any notice to be given to the Company
hereunder shall be deemed sufficient if addressed to the Company and delivered
to the Company, 405 Park Avenue, New York, New York 10022, attention of
President, or such other address as the Company may hereafter designate.

 

Any notice to be given to the Holder
hereunder shall be deemed sufficient if addressed to and delivered in person to
the Holder at his address furnished to the Company or when deposited in the
mail, postage prepaid, addressed to the Holder at such address.

 

Section 11.  Withholding of Taxes.  The Holder hereby agrees that the Company may
withhold from amounts due to the Holder from the Company the appropriate amount
of federal, state and local withholding taxes attributable to the Holder’s
exercise of this Option.

 

At the Holder’s election, the amount required
to be withheld may be satisfied, in whole or in part, by (i) authorizing
the Company to withhold from shares of Common Stock to be issued pursuant to
the exercise of this Option a number of shares with an aggregate fair market
value that would satisfy the minimum withholding amount due with respect to
such exercise, or (ii) transferring to the Company a sufficient number of
mature shares of Common Stock with an aggregate fair market value that would
satisfy the minimum withholding amount due.

 

The Holder further agrees that, if the
Company does not withhold an amount due to the Holder from the Company
sufficient to satisfy the Company’s withholding obligation, the Holder will
reimburse the Company on demand, in cash, for the amount underwithheld.

 

Section 12.  Government and Other
Regulations; Governing Law. 
This Option is subject to all laws, regulations and orders of any
governmental authority which may be 

 

18

 

applicable
thereto and, notwithstanding any of the provisions hereof, the Holder agrees
that he will not exercise the Option granted hereby nor will the Company be
obligated to issue any shares of stock hereunder if the exercise thereof or the
issuance of such shares, as the case may be, would constitute a violation by
the Holder or the Company of any such law, regulation or order or any provision
thereof.  Without limiting the generality
of the foregoing, the Company shall not be obligated to issue any such shares
if in the Company’s sole judgment to do so would cause the Company or such
issue not to be in compliance with the requirements of Rule 504
promulgated under the Securities Act. 
The Company shall not be obligated to take any affirmative action in
order to cause the exercise of this Option or the issuance of shares pursuant
hereto to comply with any such law, regulation, order or provision.

 

This Option is and shall be subject in every
respect to the provisions of the Company’s 2004 Stock Incentive Plan, as
amended from time to time, which is incorporated herein by reference and made a
part hereof.  The Holder hereby accepts
this Option subject to all the terms and provisions of the Plan and agrees that
(a) in the event of any conflict between the terms hereof and those of the
Plan, the latter shall prevail, and (b) all decisions under and
interpretations of the Plan by the Committee or the Board shall be final,
binding and conclusive upon the Holder and his heirs and legal representatives.

 

This Option shall be governed by and
construed in accordance with the laws of the State of Delaware.

 

Section 13.  Effective Date.  This Option shall be effective on the
Effective Date set forth on page 1 hereof.

 

IN WITNESS WHEREOF, the parties have executed
this Option, or caused this Option to be executed, as of the Effective Date.

 

	
   

  	
  Vistula Communications Services, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Acknowledged and accepted:

  
	
   

  
	
  Executive Management Services Limited

  
	
   

  
	
  By:

  	
   

  	
   

  
						

 

19

 

SCHEDULE A

 

Vistula Communications Services, Inc.

 

Non-Statutory Stock Option Granted Under the

2004 Stock Incentive Plan

 

1.                                       Name of Holder:
Executive Management Services Limited

 

2.                                       Date of Grant:

 

3.                                       Maximum Number
of shares for which this Option is exercisable: 650,000

 

4.                                       Exercise
(purchase) price per share: $0.45

 

5.                                       Expiration Date
of Option:

 

6.                                       Vesting
Schedule: Fully vested

 

7.                                       All shares
purchased upon exercise of this Option are subject to the rights of the Company
to repurchase such shares as set forth in Section 9 of the Option, to the
lockup agreement set forth in Section 3 of the Option and to the other
terms of the Option and Plan.

 

* 
*  *

 

20

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