Document:

Exhibit 10.6

 

AULT INCORPORATED

 

SENIOR MANAGEMENT

 

CHANGE IN CONTROL SEVERANCE PAY PLAN

 

ARTICLE 1

Introduction

 

1.1                                 Plan Name.  The
name of the Plan is the “Ault Incorporated Senior Management Change in Control
Severance Pay Plan.”

 

1.2                                 Plan Type.  The Plan
is unfunded and is maintained by the Company primarily for the purpose of
providing benefits for a select group of executive officers and other senior
management employees.  As such, the Plan
is intended to be exempt from the provisions of Parts 2 through 4 of Subtitle B
of Title I and from Title IV of ERISA by operation of sections 201(2),
302(a)(3),

401(a)(1) and 4021(b)(6) thereof, respectively.

 

1.3                                 Plan Purposes. 
The Board considers the attraction and retention of a strong senior
management team, including executive officers, to be essential to protecting
and enhancing the best interests of the Company and its stockholders.  In this connection, the Board recognizes that
absent adequate assurances and protections, the possibility of a Change in Control
may inhibit the Company’s fulfillment of this essential objective.  To this end, the Company has established this
Plan to:

 

(a)                                  Permit the Company to effectively recruit
and retain executive officers and other senior management personnel who, in the
absence of adequate assurances and protections, may be deterred by the
possibility of a Change in Control from accepting or continuing employment with
the Company;

 

(b)                                 Enable executive officers and other
senior management to evaluate objectively whether a potential change in control
is in the best interests of the Company and its shareholders;

 

(c)                                  Assure the Company and its shareholders
of continuity of executive officers and other senior management in the event of
an actual or threatened change in control; and,

 

(d)                                 Ease the transition to new employment for
executive officers and other senior management personnel terminated as a result
of a Change in Control.

 

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ARTICLE 2

Definitions, Construction and Interpretations

 

The definitions and rules of construction
and interpretation set forth in this Article 2 apply in construing the
Plan unless the context otherwise indicates.

 

2.1                                 Affiliate.  An “Affiliate” is:

 

(a)                                  any corporation at least a majority of
whose securities have ordinary voting power for the election of directors owned
directly or indirectly by the Company; or

 

(b)                                 any other form of business entity in
which the Company, by virtue of a direct or indirect ownership interest, has
the right to elect a majority of the members of such entity’s governing body.

 

2.2                                 Annual Base Salary. 
A Participant’s “Annual Base Salary”
is his or her annual base cash salary from the Company attributable to services
rendered as an employee of the Company at the rate in effect either (a) immediately
prior to the Change in Control or (b) at the time Notice of
Termination is given, whichever is greater, but, in either case, disregarding
any decrease which constitutes Good Reason for the Participant’s termination of
employment and determined before any reduction for employee contributions or
deferrals, whether voluntary or involuntary, pursuant to any Benefit Plan.

 

2.3                                 Benefit Plan. 
A “Benefit Plan” is any
compensation plan (such as stock option, stock purchase, restricted stock or
other equity-based plan), any employee benefit plan (such as a thrift, savings,
profit sharing, pension, medical, dental, disability, accident, life insurance,
relocation, salary continuation, expense reimbursement, vacation, fringe
benefit, office and support staff plan or policy) or any other plan, program,
policy, practice, perquisite or agreement of the Company intended to benefit
employees generally, or executive officers and other members of senior
management employees as a group.

 

2.4                                 Board.  The “Board” is the board of directors of the
Company duly qualified and acting at the time in question.

 

2.5                                 Cause.  (A) Subject
to Subsection (B), “Cause”
with respect to a particular Participant is any of the following:

 

(1)                                  the Participant’s gross misconduct which
is materially and demonstrably injurious to the Company;

 

(2)                                  the Participant’s willful and continued
failure to perform substantially his or her duties with the Company (other than
a failure resulting from the Participant’s incapacity due to bodily injury or
physical or mental illness) after a demand for substantial performance is
delivered to the Participant by the Board which specifically identifies the
manner in which the Board believes that the Participant has not substantially
performed his or her duties and provides for a reasonable period of time within
which the Participant may take corrective measures; or

 

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(3)                                  the Participant’s conviction (including a
plea of nolo contendere) of willfully engaging in illegal conduct constituting
a felony or gross misdemeanor under federal or state law which is materially
and demonstrably injurious to the Company or which impairs the Participant’s
ability to perform substantially his or her duties with the Company.

 

An act or failure to act will be considered “gross”
or “willful” for this purpose only if done, or omitted to be done, by the
Participant in bad faith and without reasonable belief that it was in, or not
opposed to, the best interests of the Company. 
Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the board of directors or governing body of any
Company (or any committee thereof) or based upon the advice of counsel for the
Company will be conclusively presumed to be done, or omitted to be done, by the
Participant in good faith and in the best interests of the Company.  A Participant’s attention to matters not
directly related to the business of the Company will not provide a basis for
termination for Cause so long as the Board did not expressly disapprove in
writing of his or her engagement in such activities either before or within a
reasonable period of time after the Board knew or could reasonably have known
that the Participant engaged in those activities.

 

(B)                                Notwithstanding Subsection (A), a
Participant will not be deemed to have been terminated for Cause unless and
until there has been delivered to such Participant a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board at a duly constituted meeting of the Board (as to which
reasonable notice to such Participant and an opportunity for such Participant,
together with his or her counsel, to be heard before the Board is given), finding
that in good faith opinion of the Board such Participant was guilty of the
conduct set forth in clause (1), (2) or (3) of Subsection (A) and
specifying the particulars thereof in detail.

 

2.6                                 Change in Control.  (A)
“Change
in Control” is any of the following:

 

(1)                                  the sale, lease, exchange or other
transfer, directly or indirectly, of all or substantially all of the assets of
the Company, in one transaction or in a series of related transactions, to any
Person;

 

(2)                                  the approval by the stockholders of the
Company of any plan or proposal for the liquidation or dissolution of the
Company;

 

(3)                                  any Person is or becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of (a) 20 percent or more, but not more than 50 percent, of
the combined voting power of the Company’s outstanding securities ordinarily
having the right to vote at an election of directors, unless the transaction
resulting in such ownership has been approved in advance by the “continuity
directors,” as defined at Subsection (B) or (b) more than 50
percent of the combined voting power of the Company’s outstanding securities
ordinarily having the right to vote at elections of directors (regardless of
any approval by the continuity directors);

 

(4)                                  a merger or consolidation to which the
Company is a party if the stockholders of the Company immediately prior to the
effective date of such merger or consolidation have

 

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“beneficial ownership”
(as defined in Rule 13d-3 under the Exchange Act) immediately following
the effective date of such merger or consolidation of securities of the
surviving company representing (a) 50 percent or more, but not more than
80 percent, of the combined voting power of the surviving corporation’ s then
outstanding securities ordinarily having the right to vote at elections of
directors, unless such merger or consolidation has been approved in advance by
the continuity directors, or (b) less than 50 percent of the combined voting
power of the surviving corporation’ s then outstanding securities ordinarily
having the right to vote at elections of directors (regardless of any approval
by the continuity directors);

 

(5)                                  the continuity directors cease for any
reason to constitute at least a majority the Board; or

 

(6)                                  a change in control of a nature that is
determined by outside legal counsel to the Company to be required to be
reported (assuming such event has not been “previously reported”) pursuant to section 13
or 15(d) of the Exchange Act, whether or not the Company is then subject
to such reporting requirement.

 

(B)                                For purposes of this section, the term “continuity
directors” refers to the individuals who are members of the Board on August 25,
1998, and any individual who subsequently becomes a member of the Board whose
election or nomination for election by the Company’s stockholders was approved
by a vote of at least a majority of the directors who are continuity directors
(either by a specific vote or by approval of the proxy statement of the Company
in which such individual is named as a nominee for director without objection
to such nomination).

 

2.7                                 Code.  The “Code” is the Internal Revenue Code of
1986, as amended.  Any reference to a
specific provision of the Code includes a reference to such provision as it may
be amended from time to time and to any successor provision.

 

2.8                                 Company.  The “Company” is Ault Incorporated, any
Affiliate and any Successor.

 

2.9                                 Date of Termination. 
The “Date of Termination”
with respect to a Participant means:

 

(a)                                  if the Participant’s employment is to be
terminated by the Participant for Good Reason, the date specified in the Notice
of Termination which in no event may be a date more than 60 days after the date
on which Notice of Termination is given unless the Company agrees in writing to
a later date;

 

(b)                                 if the Participant’s employment is to be
terminated by the Company for Cause, the date specified in the Notice of
Termination;

 

(c)                                  if the Participant’s employment is
terminated by reason of death, the date of death; or

 

(d)                                 if the Participant’s employment is to be
terminated by the Company for any reason other than Cause or death, the date
specified in the Notice of Termination, which in no event may be a date earlier
than 60 days after the date on which a Notice of

 

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Termination is given,
unless the Participant expressly agrees in writing to an earlier date.

 

In the case of termination by the Company of a
Participant’s employment for Cause, if the Participant has not previously
expressly agreed in writing to the termination, then within the 30-day period
after the Participant’s receipt of the Notice of Termination, the Participant
may notify the Company that a dispute exists concerning the termination, in
which event the Date of Termination will be the date set either by mutual
written agreement of the parties or by the arbitrators or a court in proceeding
as provided in Section 5.4.

 

2.10                           Eligible Participant. 
An “Eligible Participant” is
a Participant who has become eligible to receive benefits pursuant to Section 3.3.

 

2.11                           ERISA.  “ERISA” is the Employee Retirement Income
Security Act of 1974, as amended.  Any
reference to a specific provision of ERISA includes a reference to such provision
as it may be amended from time to time and to any successor provision.

 

2.12                           Exchange Act. 
The “Exchange Act” is the
Securities Exchange Act of 1934, as amended. 
Any reference to a specific provision of the Exchange Act or to any rule or
regulation thereunder includes a reference to such provision as it may be
amended from time to time and to any successor provision.

 

2.13                           Good Reason.  (A) Subject
to Subsection (B), “Good Reason”
with respect to a Participant is any of the following:

 

(1)                                  an adverse change in the Participant’s
status or position as an Executive Officer or Senior Management employee of the
Company as in effect immediately prior to the Change in Control, including,
without limitation, any adverse change in the Participant’s status or position
as a result of a material diminution in his or her duties or responsibilities
(other than, if applicable, any such change directly attributable to the fact
that the Company is no longer publicly owned) or the assignment to the
Participant of any duties or responsibilities which, in such Participant’s
reasonable judgment, are inconsistent with such status or position, or any
removal of the Participant from or any failure to reappoint or reelect the
participant to such position (except in connection with the termination of his
or her employment for Cause or as a result of his or her death or by a
Participant other than for Good Reason); however, Good Reason does not include
an adverse change in a Participant’s status or position caused by an insubstantial
and inadvertent action that is remedied by the Company promptly after receipt
of notice of such change is given by the Participant;

 

(2)                                  a reduction by the Company in the
Participant’s Annual Base Salary, or an adverse change in the form or timing of
the payment thereof, as in effect immediately prior to the Change in Control or
as thereafter increased;

 

(3)                                  the failure by the Company to continue in
effect any material Benefit Plan in which the Participant is participating at
any time during the 90-day period immediately preceding the Change in Control
other than as a result of the normal expiration of any such Benefit Plan in
accordance with its terms as in effect immediately prior to the

 

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90-day period
immediately preceding the Change in Control without either (i) providing
to Participant a Benefit Plan or Plans which provide to the Participant
benefits which are reasonably equivalent to the economic value of the
discontinued Benefit Plan to the Participant or (ii) increasing
Participant’s base compensation by an amount which is reasonably equivalent to
the economic value of the discontinued Benefit Plan); or the taking of any
action, or the failure to act, by the Company which would adversely affect a
Participant’s continued participation in any of such Benefit Plans on at least
as favorable a basis to such Participant as is the case immediately prior to
the Change in Control or which would materially reduce a Participant’ s
benefits in the future, under any of such Benefit Plans or deprive a
Participant of any material benefit enjoyed by such Participant immediately
prior to the Change in Control;

 

(4)                                  the Company’s requiring a Participant to
be based more than 25 miles from where his or her office is located immediately
prior to the Change in Control, except for required travel on the Company’s
business, and then only to the extent substantially consistent with the
businesses travel obligations which the Participant undertook on behalf of the
Company during the 90-day period immediately preceding the Change in Control
(without regard to travel related to or in anticipation of the Change in
Control);

 

(5)                                  the failure of the Company to obtain from
any Successor the assent to this Plan contemplated by Section 6.1; or,

 

(6)                                  any purported termination by the Company
of a Participant’s employment which is not properly effected pursuant to a
Notice of Termination and pursuant to any other requirements of this Plan, and
for purposes of this Plan, no such purported termination will be effective.

 

(B)                                A Participant’s continuation of his or
her employment does not constitute consent to, or waiver of any rights arising
in connection with, any circumstance constituting Good Reason.

 

2.14                           Governing Law. 
To the extent that state law is not preempted by provisions of ERISA or
any other laws of the United States, this Plan will be administered, construed,
and enforced according to the internal, substantive laws of the State of
Minnesota, without regard to its conflict of laws rules.

 

2.15                           Headings.  The
headings of articles and sections are included solely for convenience.  If there is a conflict between the headings
and the text of the Plan, the text will control.

 

2.16                           Notice of Termination. 
A “Notice of Termination”
is a written notice which indicates the specific termination provision in this
Plan pursuant to which the notice is given. 
Any purported termination by the Company or by a Participant following a
Change in Control (or prior to a Change in Control if a Participant’s
termination was either a condition of the Change in Control or was at the
request or insistence of any Person related to the Change in Control) must be
communicated by written Notice of Termination to be effective; provided, that
the Participant’s failure to provide Notice of Termination will not limit any
of his or her rights under the Plan except to the extent the Company can
demonstrate that it suffered material actual damages by reason of such failure.

 

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2.17                           Number and Gender. 
Wherever appropriate, the singular number may be read as the plural, the
plural number may be read as the singular and a reference to one gender may be
read as a reference to the other.

 

2.18                           Participant. 
A “Participant” is a
Qualified Employee who is participating in the Plan pursuant to Article 3.

 

2.19                           Plan.  The “Plan” is that set forth in this instrument
as it may be amended from time to time.

 

2.20                           Person.  A “Person” includes any individual,
corporation, partnership, group, association or other “person,” as such term is
used in section 14(d) of the Exchange Act, other than the Company,
any Affiliate of the Company or any Benefit Plan sponsored by the Company or an
Affiliate.

 

2.21                           Qualified Employee. 
A “Qualified Employee” is
an individual designated by the Board as an executive officer or senior
management employee eligible to participate in this Plan.  If an individual is a Qualified Employee
immediately prior to a Change in Control, he or she will continue to be a
Qualified Employee until his or her Date of Termination.

 

2.22                           Successor.  A “Successor” is any Person that succeeds to,
or has the practical ability to control (either immediately or with the passage
of time), the Company’s business directly, by merger, consolidation or other
form of business combination, or indirectly, by purchase of the Company’s
outstanding securities ordinarily having the right to vote at the election of
directors, all or substantially all of its assets or otherwise.

 

ARTICLE 3

Participation and Eligibility for Benefits

 

3.1                                 Commencement of Participation. 
Each Qualified Employee will commence participation in the Plan on the
first day on which he or she perform services for the Company as a Qualified
Employee.

 

3.2                                 Ceasing to be a Qualified Employee.  (A) A
Participant who ceases for any reason to be a Qualified Employee will, except
with respect to any current or future benefit to which he or she is then
entitled, thereupon immediately cease his or her participation in the Plan.

 

(B)                                Notwithstanding any other provision of
the Plan to the contrary, a Participant will cease to be a Qualified Employee
if, prior to a Change in Control: (1) an Affiliate is sold, merged,
transferred or in any other manner or for any other reason ceases to be an
Affiliate and no Change in Control occurs in connection therewith; (2) the
Participant’s primary employment duties are with the Affiliate at the time of
the occurrence of such event; and (3) such Participant does not, in
conjunction therewith, transfer employment directly to the Company.

 

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3.3                                 Eligibility for Benefits. 
A Participant will become eligible for the benefits provided in Article 4
if:

 

(a) (i) his or her employment
with the Company is terminated for any reason other than his or her death or
Cause or (ii) the Participant terminates employment with the Company for
Good Reason, and

 

(b) such termination occurs either (i) within
the period beginning on the date of a Change in Control and ending on the last
day of the eighteen (18) month that begins after the month in which the Change
in Control occurs or (ii) prior to a Change in Control if such termination
was either a condition of the Change in Control or was at the request or
insistence of a Person related to the Change in Control.

 

ARTICLE 4

Benefits

 

4.1                                 Compensation and Benefits Before Date of
Termination.  During the period beginning on the date an
Eligible Participant or the Company, as the case may be, receives Notice of
Termination and ending on the date of Termination, the Company will continue to
pay the Eligible Participant his or her Annual Base Salary and cause his or her
continued participation in all Benefit Plans in accordance with the terms of
such Benefit Plans.

 

4.2                                 Cash Payment.  (A) The
Company will make a lump-sum cash payment to an Eligible Participant in an
amount equal to one (1) times the sum of (1) the Participant’s Annual
Base Salary plus (2) the maximum incentive bonus that could be payable to
the Participant for the annual performance period that includes the date on
which Notice of Termination is given or, if greater, the Eligible Participant’s
actual incentive bonus for the immediately preceding annual performance period;
provided that if the Eligible Participant has been designated as an
Executive Officer of the Company by the Board, the lump-sum cash payment
payable to such Eligible Participant shall be equal to two (2) times the
sum of clause (1) and clause (2) of this Subsection (A).

 

(B)                                The payment provided for in Subsection (A) will
be made no later than the thirtieth day following the Eligible Participant’s
Date of Termination; provided, however, that if the amount of such payment
cannot be finally determined on or before such day, the Company will pay to the
Eligible Participant on such day an estimate, as determined in good faith by
the Company, of the amount of such payment and will pay the remainder (together
with interest from the date of such estimated payment at the rate provided in
Code section 1274(b)(2)(B)) as soon as the amount thereof can be
determined but in no event later than 60 days after the Date of
Termination.  If the amount of the
estimated payment exceeds the amount subsequently determined to have been due,
such excess will constitute a loan by the Company to the Eligible Participant
payable no later than 30 days after demand by the Company (together with
interest from the date of such estimated payment at the rate provided in Code section 1274(b)(2)(B)).

 

4.3                                 Continuation of Welfare Benefits.  (A) With
respect to welfare Benefit Plans (including, without limitation, medical,
vision, dental, life, disability and accidental death and dismemberment plans)
which by their terms cover each Eligible Participant (and his or her family
members and dependents who were eligible to be covered at any time during the 90-day
period immediately prior

 

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to a Change in Control under the corresponding
plan) Company will either (i) maintain such Benefit Plans during under the
period described in Subsection (B) under terms and at a cost to the
Eligible Participant and his or her family members and dependents that is at
least as favorable as the most favorable terms and cost in effect at any time
during the 90-day period immediately preceding the Change in Control (in which
case the continuation period under federal and state continuation laws, to the
extent applicable, will begin to run from the date on which coverage pursuant
to this Section 4.3 ends) or (ii) make an additional cash payment
equal to 15% of the cash payment specified in Section 4.2(A).

 

(B)                                For purposes of Subsection (A)(i),
the continuation period with respect to any particular type of benefit is the
period beginning on an Eligible Participant’s Date of Termination and ending on
the earlier of (1) the last day of the twelfth month following the month
in which the Date of Termination occurs or (2) the date on which the
Eligible Participant becomes covered under a plan of another employer providing
such benefit to the Eligible Participant and his or her eligible family members
and dependents without any pre-existing condition limitation or exclusion.

 

(C)                                To the extent an Eligible Participant
incurs a tax liability (including federal, state and local taxes and any
interest and penalties with respect thereto) in connection with a benefit
provided pursuant to Subsection (A) which he or she would not have
incurred had he or she been an active employee of the Company participating in
a generally applicable Benefit Plan, the Company will make a payment to the
Eligible Participant in an amount equal to such tax liability plus an
additional amount sufficient to permit the Eligible Participant to retain a net
amount after all taxes (including penalties and interest) equal to the initial
tax liability in connection with the benefit. 
For purposes of applying the foregoing, an Eligible Participant’s tax
rate will be deemed to be the highest statutory marginal state and federal tax
rate (on a combined basis) then in effect. 
The payment pursuant to this subsection will be made within 30 days
after the Eligible Participant’s remittal of a written request therefore
accompanied by a statement indicating the basis for and amount of the
liability.

 

4.4                                 Out Placement Counseling Services. 
The Company will pay up to 30 percent of an Eligible Employee’s Annual
Base Salary for individual out placement counseling to the Eligible
Participant.  Such payments will be made
either directly to the counselor or to the Eligible Participant upon
presentation of an invoice for services rendered or to be rendered.

 

4.5                                 Gross-Up Payments. 
The Company will cause its independent auditors promptly to review, at
the Company’s sole expense, the applicability of Code section 4999 to
payments pursuant to the Plan.  If such
auditors determine that any payment or distribution of any type by the Company
to or for the benefit of an Eligible Participant, whether paid or payable or
distributed or distributable pursuant to the terms of the Plan, any Benefit Plan
or otherwise (the “Total Payments”), would be subject to the excise tax imposed
by Code section 4999 or any comparable state or local law, or any interest
or penalties with respect to such excise tax (such excise tax, together with
any such interest and penalties, are collectively referred to as the “Excise
Tax”), the Company will make an additional cash payment (a “Gross-Up Payment”)
to the Eligible Participant within 30 days after such determination equal to an
amount such that after payment by the Eligible Participant of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, the Eligible
Participant would retain an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Total Payments.  For
purposes of the foregoing determination, an Eligible Participant’s tax rate
will be deemed to be the highest statutory marginal state and federal tax rate
(on a combined basis) then in effect.  If
no determination by the

 

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Company’s auditors is made prior to the time a
tax return reflecting the Total Payments is required to be filed by the
Eligible Participant, he or she will be entitled to receive from the Company a
Gross-Up Payment calculated on the basis of the Total Payments he or she
reported in such tax return, within 30 days of the filing of such tax
return.  In all events, if any tax
authority determines that a greater Excise Tax should be imposed upon the Total
Payments than is determined by the Company’s independent auditors or reflected
in the Eligible Participants’ tax return pursuant to this Section 4.6, the
Eligible Participant is entitled to receive from the Company the full Gross-Up
Payment calculated on the basis of the amount of Excise Tax determined to be
payable by such tax authority within 30 days after such determination.

 

4.6                                 Indemnification. 
The Company will indemnify and advance expenses to an Eligible
Participant to the full extent permitted by law for damages, costs and expenses
(including, without limitation, judgments, fines, penalties, settlements and
reasonable fees and expenses of the Participant’s counsel) incurred in
connection with all matters, events and transactions relating to such Eligible
Participant’s service to or status with the Company or any other corporation,
employee benefit plan or other entity with whom the Eligible Participant served
at the request of the Company.

 

ARTICLE 5

Administration and Enforcement of Rights

 

5.1                                 Plan Administration. 
The Board has the power and authority to construed, interpret and
administer the Plan.  Prior to a Change
in Control, the Board may delegate such power and authority to any committee or
individual but such delegation will automatically cease to be effective at the
time of the Change in Control and thereafter the Board’s duties are not
delegable.  Prior to (but not after) a
Change in Control, the power and authority of the Board and any individual or
committee to whom such power and authority is in whole or in part delegated is
discretionary as to all matters.

 

5.2                                 Duration and Amendment.  (A) This
Plan is effective as of August 25, 1998 and will remain in effect until December 31,
1999.  Beginning on January 1, 1999
and on each subsequent January 1, the term of this Plan will automatically
be extended for an additional calendar year (for example, on January 1,
1999 the expiration date would automatically become December 31,
2000)  unless the Board gives written
notice to all Participants not less than 90 days prior to any such date of
automatic extension that the term of the Plan will not be so extended.  In any event, the term of the Plan cannot and
will not expire within the period beginning on the date of a Change in Control
and ending on the last day of the eighteenth month that begins after the month
in which the Change in Control occurs.

 

(B)                                The Board may amend the Plan from time to
time in such respects as the Board may deem advisable; provided, first, that no
amendment that reduces, either directly or indirectly a benefit or right to a
benefit provided or that may be provided under the Plan to any Qualified
Employee will be effective with respect to that Qualified Employee if a Change
in Control occurs within the 24-month period immediately following the later of
the date on which the amendment is adopted or the date on which the amendment
is effective; and, second, that on and after the date of a Change in Control,
the Plan may be amended only if each Participant and Eligible Participant is
provided with written notice of the amendment (which must include a complete
and accurate description of the amendment and its intended and potential
affects on Participants and Eligible Participants and a copy of the proposed
amendment) at least 90 days before the adoption of the amendment and the

 

10

 

amendment is approved by the affirmative vote of
not less than 80 percent of all Participants and Eligible Participants.

 

5.3                                 Benefit Claims. 
A person whose employment relationship with the Company has terminated
and who has not been awarded benefits under the Plan or who objects to the
amount of the benefits so awarded may, within 60 days after his or her
employment has terminated, file a written request for benefits with the
Board.  The Board will review such
request and will notify the claimant of its decision within 10 days after such
request is filed.  If the Board denies
the claim for benefits, the notice of the denial will contain

 

(a)                                  the specific reason for the denial;

 

(b)                                 a specific reference to the provision of
the Plan on which denial is based;

 

(c)                                  a description of any additional
information or material necessary for the person to perfect his or her claim
(and an explanation of why such information is material or necessary), and

 

(d)                                 an explanation of the Plan’s claim review
procedure.

 

If the Board determines that a claimant is not
eligible for benefits, or if the claimant believes that he or she is entitled
to greater or different benefits, the claimant may file a petition for review
with the Board within 60 days after the claimant receives the notice issued by
the Board.  Within 10 days after the
Board receives the petition, the Boar will give the claimant (and his or her
counsel, if any) an opportunity to present his or her position to the Board
orally or in writing, and the claimant (or his or her counsel) will have the
right to review the pertinent documents. 
Within 10 days after the hearing (or the date of receipt of the petition
if the claimant presents his or her position in writing) the Board will notify
the claimant of its decision in writing, stating the decision and the specific
provisions of the Plan on which the decision is based.

 

5.4                                 Disputes.  (A) If
a Participant so elects, any dispute or controversy arising under or in
connection with this Plan will be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect.  Judgment may be entered on the
arbitrator’s award in any court having jurisdiction; provided, that a
Participant may seek specific performance of his or her right to receive
compensation or benefits until the Date of Termination during the pendency of
any dispute or controversy arising under or in connection with the Plan.  If any dispute, controversy or claim for
damages arising under or in connection with this Plan is settled by
arbitration, all expenses incurred and related to such arbitration will be paid
by the Company.

 

(B)                                If a Participant does not elect
arbitration, he or she may pursue all available legal remedies.  The Company will pay or reimburse each
Participant for all reasonable legal fees, court costs, experts’ fees and
related costs and expenses incurred by such Participant in connection with any
actual, threatened or contemplated litigation relating to this Plan to which
the Participant is or reasonably expects to become a party, whether or not
initiated by the Participant, if the Participant is successful in recovering
any benefit under this Plan as a result of such action.  Such costs include (1) all such fees and
expenses, if any, incurred in contesting or disputing any termination or
employment or (2) any effort by the Participant to obtain or enforce any
right or benefit provided by this Plan.

 

11

 

(C)                                The Company will not assert in any
dispute or controversy with any Participant arising under or in connection with
this Plan the Participant’s failure to exhaust administrative remedies.

 

5.5                                 Funding and Payment. 
Benefits payable to an Eligible Participant under this Plan will be paid
only from the general assets of the Company. 
No person has any right to or interest in any specific assets of the
Company by reason of this Plan.  To the
extent benefits under this Plan are not paid when due to an Eligible
Participant, he or she is a general unsecured creditor of the Company with
respect to any amounts due under the Plan.

 

ARTICLE 6

Miscellaneous

 

6.1                                 Successors.  The
Company will require any Successor to expressly assume and agree to perform the
obligations of this Plan in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken
place.  Failure of the Company to obtain
such assumption and agreement at least three business days prior to the time a
Person becomes a Successor(or where the Company does not have at least three
business days’ advance notice that a Person may become a Successor, within one
business day after having notice that such Person may become or has become a
Successor) will constitute Good Reason for termination of a Participant’s
employment.  The date on which any such
succession becomes effective will be deemed the Date of Termination and Notice
of Termination will be deemed to have been given on such date.

 

6.2                                 Binding Plan. 
This Plan is for the benefit of, and is enforceable by, each
Participant, each Participant’s personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees, but
each Participant may not otherwise assign any or his or her rights or delegate
any of his or her obligations under this Plan. 
If a Participant dies after becoming entitled to, but before receiving,
any amounts payable under this Plan, all such amounts, unless otherwise
provided in this Plan, will be paid in accordance with the terms of this Plan
to such Participant’s devisee, legatee or other designee or, if there be no
such designee, to such Participant’s estate.

 

6.3                                 Validity.  The
invalidity or unenforceability of any provision of the Plan does not affect the
validity or enforceability of any other provision of the Plan, which will
remain in full force and effect.

 

6.4                                 No Mitigation. 
No Eligible Participant will be required to mitigate the amount of any
benefits the Company becomes obligated to provide in connection with this Plan
by seeking other employment or otherwise and the benefits to be provided in
connection with this Plan may not be reduced, offset or subject to recovery by
the Company by any benefits an Eligible Participant may receive from other
sources.

 

6.5                                 No Set-Off.  The
Company has no right to set-off benefits owed under this Plan against amounts
owed or claimed to be owed by an Eligible Participant to the Company under this
Plan or otherwise.

 

12

 

6.6                                 Taxes.  All
payments to be made to each Eligible Participant in connection with this Plan
will be subject to required withholding of federal, state and local income,
excise and employment-related taxes.

 

6.7                                 Notices.  For the
purposes of this Plan, notices and all other communications provided for in, or
required under, this Plan must be in writing and will be deemed to have been
duly given when personally delivered or when mailed by United States registered
or certified mail, return receipt requested, postage prepaid and addressed to
each Participant’s or the Company’s (as the case may be) respective address
(provided that all notices to the Company must be directed to the attention of
the chair of the Board).  For purposes of
any such notice requirement, the Company will use the Participant’s most
current address on file in the Company’s personnel records.  Any notice of a Participant’s change of
address will be effective only upon receipt by the Company.

 

6.8                                 Effect of Plan Benefits on Other
Severance Plans.  A Participant who receives any payment under
the terms of this Plan will not be eligible to receive benefits under any other
severance pay plan sponsored or maintained by the Company.

 

6.9                                 Related Plans. 
To the extent that any provision of any other Benefit Plan or agreement
between the Company and a Participant limits, qualifies or is inconsistent with
any provision of this Plan, then for purposes of this Plan, while such other
Benefit Plan or agreement remains in force, the provision of this Plan will
control and such provision of such other Benefit Plan or agreement will be
deemed to have been superseded, and to be of no force or effect, as if such
other agreement had been formally amended to the extent necessary to accomplish
such purpose.  Nothing in this Plan
prevents or limits a Participant’s continuing or future participation in any
Benefit Plan provided by the Company, and nothing in this Plan limits or
otherwise affects the rights Participants may have under any Benefit Plans or
other agreements with the Company. 
Amounts which are vested benefits or which Participants are otherwise
entitled to receive under any Benefit Plan or another agreement with the
Company at or subsequent to the Date of Termination will be payable in
accordance with such Benefit Plan or other agreement.

 

6.10                           No Employment or Service Contract. 
Nothing in this Plan is intended to provide any Participant with any
right to continue in the employ of the Company for any period of specific
duration or interfere with or otherwise restrict in any way Participants’  rights or the rights of the Company, which
rights are hereby expressly reserved, to terminate a Participant’s employment
at any time for any reason or no reason whatsoever, with or without cause.

 

6.11                           Survival.  The
respective obligations of, and benefits afforded to, the Company and the
Participants which by their express terms or clear intent survive termination
of a Participant’s employment with the Company or termination of this Plan, as
the case may be, will remain in full force and effect according to their terms
notwithstanding the termination of a Participant’s employment with the Company
or termination of this Plan, as the case may be.

 

6.12                           Effect on Other Plans. 
Unless otherwise expressly provided therein, benefits paid or payable
under the Plan will not be deemed to be salary or compensation for purposes of
determining the benefits to which a Participant may be entitled under any other
Benefit Plan sponsored, maintained or contributed to by the Company.

 

13

 

6.13                           Prohibition of Alienation. 
No Participant will have the right to alienate, assign, encumber,
hypothecate or pledge his or her interest in any benefit provided under the
Plan, voluntarily or involuntarily, and any attempt to so dispose of any
interest will be void.

 

 

Adopted by the Ault Board of Directors on August 25,
1998.

 

14Exhibit 4.1

 

WARRANT EXERCISE AGREEMENT

 

THIS AGREEMENT, dated October          ,
2005 (this “Agreement”) is entered into by and between the Company and
the holder (the “Warrant Holder”) of that certain Warrant (the “Initial
Warrant”) issued by the Company to the Warrant Holder on [   ],
2005 by Vistula Communications Services, Inc., a Delaware corporation (the
“Company”) for the purchase of up to               shares
(the “Initial Warrant Shares”) of the Common Stock, $0.001 par value per
share, of the Company (the “Common Stock”).

 

WHEREAS, the Company is
entering into a series of agreements of even date herewith in a form
substantially identical to this Agreement with other holders of warrants to
purchase shares of the Company’s Common Stock (collectively, with the Warrant
Holder, the “Exercising Holders”);

 

WHEREAS, the Company desires
to induce the Warrant Holder to exercise the Initial Warrant with respect to
all of the shares of Common Stock purchasable thereunder;

 

WHEREAS, in consideration
for such exercise, the Warrant Holder desires to receive a new warrant (the “Replacement
Warrant”) to purchase at an exercise price of $1.50 per share a number of
shares of Common Stock (the “Replacement Warrant Shares”) in equal
amount to the number of Initial Warrant Shares purchased upon exercise of
Initial Warrants in connection herewith, such Replacement Warrant to be
substantially in the form attached hereto as Exhibit A; and

 

WHEREAS, as further
consideration for such exercise the Company is granting to the Warrant Holder
certain registration rights with respect to the Replacement Warrant Shares
pursuant to a Registration Rights Agreement by and among the Company and the
Exercising Holders substantially in the form attached hereto as Exhibit B.

 

NOW, THEREFORE, in
consideration of the mutual covenants contained in this Agreement and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, intending to be legally bound hereby, the parties hereto agree as
follows:

 

1.             Inducement to Exercise.  The
Company hereby agrees to issue to the Warrant Holder a Replacement Warrant
exercisable for that number Replacement Warrant Shares equal to the aggregate
number of Initial Warrant Shares purchased by the Warrant Holder upon exercise
of the Initial Warrant during the period beginning on the date hereof and
continuing until 5:30 p.m. EST on October 31, 2005 (the “Exercise
Period”), if any.  The Company shall deliver the Replacement
Warrant to the Warrant Holder at the address provided on the signature page hereto
not more than 10 business days after the expiration of the Exercise Period.

 

2.             Representations of the Company.  The
Company represents and warrants to the Warrant Holder as follows:

 

(a)           Organization.  The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware,
with the requisite power and authority to own and use its properties and assets
and to carry on its business as currently conducted.

 

 

(b)           Authority.  The Company has the corporate power and
authority to enter into and perform this Agreement, and all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions contemplated
hereby by the Company has been duly and validly taken.  This Agreement has been duly and validly
executed and delivered by the Company. 
This Agreement constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors and to general principles of equity.

 

(c)           Issuance
of Securities.  The Replacement
Warrants are duly authorized and, when issued in accordance with this
Agreement, will be duly and validly issued. 
The Company has reserved from its duly authorized capital stock a
sufficient number of shares of Common Stock to cover the issuance of the
Replacement Warrant Shares.

 

3.             Representations
of the Warrant Holder.  The Warrant Holder represents and warrants to
the Company as follows:

 

(a)           Organization.  If the Warrant Holder is not a natural
person, the Warrant Holder is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted.

 

(b)           Authority.  The Warrant Holder has the requisite power
and authority to enter into and perform this Agreement, and all action
necessary to authorize the execution, delivery and performance of this
Agreement by the Warrant Holder and the consummation of the transactions
contemplated hereby by the Warrant Holder has been duly and validly taken.  This Agreement has been duly and validly
executed and delivered by the Warrant Holder. 
This Agreement constitutes a valid and binding agreement of the Warrant
Holder, enforceable against the Warrant Holder in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the rights of creditors and to general principles of equity.

 

(c)           Own
Account.  The Warrant Holder
understands that the Replacement Warrant and the Replacement Warrant Shares
(together, the “Securities”) are “restricted securities” and have not
been registered under the Securities Act or any applicable state securities law
and is acquiring the Securities as principal for its own account and not with a
view to distributing or reselling such Securities or any part thereof, has no
present intention of distributing any of such Securities and has no arrangement or understanding with any
other persons regarding the distribution of such Securities (this representation
and warranty not limiting the Warrant Holder’s right to sell the Securities
pursuant to a registration statement or otherwise in compliance with applicable
federal and state securities laws).  The
Warrant Holder is acquiring the Securities hereunder in the ordinary course of
its business. The Warrant Holder does not have any agreement or understanding,
directly or indirectly, with any person or entity to distribute any of the
Securities.

 

(d)           Warrant
Holder Status.  At the time the Warrant Holder was offered
the Securities, it was, and at the date hereof it is, and on each date on which
it exercises the

 

2

 

Replacement Warrant it will be either: (i) an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (ii) a “qualified institutional
buyer” as defined in Rule 144A(a) under the Securities Act.  The Warrant Holder is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.

 

(e)           Experience
of the Warrant Holder.  The Warrant
Holder, either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits
and risks of the prospective investment in the Securities, and has so evaluated
the merits and risks of such investment. 
The Warrant Holder is able to bear the economic risk of an investment in
the Securities and, at the present time, is able to afford a complete loss of
such investment.

 

(f)            General
Solicitation.  The Warrant Holder is
not purchasing the Securities as a result of any advertisement, article, notice
or other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.

 

(g)           Waiver
of Compliance.  To the extent
necessary, the Warrant Holder waives compliance by the Company with Sections
4.13 through 4.15 (inclusive) of that certain Purchase Agreement pursuant to
which the Initial Warrants were issued with respect to the transactions
contemplated by this Agreement.

 

4.             Miscellaneous.

 

(a)           Assignment.  This Agreement and the rights
and obligations evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the successors of the Warrant Holder.

 

(b)           Headings.  The headings used in this
Agreement are for the convenience of reference only and shall not, for any purpose,
be deemed a part of this Agreement.

 

(c)           Governing Law.  All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.

 

(d)           Notices.  Any and all notices or
other communications or deliveries required or permitted to be provided
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature pages attached
hereto prior to 5:30 p.m., EST, on a business day, (b) the next
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number set forth on the signature pages attached
hereto on a day that is not a business day or later than 5:30 p.m., EST,
on any business day, (c) the second business day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given.  The address for such notices and
communications shall be as follows:

 

3

 

If to the
Company:

 

George R. Vaughn, Chief
Financial Officer

Vistula Communications Services, Inc.

639 Granite Street

Braintree, MA  02184

Fax:  (781) 356-0957

 

with a copy to:

 

Foley Hoag LLP

Seaport World Trade Center West

155 Seaport Boulevard

Boston, MA  02210

Attn:  Paul Bork, Esq.

Fax:  (617) 832-7000

 

If to the Warrant Holder, at
the address specified on the signature page hereto.

 

(e)           Amendment.  This Agreement may be modified
or amended or the provisions hereof waived with the written consent of the
Company and the Warrant Holder.

 

(f)            Severability. 
Wherever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the remaining
provisions of this Agreement.

 

*
* * * * * * * * * * * * * *

 

4

 

IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the date first above written.

 

 

	
   

  	
  VISTULA
  COMMUNICATIONS SERVICES,

  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
  WARRANT
  HOLDER:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
  Address:

  	
   

  
						

 

5

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