Document:

Exhibit 4.5

 

RESTRICTED STOCK GRANT AGREEMENT

 

UNDER THE

 

ESCHELON TELECOM, INC. 2002 STOCK
INCENTIVE PLAN

 

This Restricted Stock Grant Agreement (the “Agreement”) evidences the award of restricted
shares of the Common Stock of the Company (each, an “Award Share,” and collectively, the “Award Shares”)
granted to
                                   
(the “Employee”)
by Eschelon Telecom, Inc., a Delaware corporation (the “Company”), effective as of
                          ,
              
(the “Grant Date”),
pursuant to the Eschelon Telecom, Inc. 2002 Stock Incentive Plan (the “Plan”), is and
conditioned upon the Employee’s agreement to the terms described below.  All of the provisions of the Plan are
expressly incorporated into this Agreement.

 

1.                                       Grant
of Award Shares.  The Employee is
granted, and the Company has transferred to the Employee,
                                
(                      )
Award Shares under this Agreement.

 

2.                                       Terminology.  All capitalized words that are not defined
in this Agreement have the meanings ascribed to them in the Plan.  For purposes of this Agreement, the terms
below have the following meanings:

 

(a)                                  “Company” includes
Eschelon Telecom, Inc. and its Affiliates, except where the context otherwise
requires.

 

(b)                                 “Restricted Shares”
means Award Shares that are not vested as provided in Section 3 on the
relevant date.

 

(c)                                  “Stockholders’ Agreement”
means the Fourth Amended and Restated Stockholders Agreement, dated as of
June 27, 2002, as may be amended or replaced from time to time.

 

3.                                       Vesting.

 

(a)                                  The
Award Shares vest and become nonforfeitable in accordance with the vesting
schedule below, so long as the Employee is in the continuous employ of, or
in a service relationship with, the Company from the Grant Date through the
applicable date upon which vesting is scheduled to occur:

 

(i)                                     20%
of the Award Shares vest and become nonforfeitable on the Grant Date, and

 

(ii)                                  20%
of the Award Shares vest and become nonforfeitable in equal installments on
each subsequent anniversary of the Grant Date through the fourth anniversary of
the Grant Date.

 

The extent to
which the Award Shares are vested and nonforfeitable as of a particular vesting
date, determined based on the total number of Award Shares specified in
Section 1 of this Agreement, is rounded down to the nearest whole
share.  However, vesting is rounded up
to the nearest whole share on the second anniversary of the Grant Date. The
Employee will not vest in any Award Shares after the Employee ceases to be in
either an employment or other service relationship with the Company.

 

4.                                       Termination
of Employment or Service.  If the
Employee ceases to be employed by, or in a service relationship with, the
Company for any reason, all Restricted Shares, after giving effect to the
provisions of Section 3 of this Agreement, will be immediately forfeited
to the Company upon such cessation for no consideration.

 

 

5.                                       Restrictions
on Transfer.

 

(a)                                  Restricted
Shares may not be assigned, transferred, pledged, hypothecated or disposed of
in any way (whether by operation of law or otherwise) and shall not be subject
to execution, attachment or similar process.

 

(b)                                 The Employee
represents and warrants to the Company as follows:

 

(i)                                     The Employee will
hold the Award Shares for investment for his account only and not with a view
to, or for resale in connection with, any “distribution” thereof within the
meaning of the Securities Act of 1933, as amended (the “Securities
Act”).

 

(ii)                                  The Employee
understands that the Award Shares have not been registered under the Securities
Act by reason of a specific exemption therefrom and that the Award Shares must
be held indefinitely, unless they are subsequently registered under the
Securities Act or the Employee obtains an opinion of counsel, in form and substance
satisfactory to the Company and its counsel, that such registration is not
required.  The Employee further
acknowledges and understands that the Company is under no obligation to
register the Award Shares.

 

(iii)                               The Employee is
aware of the adoption of Rule 144 by the Securities and Exchange
Commission under the Securities Act, which permits limited public resales of
securities acquired in a non-public offering, subject to the satisfaction of
certain conditions, including without limitation the availability of certain
current public information about the issuer, the resale occurring only after
the holding period required by Rule 144 has been satisfied, the sale
occurring through an unsolicited “broker’s transaction,” and the amount of
securities being sold during any three month period not exceeding specified
limitations.  The Employee acknowledges
and understands that the conditions for resale set forth in Rule 144 have
not been satisfied and that the Company has no plans to satisfy these
conditions in the foreseeable future.

 

(iv)                              The Employee will
not sell, transfer or otherwise dispose of the Award Shares in violation of the
Securities Act, the Securities Exchange Act of 1934, or the rules promulgated
thereunder, including Rule 144 under the Securities Act.  The Employee agrees that he will not dispose
of the Award Shares unless and until he has complied with all requirements of
this Agreement applicable to the disposition of Award Shares and he has
provided the Company with written assurances, in substance and form
satisfactory to the Company, that (A) the proposed disposition does not require
registration of the Award Shares under the Securities Act or all appropriate
action necessary for compliance with the registration requirements of the
Securities Act or with any exemption from registration available under the
Securities Act (including Rule 144) has been taken and (B) the
proposed disposition will not result in the contravention of any transfer
restrictions applicable to the Award Shares under state securities law.

 

(v)                                 The Employee has
been furnished with, and has had access to, such information as he considers
necessary or appropriate for deciding whether to invest, including by way of
performing services for the Company, in the Award Shares, and the Employee has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the issuance of the Award Shares.

 

(vi)                              The Employee is
aware that his investment in the Company is a speculative investment which has
limited liquidity and is subject to the risk of complete loss.  The Employee is able, without impairing his
financial condition, to hold the Award Shares for an indefinite period and to
suffer a complete loss of his investment in the Award Shares.

 

(c)                                  Regardless
of whether the offer or sale of the Award Shares have been registered or
qualified under the Federal or state securities laws, the Company at its
discretion may impose restrictions upon the sale, pledge or other transfer of
the Award Shares (including the placement

 

2

 

of appropriate legends on stock certificates or the imposition of
stop-transfer instructions) if, in the judgment of the Company, such
restrictions are necessary or desirable in order to achieve compliance with the
Securities Act, the securities laws of any state or any other law.

 

(d)                                 The
Company shall not be required to (i) transfer on its books any Award
Shares that have been sold or transferred in contravention of this Agreement or
(ii) treat as the owner of Award Shares, or otherwise to accord voting,
dividend or liquidation rights to, any transferee to whom Award Shares have
been transferred in contravention of this Agreement.

 

6.                                       Agreement
by Employee to Execute Other Agreements. 
The Employee hereby agrees to execute, as a condition precedent to the
issuance of the Award Shares and at any time thereafter as may reasonably be
requested by the Administrator, a Stock Restriction Agreement, substantially in
the form, and containing the terms and provisions, of the Stock Restriction
Agreement attached hereto, the Stockholders’ Agreement, also attached hereto,
with respect to any Award Shares acquired by the Employee pursuant to this
Agreement, and a “Non-Competition Agreement” in the form as the Company may
require.

 

7.                                       Stock
Certificates.

 

(a)                                  The
stock certificates evidencing the Award Shares shall be registered on the
Company’s books in the name of the Employee as of the Grant Date.  Physical possession or custody of such stock
certificates shall be retained by the Company until such time as the shares are
vested and, thereafter, the Company shall either issue and deliver to the
Employee one or more certificates in the name of the Employee for that number
of shares purchased by the Employee, hold such share certificates in escrow
until the underlying shares may be transferred freely without restriction, or
provide for uncertificated, book entry issuance of those shares.  The Employee shall deliver to the Company a
stock power in the form as attached hereto, endorsed in blank, with respect to
any Restricted Shares.  All regular cash
dividends on Restricted Shares (or other securities at the time held in escrow)
shall be paid directly to the Employee and shall not be held by the Company.

 

(b)                                 The
stock certificate evidencing the Award Shares shall bear a legend restricting
transferability of such shares and referencing any applicable Stock Restriction
Agreement, unless such Award Shares are registered or an exemption from registration
is available under applicable federal and state law.  If required by the authorities of any state in connection with
the issuance of the Award Shares, the legend or legends required by such state
authorities shall also be endorsed on all such certificates.

 

8.                                       Market
Stand-Off Agreement.  The Employee
agrees that following the effective date of a registration statement of the
Company filed under the Securities Act, the Employee, for the duration
specified by and to the extent requested by the Company and an underwriter of
Common Stock or other securities of the Company, shall not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, any
equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, enter into a transaction which
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership of such securities, whether any such aforementioned transaction is to
be settled by delivery of such securities or other securities, in cash or
otherwise, or publicly disclose the intention to make any such offer, sale,
pledge or disposition, or to enter into any such transaction, swap, hedge or
other arrangement, in each case during the seven days prior to and the 180 days
after the effectiveness of any underwritten offering of the Company’s equity
securities (or such longer or shorter period as may be requested in writing by
the managing underwriter and agreed to in writing by the Company) (the “Market Stand-Off Period”),
except as part of such underwritten registration if otherwise permitted.  In addition, the Employee agrees to execute
any further letters, agreements and/or other documents requested by the Company
or its underwriters which are consistent with the terms of this
Section 8.  The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Stand-Off Period.

 

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9.                                       Tax
Election and Tax Withholding.

 

(a)                                  The
Employee hereby acknowledges that he has been advised by the Company to seek
independent tax advice regarding the availability and advisability of making an
election under Section 83(b) of the Internal Revenue Code of 1986, as
amended, and that any such election, if made, must be made within 30 days of
the Grant Date.  The Employee is not
relying on the Company or any of its officers, directors or employees for tax
advice regarding this award.  The
Employee expressly acknowledges that he is solely responsible for filing any
such Section 83(b) election with the appropriate governmental authorities,
irrespective of the fact that such election is also delivered to the Company.

 

(b)                                 The
Company or any Affiliate shall have the right to deduct from any compensation
or any other payment of any kind (including withholding the issuance of shares
of Common Stock) due the Employee the amount of any federal, state, local or
foreign taxes required by law to be withheld as a result of the grant or
vesting of the Award Shares in whole or in part; provided, however, that the
value of the shares of Common Stock withheld may not exceed the statutory
minimum withholding amount required by law. 
In lieu of such deduction, the Company may require the Employee to make
a cash payment to the Company or an Affiliate equal to the amount required to
be withheld.  If the Employee does not
make such payment when requested, the Company may refuse to issue any Common
Stock certificate under this Agreement until arrangements satisfactory to the
Administrator for such payment have been made.

 

10.                                 Adjustments
for Corporate Transactions and Other Events.

 

(a)                                  Stock Dividend, Stock Split and Reverse
Stock Split.  Upon a stock dividend of, or
stock split or reverse stock split affecting, the Common Stock, the number of
Award Shares and the number of such Award Shares that constitute Restricted
Shares shall, without further action of the Board, be adjusted to reflect such
event.  The Administrator may make
adjustments, in its discretion, to address the treatment of fractional shares
with respect to the Award Shares as a result of the stock dividend, stock split
or reverse stock split.

 

(b)                                 Binding Nature of Adjustments. 
Adjustments under this Section 10 will be made by the
Administrator, whose determination as to what adjustments, if any, will be made
and the extent thereof will be final, binding and conclusive.  No fractional Award Shares will result from
any such adjustments.

 

(c)                                  Binding Nature of Agreement. 
The terms and conditions of this Agreement shall apply with equal force
to any additional and/or substitute securities received by the Employee in
exchange for, or by virtue of the Employee’s ownership of, the Award Shares,
whether as a result of any spin-off, stock split-up, stock dividend, stock
distribution or other reclassification of the Common Stock of the Company,
except as otherwise determined by the Administrator.  If the Award Shares are converted into or exchanged for, or
stockholders of the Company receive by reason of any distribution in total or
partial liquidation or pursuant to any merger of the Company or acquisition of
its assets, securities of another entity, or other property (including cash),
then the rights of the Company under this Agreement shall inure to the benefit
of the Company’s successor, and this Agreement shall apply to the securities or
other property received upon such conversion, exchange or distribution in the
same manner and to the same extent as the Award Shares.

 

11.                                 Confidential
Information.  In consideration of
the Award Shares granted to the Employee pursuant to this Agreement, the
Employee agrees and covenants that, except as specifically authorized by the
Company, the Employee will keep confidential any trade secrets or confidential
or proprietary information of the Company which are now or which hereafter may
become known to the Employee as a result of the Employee’s employment by or
other service relationship with the Company, and shall not at any time,
directly or indirectly, disclose any such information to any person, firm,
Company or other entity, or use the same in any way other than in connection
with the business of the Company, at all times

 

4

 

during and after
the Employee’s employment or other service relationship.  The provisions of this Section 11 shall
not narrow or otherwise limit the obligations and responsibilities of the Employee
set forth in any agreement of similar import entered into between the Employee
and the Company.

 

12.                                 Continuation
of Existing Non-Compete Agreements. 
In consideration of the Award Shares granted to the Employee pursuant to
this Agreement, any Employee who executed a Non-Competition Agreement in
connection with any earlier grant of options by the Company (regardless of
whether such options have been terminated or not) (each an “Existing
Non-Competition Agreement”) does hereby agree and covenant, that notwithstanding
the cancellation of such prior options, such Existing Non-Competition Agreement
(including all of the terms and conditions contained therein) shall remain in
full force and effect and valid and enforceable.

 

13.                                 Non-Guarantee
of Employment or Service Relationship. 
Nothing in the Plan or this Agreement shall alter the at-will or other
employment status or other service relationship of the Employee, nor be
construed as a contract of employment or service relationship between the
Company and the Employee, or as a contractual right of Employee to continue in
the employ of, or in a service relationship with, the Company for any period of
time, or as a limitation of the right of the Company to discharge the Employee
at any time with or without cause or notice and whether or not such discharge
results in the failure of any Award Shares to vest or any other adverse effect
on the Employee’s interests under the Plan.

 

14.                                 Rights
as Stockholder.  Except as otherwise
provided in this Agreement with respect to the Restricted Shares, the Employee
shall be entitled to all rights of a stockholder of the Company, including the
right to vote the shares and receive dividends and/or other distributions
declared on the Award Shares.

 

15.                                 The
Company’s Rights.  The existence of
the Award Shares 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 other stocks with preference ahead
of or convertible into, or otherwise 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 the Company’s assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.

 

16.                                 Employee.  Whenever the word “Employee” is used in any
provision of this Agreement under circumstances where the provision should
logically be construed, as determined by the Administrator, to apply to the
estate, personal representative, beneficiary to whom the Award Shares may be
transferred by will or by the laws of descent and distribution, or another
permitted transferee, if any, the word “Employee” shall be deemed to include
such person.

 

17.                                 Notices.  All notices and other communications made or
given pursuant to this Agreement shall be in writing and shall be sufficiently
made or given if hand delivered or mailed by certified mail, addressed to the
Employee at the address contained in the records of the Company, or addressed
to the Administrator, care of the Company for the attention of its Corporate
Secretary at its principal executive office or, if the receiving party consents
in advance, transmitted and received via telecopy or via such other electronic
transmission mechanism as may be available to the parties.

 

18.                                 Entire
Agreement.  This Agreement,
including all agreements incorporated herein by reference, contains the entire
agreement between the parties with respect to the Award Shares granted
hereunder.  Any oral or written
agreements, representations, warranties, written inducements, or other
communications made prior to the execution of this Agreement with respect to
the Award Shares granted hereunder shall be void and ineffective for all
purposes.

 

5

 

19.                                 Amendment.  This Agreement may be amended from time to
time by the Administrator in its discretion; provided, however,
that this Agreement may not be modified in a manner that would have a
materially adverse effect on the Award Shares as determined in the discretion
of the Administrator, except as provided in the Plan or in a written document
signed by each of the parties hereto.

 

20.                                 Conformity
with Plan.  This Agreement is
intended to conform in all respects with, and is subject to all applicable
provisions of, the Plan. 
Inconsistencies between this Agreement and the Plan shall be resolved in
accordance with the terms of the Plan. 
In the event of any ambiguity in this Agreement or any matters as to
which this Agreement is silent, the Plan shall govern.  A copy of the Plan is provided to you with
this Agreement.

 

21.                                 Governing
Law. The validity, construction and effect of this Agreement, and of any
determinations or decisions made by the Administrator relating to this
Agreement, and the rights of any and all persons having or claiming to have any
interest under this Agreement, shall be determined exclusively in accordance
with the laws of the State of Delaware, without regard to its provisions
concerning the applicability of laws of other jurisdictions.  Any suit with respect hereto will be brought
in the federal or state courts in the districts which include the city and
state in which the principal offices of the Company are located, and the
Employee hereby agrees and submits to the personal jurisdiction and venue
thereof.

 

22.                                 Headings.  The headings in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.

 

IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer as of the date first written above.

 

	
   

  	
  ESCHELON TELECOM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  

 

The undersigned
hereby acknowledges that he/she has carefully read this Agreement and the Plan
and agrees to be bound by all of the provisions set forth in such documents.

 

	
   

  	
  EMPLOYEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
				

 

	
  Enclosures:

  	
   

  	
  Stock
  Restriction Agreement

  
	
   

  	
   

  	
  Stockholders’
  Agreement

  
	
   

  	
   

  	
  Form of Stock
  Power

  
	
   

  	
   

  	
  Eschelon
  Telecom, Inc. 2002 Stock Incentive Plan

  

 

6

 

STOCK POWER

 

FOR VALUE RECEIVED, the undersigned,
                                ,
hereby sells, assigns and transfers unto Eschelon Telecom, Inc., a Delaware
corporation (the “Company”), or its successor,
                       
shares of common stock, par value
$              
per share, of the Company standing in my name of the books of the Company,
represented by Certificate
No.                      ,
which is attached hereto, and hereby irrevocably constitutes and appoints
                                                                                    
as my attorney to transfer the said stock on the books of the Company with full
power of substitution in the premises.

 

	
  WITNESS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name (print) 

  	
   

  	
   

  	
  Name: 

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date: 

  	
   

  	
   

  
							

 

 

IMPORTANT TAX INFORMATION

 

INSTRUCTIONS REGARDING
SECTION 83(b) ELECTIONS

 

1.              An
83(b) Election is Irrevocable.

 

2.              An
83(b) Election Form must be filed with the Internal Revenue Service within 30
days of the date the restricted property is transferred to you; no exceptions
to this rule are made.

 

3.              You
must provide a copy of the 83(b) Election Form to the corporate secretary or
other designated officer of the company that granted the restricted
property.  This copy should be provided
to the company at the same time that you file your 83(b) Election Form with the
Internal Revenue Service.

 

4.              In
addition to making the filing under Item 2 above, you must attach a copy of
your 83(b) Election Form to your tax return for the taxable year in which you
received the restricted property.

 

5.              If
you make an 83(b) Election and later forfeit the restricted property, you will
not be entitled to an ordinary income deduction with respect to the gross
income you recognized under the 83(b) Election.  Any loss upon forfeiture will, however, be able to recognize a
capital loss.

 

6.              You
must consult your personal tax advisor before making an 83(b) Election.  The attached election forms are intended as
samples only, they must be tailored to the taxpayer’s circumstances and may not
be relied upon without consultation with a personal tax advisor.

 

 

SECTION 83(b) ELECTION FORM

 

Election Pursuant to Section 83(b) of the Internal
Revenue Code to Include Property in Gross Income in Year of Transfer

 

The undersigned hereby makes an election pursuant to Section 83(b)
of the Internal Revenue Code with respect to the property described below and
supplies the following information in accordance with the regulations
promulgated thereunder:

 

1.                                       The
name, address, and taxpayer identification number of the undersigned are:

 

                                            

 

                                            

 

                                            

 

                                            

 

2.                                       The
property with respect to which the election is made is
                      
shares of Common Stock, par value [$.01] per share, of Eschelon Telecom, Inc.,
a Delaware corporation (the “Company”).

 

3.                                       The
date on which the property was transferred was
                                    ,
the date on which the taxpayer received the property pursuant to a grant of
restricted stock.

 

4.                                       The
taxable year to which this election relates is calendar year
20      .

 

5.                                       The
property is subject to restrictions in that the property is not transferable
and is subject to a substantial risk of forfeiture until the taxpayer vests in
the property.  The taxpayer will vest in
equal one-fifth (1/5) installments of the property on the original grant sate
and each anniversary thereof occurring in 2004, 2005, 2006 and 2007, provided
the taxpayer is in the employ of the Company as of each such date.

 

6.                                       The
fair market value at the time of transfer (determined without regard to any
restrictions other than restrictions which by their terms will never lapse) of
the property with respect to which this election is being made is
$                     
per share; with a cumulative fair market value of
$                         .  The taxpayer did not pay any amount for the
property transferred.

 

7.                                       A
copy of this statement was furnished to the Company, for whom taxpayer rendered
the services underlying the transfer of such property.

 

8.                                       This
election is made to the same effect, and with the same limitations, for
purposes of any applicable state statute corresponding to Section 83(b) of
the Internal Revenue Code.

 

The
undersigned understands that the foregoing election may not be revoked except
with the consent of the Commissioner of Internal Revenue.

 

	
   

  	
  Signed: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  

 

 

Letter for filing §83(b) Election Form

 

[Date]

 

CERTIFIED MAIL

RETURN RECEIPT REQUESTED

 

Internal Revenue
Service Center

 

                                                        

                                                        

                                                        

(the Service
Center to which individual income tax return is filed)

 

Re:                             83(b)
Election of
                                     

Social Security Number:                                             

 

Dear Sir/Madam:

 

Enclosed is an election under §83(b) of the Internal Revenue Code of
1986 with respect to certain shares of stock of Eschelon Telecom, Inc. that
were transferred to me on
                              ,
2003.

 

Please file this election.

 

Sincerely,

 

 

	
   

  	
   

  	
   

  
	
   

  
	
  cc: Corporate
  Secretary of Eschelon Telecom, Inc.Exhibit 10.1

 

CHANGE-IN-CONTROL
SEVERANCE PAY AND EMPLOYMENT AGREEMENT

 

THIS AGREEMENT is made
this 22nd day of November, 2002, by and between ESCHELON TELECOM, INC., a
Delaware corporation (the “Company”) and RICHARD A. SMITH (the “Officer”).

 

RECITALS

 

A.                                   The
Officer is the President and Chief Operating Officer of the Company as of the
date of this Agreement, and has been an employee of the Company since
October 8, 1998.

 

B.                                     The
Board of Directors of the Company desires to retain the Officer in the employ
of the Company.

 

C.                                     The
Board of Directors believes that it is essential to preserve and maintain the
stability and continuity of management of the Company by providing the Officer
with economic and other security from the uncertainty of risks inherent in a
potential sale or merger of the Company which might jeopardize the Officer’s
employment.

 

NOW THEREFORE, in consideration of the foregoing and
of the mutual promises of the parties hereto, the Company and the Officer agree
as follows:

 

1.                                       Terms
of Employment

 

(a)                                  As
compensation for his services hereunder, during the Officer’s employment as
President and Chief Operating Officer, the Company agrees to pay the Officer a
base salary at the rate of Two Hundred Twenty Thousand Four Hundred and
Seventy-three Dollars ($220,473) per annum, payable in accordance with the
Company’s normal payroll schedule, or on such other periodic basis as may be
mutually agreed upon.  The Company may
withhold from any amounts payable under this Agreement such federal, state or
local taxes as shall be required to be withheld pursuant to any applicable law
or regulation.  The Officer’s salary
shall be subject to annual review based on corporate policy and contributions
made by the Officer, with non-guaranteed increases each year consistent with
other Company executives.

 

(b)                                 The
Officer shall be eligible to receive an annual cash bonus award based upon
performance metrics set by the Chief Executive Officer and Board of
Directors.  Upon satisfaction of the
performance metrics, the Officer shall receive one of three bonuses: (1) the
base bonus of sixty percent (60%) of the Officer’s then current annual base
salary, (2) the target bonus of ninety percent (90%) of the Officer’s then
current annual base salary, and (3) the stretch bonus of one hundred and twenty
percent (120%) of the Officer’s then current annual base salary.  No bonus is guaranteed and any bonus is
expressly conditioned upon the Officer and the Company satisfying the
performance metrics set by the Chief Executive Officer and Board of Directors.

 

(c)                                  The
Officer may be eligible to receive stock options/equity in the Company.  The terms and conditions governing
eligibility for, entitlement to, and receipt of any options or other form of
equity in the Company shall be governed by a Stock Option Plan and Option Grant
Agreement, to be executed by the Officer and the Company.

 

(d)                                 In
addition to the compensation provided for above, the Company agrees to pay or
to reimburse the Officer during his employment for all reasonable, ordinary

 

 

and necessary, properly
vouchered, client-related business or entertainment expenses incurred in the
performance of his services hereunder in accordance with Company policy in
effect from time to time, provided, however, that the amount available to the
Officer for such travel, entertainment and other expenses may require advance
approval by the Chief Executive Officer. 
The Officer shall submit vouchers and receipts for all expenses for
which reimbursement is sought.

 

(e)                                  During
each calendar year, the Officer shall be entitled to the standard amount of
vacation provided by the Company for senior level executives.

 

(f)                                    In
addition to the compensation provided herein, the Officer shall be entitled to
the benefits available generally to Company employees pursuant to Company
programs, including, by way of illustration, personal leave, paid holidays,
sick leave, profit-sharing, 401(k) participation (40% match up to a maximum of
$6,000 annually), disability, dental, vision, group sickness, accident or health
insurance programs of the Company which may now or, if not terminated, shall
hereafter be in effect, or in any other or additional such programs which may
be established by the Company, as and to the extent any such programs are or
may from time to time be in effect, as determined by the Company and the terms
hereof, subject to the applicable terms and conditions of the benefit plans in
effect at that time.

 

2.                                       Employment
Period; Termination.

 

(a)                                  As
noted above, the Officer is employed by the Company as of the date of this
Agreement; the Officer’s employment shall continue until terminated upon the
earlier to occur of the following events: 
(i) the close of business on November 22, 2005 (the “Initial Term”)
or (ii) the death or permanent disability (as described below) of the
Officer.  This Agreement may be renewed
by mutual agreement of the parties

 

(b)                                 The
Officer may terminate the employment relationship at any time for any reason by
giving the Company written notice at least thirty (30) days prior to the
effective date of termination.  The
Company, at its election, may (i) require Officer to continue to perform his
duties hereunder for the full thirty (30) day notice period, or (ii) terminate
Officer’s employment at any time during such thirty (30) day notice period,
provided that any such termination shall not be deemed to be a termination of
Officer’s employment by the Company without Cause.  Unless otherwise provided by this Section, all compensation and
benefits paid by the Company to the Officer shall cease upon his last day of
employment.  The obligations imposed on
Officer with respect to confidentiality, non-disclosure and assignment of
rights to inventions or developments in any other agreement executed by the
parties shall continue, notwithstanding the termination of the employment
relationship between the parties.

 

(c)                                  If
the Officer’s employment is terminated for “cause,” the Officer will not be
entitled to and shall not receive any compensation or benefits of any type
following the effective date of termination. 
As used in this Agreement, the term “cause” shall include a termination
for insubordination; dishonesty (including but not limited to any acts of
embezzlement or misappropriation of funds); fraud; serious dereliction of
fiduciary obligation; criminal activity; moral turpitude; conviction of a
felony, plea of guilty or nolo contendere to a felony charge or any
criminal act involving moral turpitude; a willful unauthorized disclosure of
confidential information belonging to the Company, or entrusted to the Company

 

2

 

by a client, customer, or
other third party; a violation of any material Company rule, regulation or
policy; any act materially adverse to the interests of the Company; material
neglect of the Company’s business; repeatedly being under the influence of
drugs or alcohol (other than prescription medicine or other medically-related
drugs to the extent that they are taken in accordance with their directions)
during the performance of his duties under this Agreement, or, while under the
influence of such drugs or alcohol, engaging in grossly inappropriate conduct
during the performance of his duties under this Agreement; engaging in behavior
that would constitute grounds for liability for harassment (as proscribed by
the U.S. Equal Employment Opportunity Commission Guidelines or any other
applicable state or local regulatory body) or other egregious conduct that
violates laws governing the workplace; or a material breach of any promise or
obligation under this Agreement, including, without limitation, a refusal to
substantially perform the Officer’s duties hereunder, except in the event that
the Officer becomes permanently disabled as set forth in paragraph 2(e), below
Anything herein to the contrary notwithstanding, the Company shall provide
Officer with written notice prior to terminating Officer’s employment for
“cause” under any other circumstance where the conduct constituting “cause” is
reasonably open to a cure (for instance, where the “cause” does not involve a
violation of trust or otherwise adversely affect the relationship between you
and the Company on a going-forward basis), setting forth the exact nature of
any alleged breach and the conduct required to cure such breach.  Officer shall have fifteen (15) days from
the giving of such notice within which to cure.

 

(d)                                 Upon
fifteen (15) days written notice, the Company shall retain the right to
terminate the Officer without cause.  If
the Officer’s employment is terminated by the Company without cause, the
Officer shall continue to receive his base salary for a period of fifteen (15)
months (the “Severance Period”).  During
the Severance Period, the Company shall continue medical benefits for the
Officer by paying the premium for Officer’s health insurance continuation
coverage under COBRA to the extent the Officer elects COBRA coverage (or
continue to contribute the employer portion of the premium normally paid by the
Company for its current employees). 
Furthermore, the obligations imposed on Officer with respect to
confidentiality, non-disclosure and assignment of rights to inventions or
developments in this Agreement or any other agreement executed by the parties
shall continue, notwithstanding the termination of the employment relationship
between the parties.

 

(e)                                  In
the event the Officer becomes permanently disabled during employment with the
Company, the Company may terminate this Agreement by giving thirty (30) days
notice to the Officer of its intent to terminate, and unless the Officer
resumes performance of his duties within fifteen (15) days of the date of the
notice and continues performance for the remainder of the notice period, this
Agreement shall terminate at the end of the thirty (30) day period.  The Officer will not be entitled to and
shall not receive any compensation or benefits of any type following the
effective date of termination. 
“Permanently disabled” for the purposes of this Agreement means the
inability, due to physical or mental ill health, to perform the essential
functions of Officer’s job, with or without a reasonable accommodation, for
ninety (90) days during any one employment year irrespective of whether such
days are consecutive.

 

(f)                                    This
Agreement will terminate immediately upon the Officer’s death and the Company
shall not have any further liability or obligation to the Officer, his
executors, heirs, assigns or any other person claiming under or through his 

 

3

 

estate, except that
Officer’s estate shall receive any accrued but unpaid salary or bonuses.

 

(g)                                 If
the Agreement expires at the end of the Initial Term or any Renewal Term after
proper advance notice by either party of its/his intent not to renew, the
Agreement shall expire and Officer shall not be entitled to any Termination
Compensation or severance of any kind, except as required by law.

 

3.                                       Eligibility
for Severance Pay.  In addition to
the foregoing, the Officer shall be eligible to receive severance pay, in the
amounts and at the times described in paragraph 3, if:

 

(a)                                  the
Officer’s employment with the Company and all of its subsidiaries (if any) is
terminated within 24 months after there has been a “change in control,” as such
term is hereinafter defined; and

 

(b)                                 the
Officer’s termination of employment was not:

 

(i)                                     for
conduct involving willful misconduct (such as commission by the Officer of a
felony or a common law fraud against the Company) which is detrimental in a
significant way to the business of the Company or any of its subsidiaries; or

 

(ii)                                  on
account of the Officer’s voluntary resignation; provided that a resignation
shall not be considered to be voluntary for the purposes of this Agreement if
it occurs under the circumstances described in paragraph11(a), or if, subsequent
to the change in control, there has been:  
(1) a reduction of 25% or more in the Officer’s annual compensation; or
(2) a change in the place in which the Officer is required to perform his
duties, if the new place is more than 50 miles from the place Officer performed
his services immediately prior to the “change in control”.

 

4.                                       Change
in Control.  For the purposes of
this Agreement, a “change in control” shall be deemed to have occurred if:

 

(a)                                  there
occurs any sale or other disposition to a person unrelated to the Company or
any of the holders of its securities of (I) representing, after sale or
disposition, more than 50% of the outstanding voting securities of the Company
as measured by voting power on an as if converted basis or (ii) more than 50%
of the aggregate assets of the Company and its subsidiaries, in the single
transaction or series of transactions; or

 

(b)                                 the
Company or any combination of the Company and its subsidiaries aggregating more
than fifty percent (50%) of the consolidated assets of the Company and its
wholly-owned subsidiaries becomes a party to any merger or consolidation
(excluding a merger or consolidation where the Company or one of such
subsidiaries is the surviving corporation);

 

5.                                       Certain
Change in Control and Severance Payments. 
In the event of a qualifying change of control, the Officer shall
receive the following payments:

 

(a)                                  a
lump sum cash payment, no later than 30 days after the date on which the
Officer’s employment terminates, in an amount equal to two times the Officer’s
average annual compensation (as defined below); and

 

4

 

(b)                                 continuation
of coverage under the Company’s group medical, group life, and group long-term
disability plans, if any, and under any individual policy or policies of life
insurance maintained by the Company, with the same rate of employer
contributions as for active employees, until the earlier to occur of:

 

(i)                                     the
expiration of 24 months from the date on which the Officer’s employment
terminates; or

 

(ii)                                  the
date on which the Officer obtains comparable coverage provided by a new
employer; and

 

(c)                                  a
lump sum cash payment, payable no later than 30 days after the date on which
the Officer’s employment terminates, in an amount equal to the sum of:

 

(i)                                     the
amount by which the fair market value of that number of shares of stock subject
to any stock option which is forfeited or which otherwise becomes
nonexercisable by the Officer by reason of the termination of his or her
employment (determined as of the date of such termination) exceeds the option
price for such shares; and

 

(ii)                                  such
additional amounts (or the fair market value of such additional property) in
excess of the amount determined pursuant to subparagraph (I) that would have
been paid or distributed to the Officer upon the exercise of any such forfeited
stock options, had such options been exercisable, and exercised, by the Officer
as of the date his or her employment terminated.

 

It is
understood and agreed that the payment provided in this Section 5(c) is
expressly conditioned upon the Officer’s inability to exercise his options
subsequent to termination of his employment under the provisions of the
Officer’s stock option agreements.

 

For purposes of this paragraph 5, the term “average annual
compensation” shall mean the higher of: (i) the average rate of annual salary
payable to the Officer for the calendar year in which the Officer’s employment
terminates and for the two immediately preceding calendar years, plus the average
annual bonus or incentive payments awarded to the Officer for the same three
calendar years or (ii) $200,000; provided, that if bonus or incentive
compensation awards have not been determined for the calendar year in which the
Officer’s employment terminates prior to the date of such termination, such
average shall be determined using the bonuses or incentive payments awarded to
the Officer for the three calendar years immediately preceding the year in
which the Officer’s employment terminates. The Officer’s average annual
compensation shall be determined prior to any reduction for deferred
compensation, “401(k)” plan contributions, and similar items, and any reduction
in the Officer’s rate of salary occurring within 24 months after a change in
control shall be disregarded.  In
addition, the insurance coverage provided under this paragraph shall be
governed by the insurance coverage provided to such Officer immediately prior
to any reduction in such coverage occurring within 24 months after any change
in control.

 

6.                                       “Floor”
Value of Options Upon a Change in Control.          In consideration of the value that the
Officer brings to Eschelon Telecom, Inc., if a change in control occurs on or
before November 22, 2005, then the Officer may put any number of his
options to the Company in exchange for a single lump sum payment of up to
$1,750,000 (the “Officer Option Payment”); provided, however, that the Officer
Option Payment shall be zero if Bain Capital, Wind Point Partners, and Stolberg
Equity Partners (the “Investors”) collectively fail to receive at least
$35,000,000 (or their pro-rata investment back if less than 100% is sold).  If, however, the Investors receive
$35,000,000 (or their pro-rata investment back if less than 100% is sold), then
the Officer Option Payment shall be $750,000; the Officer Option Payment shall
increase proportionally with the increased return to the Investors up to the
maximum which will be paid to the Officer upon return to the Investors in the
amount of $70,000,000 (or 2X their pro-rata

 

5

 

investment
back if less than 100% is sold).  The
foregoing calculations are premised upon the Officer exercising the put right
with respect to all of his options; the actual value of any payment to the Officer
pursuant to this section shall be proportionate to the percentage of
available option shares put by the Officer.

 

7.                                       No
Funding of Severance Pay.  Nothing
herein contained shall require or be deemed to require the Company or a
subsidiary to segregate, earmark, or otherwise set aside any funds or other
assets to provide for any payments required to be made hereunder, and the
rights of the terminating Officer to severance pay hereunder shall be solely
those of a general, unsecured creditor of the Company.

 

8.                                       Death.  In the event of the Officer’s death, any
amount or benefit payable or distributable to the Officer pursuant to paragraph
3(a) and 3(b) shall be paid to the beneficiary designated by the Officer for
such purpose in the last written instrument, if any, received by the Boards of
Directors of the Company prior to the Officer’s death, or, if no beneficiary
has been designated, to the Officer’s estate. 
In addition, all granted but unvested options shall immediately vest and
the estate will not be required to exercise the options immediately.

 

9.                                       Rights
in the Event of Dispute.  If a claim
or dispute arises concerning the rights of the Officer or a beneficiary to
benefits under this Agreement, regardless of the party by whom such claim or
dispute is initiated, the prevailing party in such dispute shall be entitled to
recover its legal expenses, including reasonable attorneys’ fees, court costs,
and ordinary and necessary out-of-pocket costs of attorneys incurred in
connection with the bringing, prosecuting, defending, litigating, negotiating,
or settling such claim or dispute; provided, that:

 

(a)                                  the
prevailing party obtains a judgment in its favor from a court of competent
jurisdiction from which no appeal may be taken, whether because the time to do
so has expired or otherwise; and provided further, that

 

(b)                                 in
the case of any claim or dispute initiated by the Officer, such claim shall be
made, or notice of such dispute given, with specific reference to the
provisions of this Agreement, to the Board of Directors of the Company within
one year after the occurrence of the event giving rise to such claim or
dispute.

 

10.                                 Amendment.  This Agreement may not be amended or
modified except by a written instrument signed by both parties as of a date
contemporaneous herewith or subsequent hereto.

 

11.                                 No
Obligation to Mitigate Damages.  In
the event the Officer becomes eligible to receive benefits hereunder the
Officer shall have no obligation to seek other employment in an effort to
mitigate damages.  To the extent the
Officer shall accept other employment after the termination of his employment,
the compensation and benefits received from such employment shall not reduce
any compensation and benefits due under this Agreement, except as provided in
paragraph 3(b).

 

12.                                 Other
Benefits.                The benefits
provided under this Agreement shall, except to the extent otherwise
specifically provided herein, be in addition to, and not in derogation or
diminution of,  any benefits that the
Officer or the Officer’s beneficiary may be entitled to receive under any other
plan or program now or hereafter maintained by the Company or by any of its
subsidiaries.

 

13.                                 Successors.

 

(a)                                  The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation, or otherwise) to all or substantially all of the
business and/or assets of the Company, to expressly assume and agree to perform
the Company’s obligations under this Agreement in the same manner and to the
same extent that the Company would be required to perform them if no such

 

6

 

succession had taken place unless, in the opinion of legal counsel
mutually acceptable to the Company and the Officer, such obligations have been
assumed by the successor as a matter of law. 
Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession (unless the foregoing opinion is rendered
to the Officer) shall entitle the Officer to terminate his or her employment
and to receive the payments provided for in paragraph 3 above; provided that
Officer has given notice of such failure to the Company after such
effectiveness and such agreement is not so assumed within ten (10) days after
the Company’s receipt of such notice. 
As used in this Agreement, “Company” shall mean the Company, as
presently constituted, and any successor to its business and/or assets which
executes and delivers the agreement provided for in this paragraph 11 or which
otherwise becomes bound by all the terms and provisions of this Agreements as a
matter of law.

 

(b)                                 The
Officer’s rights under this Agreement shall inure to the benefit of, and shall
be enforceable by, the Officer’s legal representative or other successors in
interest, but shall not otherwise be assignable or transferable.

 

14.                                 Notices.  Any notices referred to herein shall be in
writing and shall be sufficient if delivered in person or sent by U.S.
registered or certified mail to the Officer at his address on file with the
Company (or to such other address as the Officer shall specify by notice), or
to the Company at 730 Second Avenue South, Suite 1200, Minneapolis, Minnesota
55402-2456  Attn: Chief Executive
Officer.

 

15.           Waiver.  Any waiver of any breach of any of the
provisions of this Agreement shall not operate as a waiver of any other breach
of such provisions or any other provisions, nor shall any failure to enforce
any provision of this Agreement operate as a waiver of any party’s right to
enforce such provision or any other provision.

 

16.           Severability.  If any provision of this Agreement or the
application thereof is held invalid or unenforceable by a court of competent
jurisdiction, the invalidity or unenforceability thereof shall not affect any
other provisions or applications of this Agreement which can be given effect
without the invalid or unenforceable provision or application.

 

17.           Governing Law.            The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Minnesota, except to the extent superseded
by applicable federal law.

 

18.           Headings.  The headings and paragraph designations of
this Agreement are included solely for convenience of reference and shall in no
event be construed to affect or modify any provisions of this Agreement.

 

19.           Gender and Number.  In this Agreement where the context admits,
words in any gender shall include the other genders, words in the plural shall
include the singular, and words in the singular shall include the plural.

 

7

 

The parties hereto have executed this Agreement as of the day and year
first above written.

 

 

	
  COMPANY:

  	
  ESCHELON TELECOM, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
  /s/ Cliff D. Williams

  
	
   

  	
  Cliff
  D. Williams

  
	
   

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  OFFICER:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/ Richard A. Smith

  
	
   

  	
  Richard
  A. Smith

  
	
   

  	
  President
  and

  
	
   

  	
  Chief
  Operating Officer

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