Document:

Exhibit
10.4

 

 

	
  To:

  	
   

  	
  Steven K. Wachter

  
	
   

  	
   

  	
   

  
	
  From:

  	
   

  	
  Richard A. Smith, Chief
  Financial Officer/ Chief Operating Officer

  /s/ Richard A. Smith 7/17/99

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
  July 19, 1999

  
	
   

  	
   

  	
   

  
	
  Subject:

  	
   

  	
  Outline of Employment
  Offer to Steven K. Wachter

  

 

I am pleased to present
the following outline of Advanced Telecommunications, Inc., (ATI) offer to you
for the position of Senior Vice President - Sales.

 

1.              Annual
Direct Compensation

Annual compensation will be $130,000.

 

2.              Incentive
Compensation

You will be eligible for an annual performance incentive pay package
that could max out at 60% of your annual base pay.  The performance targets will be based on the following metrics:

 

Revenue

Gross Margin

Consolidated EBITDA

Customer Satisfaction

 

Performance incentive
targets and pay will be assessed and granted quarterly upon completion of the
year-end audit, reviewed and approved by the ATI Board of Directors.

 

Base Plan (30%):  Will represent the Company’s budget on an
annual basis.

 

Target Plan (45%):  Will represent the Company’s budget adjusted
as follows:

•                  Revenue
= 104% of Budget

•                  Margin
= 103% of Budget

•                  EBITDA
= 89% of Budgeted Loss

 

Premier
Plan (60%):  Will represent targets
above budget that represent truly premier performance.

•                  Revenue
= 107% of Budget

•                  Margin
= 107% of Budget

•                  EBITDA
= 79% of Budgeted Loss

 

• 730 Second Avenue South • Suite 1200 • Minneapolis, MN
55402 • Phone (612) 376-4400 • Fax (612) 376-4411 •

 

 

3.              Option
Grants

You will be granted a total of 123,000 stock options broken down as
follows:

 

	
   

  	
   

  	
  Tranche I

  	
   

  	
  Tranche II

  	
   

  	
  Total

  	
   

  
	
  Shares

  	
   

  	
  90,000

  	
   

  	
  33,000

  	
   

  	
  123,000

  	
   

  
	
  Strike
  Price

  	
   

  	
  $

  	
  5.41

  	
   

  	
  $

  	
  .01

  	
   

  	
  NA

  	
   

  
										

 

Tranche II options are
provided to you in order to replace the value of your Ameritech options and
pension if you do not receive them. The options will be earned and vested on
your anniversary as follows;

 

	
   

  	
   

  	
  Share
  Vesting

  	
   

  	
  Percent
  Vesting

  	
   

  
	
  End
  of Year

  	
  One

  	
   

  	
  24,600

  	
   

  	
  20

  	
  %

  
	
   

  	
  Two

  	
   

  	
  24,600

  	
   

  	
  20

  	
  %

  
	
   

  	
  Three

  	
   

  	
  24,600

  	
   

  	
  20

  	
  %

  
	
   

  	
  Four

  	
   

  	
  24,600

  	
   

  	
  20

  	
  %

  
	
   

  	
  Five

  	
   

  	
  24,600

  	
   

  	
  20

  	
  %

  
	
   

  	
  Total

  	
   

  	
  123,000

  	
   

  	
  100

  	
  %

  

 

Should there be a change
of control at ATI, all options granted will immediately be earned and vested.

 

If the existing private
equity funding process does not yield a $5.41 per share price, your exercise
price will be the lesser of the private equity price per share or $5.41,
whichever is lower.

 

It is the objective of
management and our key outside investor (Stolberg, Meehan and Scano) to
increase the value of ATI at an annualized rate of at least 30% per year. See
the following analysis for the estimated value generated by this grant over the
next five (5) years:

 

Estimated Value of S.
Wachter Stock Options

 

	
   

  	
   

  	
  10%

  Growth

  	
   

  	
  20%

  Growth

  	
   

  	
  30%

  Growth

  	
   

  	
  40%

  Growth

  	
   

  	
  50%

  Growth

  	
   

  
	
  Initial
  Grant (123,000 shares)

  	
   

  	
  $

  	
  .6

  	
  M

  	
  $

  	
  1.2

  	
  M

  	
  $

  	
  2.0

  	
  M

  	
  $

  	
  3.1

  	
  M

  	
  $

  	
  4.6

  	
  M

  
																	

 

Note:  These estimates of the future projected
value of the option grant do not imply any guaranteed value - but are based
solely on management’s/investor’s expectations and their internal forecasts.

 

As a key member of the
ATI executive team, you will also eligible for additional option grants based
on your individual performance and performance of ATI.

 

2

 

4.              Other
Benefits

You will also be eligible for a complete range of company benefits,
including 401(k) (25% match on the first 6% contributed), health club
membership reimbursement (family reimbursement is $35.00 per month), medical
coverage, and company paid parking.

 

5.              Contingencies

This offer is contingent upon successful completion of a physical
examination, reference/background checks, and successful negotiation out of
any/all applicable non-competes that you may have with your existing company.

 

6.              Relocation

ATl will provide a relocation package to the Executive that is intended to
allow the employee to remain neutral from a compensation perspective. This
package will include the following elements:

a)              Out of pocket costs
for home search (up to two family trips).

b)             All real estate
commissions paid to a third party for sale of the primary dwelling.

c)              Points required to make
interest rates equivalent to the current rate that the Executive pays.

d)             Closing costs on the
sale and purchase of a primary dwelling.

e)              Temporary living
expenses until a residence is occupied in Minneapolis if necessary.

f)                Home travel every
two (2) weeks until the Executive’s family is relocated.

g)             All household moving
expenses with a licensed national moving company.

h)             One (1) month salary
for incidentals, decorating, etc.

 

Steve - I am looking
forward to working with you at ATI and know that under your leadership, the
sales effort will add significant value to the shareowners of our Company.
After you receive, please call me at (612) 519-6626 to discuss.

 

	
  Accepted by:

  	
    /s/ Steven
  K. Wachter

  	
   

  	
  Date:

  	
     July 20,
  1999

  	
   

  
	
   

  	
  Steven K. Wachter

  	
   

  	
   

  

 

xc: File - Steven K.
Wachter

 

3Exhibit
10.5

 

STOCK RESTRICTION AGREEMENT

 

THIS STOCK RESTRICTION AGREEMENT (the “Agreement”) is made as of
the 7th day of February, 2003, by and between ESCHELON TELECOM,
INC., a Delaware corporation (the ”Company”), and Marvin C. Moses (the “Shareholder”).  The restrictions in this Agreement are in
addition to those in the Fourth Amended Stockholders Agreement, dated as of
June 27, 2002, as may be amended or replaced from time to time, to
which the Shareholder is a party (the “Stockholders’ Agreement”).

 

For valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

1.                                       Option
Shares.  The Shareholder was granted
410,653
shares (the “Option Shares”) of common stock of the Company, par value $0.05
per share (the “Common Stock”), pursuant to restricted stock awarded under
the Company’s 2002 Stock Incentive Plan (the “Plan”) on February 7,
2003, subject to the terms and conditions of the applicable grant agreement
evidencing such award (the “Option Grant Agreement”).  The Shareholder has been granted on even
date herewith, 410,653 Option Shares (the “Shares”).

 

The Shareholder agrees that the Shares shall be subject to the terms,
conditions and restrictions set forth in this Agreement, the Option Grant
Agreement, and the Stockholders’ Agreement. 
The Shareholder further agrees that any additional Option Shares
purchased by the Shareholder shall be subject to the terms, conditions and
restrictions set forth in this Agreement, and such shares shall be deemed
Shares for all purposes hereunder.  Upon  receipt
of payment by the Company for the Shares, the Company shall either issue and
deliver to the Shareholder one or more certificates in the name of the
Shareholder for that number of Shares purchased by the Shareholder, hold such
Share certificates in escrow until the underlying Shares may be transferred
freely without restriction under this Agreement, or provide for uncertificated,
book entry issuance of those Shares.

 

150,400
shares are hereby designated as “Class A Option Shares” and 260,253
shares are hereby designated as “Class B Option Shares.”  With respect to the Shares subject to this
Agreement, (i) the number of Shares classified as “Class A Shares” is equal to
the product of (a) the ratio of Class A Option Shares to Shares and
(b) the number of Shares, and (ii) the number of Shares classified as
“Class B
Shares” is equal to the product of (a) the ratio of Class B
Option Shares to Shares and (b) the number of Shares.

 

2.                                       Restrictions
on Transfer.  The Shareholder’s
transfer of Shares is subject to the following restrictions on transfer, in
addition to any restrictions in the Stockholders’ Agreement:

 

(a)                                  Class
A Shares.  With respect to Class A
Shares, such Shares shall not be transferable before the date that at least 60%
of the issued and outstanding Series A Preferred Stock of the Company has been
sold by the holders of such shares at a price greater than $1.02 per share.

 

(b)                                 Class
B Shares.  With respect to Class B
Shares, such Shares shall not be transferable before the date that at least 60%
of the issued and outstanding Series A Preferred Stock of the Company has been
sold by the holders of such shares at a price greater than $2.04 per share.

 

 

3.                                       Effect
of Prohibited Transfer.  The Company
shall not be required to (a) transfer on its books any of the Shares that
have been sold or transferred in violation of any of the provisions set forth
in this Agreement, or (b) treat as owner of such Shares or to pay
dividends or other distributions to any transferee to whom any such Shares
shall have been so sold or transferred.

 

4.                                       Company’s
Repurchase Option.

 

(a)                                  Upon
the termination of the Shareholder’s employment or service relationship with
the Company for any reason, the Company shall have the right and option to
purchase, and the Shareholder or the Shareholder’s personal representative,
estate, heirs, legatees or Permitted Transferees (as defined in the
Stockholders’ Agreement), as the case may be, shall have the obligation to sell
upon request, any or all of the Shareholder’s Shares, which option may be
exercised at any time and from time to time by the Company by giving written
notice to the Shareholder or personal representative, estate, heirs, legatees
or Permitted Transferees (as defined in the Stockholders’ Agreement) as the
case may be, stating the number of Shares to be purchased.  The purchase price for such Shares shall be
determined pursuant to Section 4(b) of this Agreement.  Settlement of the purchase shall be made at
the principal executive office of the Company within 90 days after delivery of
such written notice.  In the discretion
of the Board of Directors of the Company, payment of the purchase price will be
made via cash, cancellation of indebtedness, a promissory note, or a combination
of such methods.  Any such promissory
note shall provide for substantially equal installments, payable at least
annually, over a period not to exceed five years and shall accrue interest at
the applicable Federal rate in effect under Code section 1274(d) as of the
settlement date, compounded annually. 
Notwithstanding the foregoing, the repurchase option of the Company
described in this Section 4  shall terminate, solely with respect to vested Shares,
upon the closing of the first public offering of securities of the Company that
is effected pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under the Securities Act
of 1933 or the exchange of the Shares for shares of an entity that are so registered.

 

(b)                                 The
purchase price for any Shares sold and purchased pursuant to this
Section 4 shall be equal to their Fair Market Value as determined under
Section 4(c) of this Agreement. 
Notwithstanding the immediately preceding sentence, in the event that
the Shareholder’s employment or other service relationship is terminated by the
Company for “Cause,” the purchase price for any Shares sold and purchased
pursuant to this Section 4 shall be equal to the exercise price per Share
(adjusted to reflect adjustments made under Section 7(d) of the Eschelon
Telecom, Inc. 2002 Stock Incentive Plan) tendered to the Company by the
Shareholder upon exercise of the Option pursuant to which the Shares were
acquired.  For purposes of this
Agreement, “Cause”
shall mean the Shareholder’s (i) conviction of, or plea of nolo contendere
to, a felony or crime involving moral turpitude; (ii) fraud on or
misappropriation of any funds or property of the Company, any affiliate,
customer or vendor; (iii) personal dishonesty, incompetence, willful
misconduct, willful violation of any law, rule or regulation (other than minor
traffic violations or similar offenses), or breach of fiduciary duty which
involves personal profit; (iv) willful misconduct in connection with the
Shareholder’s duties or willful failure to perform the Shareholder’s
responsibilities in the best interests of the Company; (v) chronic use of
alcohol, drugs or other similar substances which affects the Shareholder’s work
performance; (vi) violation of any material Company rule, regulation,
procedure or policy; or (vii) breach of any provision of any employment,
non-disclosure, non-competition, non-solicitation or other similar agreement
executed by the Shareholder for the benefit of the Company.  The good faith determination by the Board of
Directors of the Company of whether the Shareholder’s employment or other
service relationship was terminated by the Company for Cause shall be final and
binding for all purposes hereunder.

 

(c)                                  For
purposes of this Agreement, the Fair Market Value of Shares shall be determined
in good faith by the Board of Directors of the Company.  In making such determination, the Board of
Directors may take into account any valuation factors it deems appropriate or
advisable in its

 

2

 

sole discretion,
including, without limitation, profitability, financial position, asset value
or other factor relating to the value of the Company, as well as discounts to
account for minority interests and lack of marketability.

 

5.                                       Company’s
Right to Defer Payments. 
Notwithstanding anything herein to the contrary, no payment shall be
made under this Agreement, or under any promissory note issued by the Company
pursuant to this Agreement, that would cause the Company to violate any banking
agreement or loan or other financial covenant or cause default of any senior
indebtedness of the Company, regardless of when such agreement, covenant or
indebtedness was created, incurred or assumed. 
Any payment under this Agreement that would cause such violation or
default shall be deferred until, in the sole discretion of the Board of
Directors of the Company, such payment shall no longer cause any such violation
or default.  Any payment deferred in
consequence of the provisions of the preceding sentence shall bear simple
interest from the date such payment would otherwise have been made to the date
when such payment is actually made, at a rate which is equal to the prime rate
of interest published in the Wall Street Journal on the date such
payment would otherwise have been made, but in no event shall such rate of
interest exceed 10 percent per annum. 
The Company shall pay interest at the same time as it makes the payment
to which such interest relates.

 

6.                                       Investment
Representations.  The Shareholder
represents, warrants and covenants as follows:

 

(a)                                  Shareholder
is purchasing the Shares for the Shareholder’s own account for investment only,
and not with a view to, or for sale in connection with, any distribution of the
Shares in violation of the Securities Act of 1933 (the “Securities Act”), or any
rule or regulation under the Securities Act.

 

(b)                                 Shareholder
understands that the Shares are being issued without registration under the
Securities Act, in reliance upon one or more exemptions contained in the
Securities Act, and such reliance is based in part on the above
representation.  The Shareholder also
understands that the Company is not obligated to comply with the registration requirements
of the Securities Act or with the requirements for an exemption under
Regulation A under the Securities Act for the Shareholder’s benefit.

 

(c)                                  Shareholder
has had such opportunity as the Shareholder deemed adequate to obtain from
representatives of the Company such information as is necessary to permit the
Shareholder to evaluate the merits and risks of the Shareholder’s investment in
the Company.

 

(d)                                 Shareholder
has sufficient experience in business, financial and investment matters to be
able to evaluate the risks involved in the purchase of the Shares and to make
an informed investment decision with respect to such purchase.

 

(e)                                  Shareholder
can afford a complete loss of the value of the Shares and is able to bear the
economic risk of holding such Shares for an indefinite period.

 

(f)                                    Shareholder
understands that (i) the Shares have not been registered under the
Securities Act and are “restricted securities” within the meaning
of Rule 144 under the Securities Act; (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available
and, therefore, they may need to be held indefinitely; and (iii) there is
now no registration statement on file with the Securities and Exchange
Commission with respect to any stock of the Company and the Company has no
obligation or current intention to register the Shares under the Securities
Act.  As a condition to any transfer of
the Shares, the Shareholder understands that the Company may require an opinion
of counsel satisfactory to

 

3

 

the Company to the
effect that such transfer does not require registration under the Securities
Act or any state securities law.

 

7.                                       Adjustments
for Stock Splits, Stock Dividends, etc.

 

(a)                                  If
from time to time there is any spin-off, stock split-up, stock dividend, stock
distribution or other reclassification of the Common Stock of the Company, any
and all new, substituted or additional securities to which the Shareholder is
entitled by reason of his or her ownership of the Shares shall be immediately
subject to the restrictions on transfer and other provisions of this Agreement
in the same manner and to the same extent as the Shares.

 

(b)                                 If
the Shares are converted into or exchanged for, or shareholders of the Company
receive by reason of any distribution in total or partial liquidation,
securities of another corporation, or other property (including cash), pursuant
to any merger of the Company or acquisition of its assets, 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 Shares.

 

8.                                       Withholding
Taxes.  The Shareholder acknowledges
and agrees that the Company has the right to deduct from payments of any kind
otherwise due to the Shareholder any federal, state or local taxes of any kind
required by law to be withheld with respect to the purchase, sale or vesting of
the Shares by the Shareholder.

 

9.                                       Invalidity or Unenforceability. 
It is the intention of the Company and the Shareholder that this
Agreement shall be enforceable to the fullest extent allowed by law.  In the event that a court having
jurisdiction holds any provision of this Agreement to be invalid or
unenforceable, in whole or in part, the Company and the Shareholder agree that,
if allowed by law, that provision shall be reduced to the degree necessary to
render it valid and enforceable without affecting the rest of this Agreement.

 

10.                                 Waiver.  No delay or
omission by the Company in exercising any right under this Agreement shall
operate as a waiver of that or any other right.  A waiver or consent given by the Company on any one occasion
shall be effective only in that instance and shall not be construed as a bar or
waiver of any right on any other occasion.

 

11.                                 Binding
Effect.  This Agreement shall be
binding upon and inure to the benefit of the Company and the Shareholder and
their respective heirs, executors, administrators, legal representatives,
successors and assigns, subject to the terms, conditions and restrictions set
forth in this Agreement.  The Company
may assign its rights under this Agreement to a third party, provided that such
assignee agrees to be bound by all of the Company’s obligations under this
Agreement.

 

12.                                 No
Rights To Employment.  Nothing
contained in this Agreement shall be construed as giving the Shareholder any
right to be retained, in any position, as an employee or other service provider
of the Company for any period of time or to restrict the Company’s right to
terminate the Shareholder’s employment or other service relationship at any
time with or without cause or notice.

 

13.                                 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
Shareholder at the address contained in the records of the Company, or
addressed to 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.

 

4

 

14.                                 Pronouns.  Whenever the context may require, any
pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural, and vice versa.

 

15.                                 Shareholder.  Whenever the word “Shareholder” is used in any
provision of this Agreement under circumstances where the provision should
logically be construed, as determined by the Board of Directors of the Company,
to apply to the Shareholder’s estate, personal representative, beneficiary to
whom the Shares may be transferred by will or by the laws of descent and
distribution, transferees, successors or assignees, the word “Shareholder”
shall be deemed to include such persons.

 

16.                                 Coordination
with Stockholders’ Agreement.  This
Agreement contains provisions that are intended to supplement provisions in the
Stockholders’ Agreement to which the Shareholder is a party, and shall be
interpreted in that manner.  The
Stockholders’ Agreement shall govern with respect to any inconsistent
provisions contained herein.

 

17.                                 Amendment.  This Agreement may be amended or modified
only by a written instrument executed by both the Company and the Shareholder.

 

18.                                 Governing
Law.  This Agreement shall be
construed, interpreted and enforced 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 principal executive offices of the Company, and the
Shareholder hereby agrees and submits to the personal jurisdiction and venue
thereof.

 

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

 

 

	
   

  	
  ESCHELON
  TELECOM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael A. Donahue

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Michael A. Donahue

  	
   

  
	
   

  	
   

  	
  Print

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  VP Finance and Treasurer

  	
   

  
	
   

  	
   

  
	
   

  	
  SHAREHOLDER

  
	
   

  	
   

  
	
   

  	
  /s/ Marvin C. Moses

  	
   

  
	
   

  	
  Signature

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Marvin C. Moses

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
										

 

5

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