Exhibit 10.2

    EFiled: Jan 14 2008 3:39PM EST
Transaction ID 18027784
Case No. Multi-case   (SEAL) [w57594w5759401.gif]

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

             
R2 INVESTMENTS, LDC,
    )      
 
    )      
Plaintiff,
    )      
 
    )      
v.
    )     Case No. 1862-VCS
 
    )      
CARL C. ICAHN, CARL J. GRIVNER, VINCENT
    )      
J. INTRIERI, JON F. WEBER, KEITH MEISTER,
    )      
ROBERT KNAUSS, FREDRIK GRADIN, ADAM
    )      
DELL, CARDIFF HOLDING LLC, ELK
    )      
ASSOCIATES LLC, and XO COMMUNICATIONS,
    )      
INC., a Delaware corporation,
    )      
 
    )      
Defendants.
    )      
 
    )      
 
    )      
 
    )      
ALLEGIANCE TELECOM LIQUIDATING
    )      
TRUST, as successor in interest to the rights of
    )      
ALLEGIANCE TELECOM, INC., and its direct and
    )      
indirect subsidiaries,
    )      
 
    )      
Plaintiff,
    )      
 
    )      
v.
    )      
 
    )     Case No. 1877-VCS
CARL C. ICAHN, CARL J. GRIVNER, VINCENT
    )      
J. INTRIERI, JON F. WEBER, KEITH MEISTER,
    )      
ROBERT KNAUSS, FREDRIK GRADIN, ADAM
    )      
DELL, CARDIFF HOLDING LLC, ELK
    )      
ASSOCIATES LLC, and XO COMMUNICATIONS,
    )      
INC., a Delaware corporation,
    )      
 
    )      
Defendants.
    )      
 
    )      
 
    )      

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DONALD J. HILLENMEYER, JR.,
    )      
 
    )      
Plaintiff,
    )      
 
    )      
v.
    )     Case No. 1880-VCS
 
    )      
CARL C. ICAHN, CARL J. GRIVNER, VINCENT
    )      
J. INTRIERI, JON F. WEBER, KEITH MEISTER,
    )      
ROBERT KNAUSS, FREDRIK GRADIN, ADAM
    )      
DELL, CARDIFF HOLDING LLC, ELK
    )      
ASSOCIATES LLC, and XO COMMUNICATIONS,
    )      
INC., a Delaware corporation,
    )      
 
    )      
Defendants.
    )      

STIPULATION AND AGREEMENT OF
COMPROMISE, SETTLEMENT AND RELEASE
     The undersigned parties (the “Parties”) to the above-captioned actions
(collectively, the “Actions”), by and through their undersigned attorneys,
Gibson, Dunn & Crutcher LLP and Potter Anderson & Corroon LLP (on behalf of R2
Investments, LDC (“R2”)), Akin Gump Strauss Hauer & Feld LLP and Richards Layton
& Finger, P.A. (on behalf of Allegiance Telecom Liquidating Trust
(“Allegiance”)), Abbey Spanier Rodd Abrams & Paradis, LLP and Rosenthal Monhait
& Goddess, P.A. (on behalf of Donald J. Hillenmeyer, Jr. (“Hillenmeyer”)),
Morris, Nichols, Arsht & Tunnell, LLP (on behalf of Carl Grivner), Berg &
Androphy and Bouchard, Margules & Friedlander, P.A. (on behalf of Adam Dell,
Fredrik Gradin and Robert Knauss), Ashby & Geddes (on behalf of Cardiff Holdings
LLC (“Cardiff), Elk Associates LLC (“Elk”), Carl C. Icahn, Vincent J. Intrieri,
Jon F. Weber, and Keith Meister), and Morris James LLP (on behalf of XO
Holdings, Inc. (formerly known as XO Communications, Inc.) (“XO” or the

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“Company”)1, have entered into the following Stipulation and Agreement of
Compromise, Settlement and Release (the “Stipulation” or “Settlement
Agreement”), subject to the approval of the Court of Chancery of the State of
Delaware:
RECITALS
     WHEREAS:
     A. On April 22, 2005, the Board of Directors (the “Board”) of XO formed a
special committee (the “Special Committee”) to consider, review, negotiate and
make recommendations to the full Board concerning the terms and conditions of a
potential financing or sale of the Company’s competitive local exchange carrier
(“CLEC” or “Wireline”) assets or other potential strategic alternatives for the
Company. The Special Committee was composed of XO directors Robert Knauss,
Fredrik Gradin and Adam Dell. The Board authorized the Special Committee to
retain independent counsel, an independent financial advisor, and other
independent advisors as the Special Committee deemed necessary. The Special
Committee engaged Greenberg Traurig, LLP as its independent legal advisor, and
relied on the advice of financial advisor Jefferies & Co., Inc. (“Jefferies”),
which also advised the Company.
     B. The Special Committee reviewed financing proposals and bids for the
wireline assets over a period of several months, and ultimately recommended to
the full Board the sale of XO’s national wireline telecommunications business to
Elk Associates LLC (“Elk”), an entity owned by Carl Icahn, the Chairman of XO’s
Board and XO’s
 

1   R2, Allegiance, and Hillenmeyer, collectively, will be referred to as
“Plaintiffs” and their counsel as “Plaintiffs’ Counsel.” Icahn, Grivner,
Intrieri, Weber, Meister, Knauss, Gradin, Dell, Cardiff, Elk, and XO,
collectively, will be referred to as “Defendants.”

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controlling stockholder. On November 4, 2005, the Company and Elk entered into
an Equity Purchase Agreement (the “EPA”) that provided for the sale of the
Company’s wireline business through the sale of all of the outstanding LLC
interests in XO Communications, LLC, a newly-formed wholly owned subsidiary of
the Company, to Elk for an aggregate price of $700 million (the “Wireline
Sale”).
     C. Following the closing of the Wireline Sale, which was expected to occur
in the second quarter of 2006, the Company was to retain its fixed broadband
wireless spectrum assets. The Company was to use the proceeds from the proposed
Wireline Sale to repay its outstanding long-term debt, under which an
Icahn-related entity is the primary lender, to offer to redeem upon the closing
of the Wireline Sale the Company’s outstanding preferred stock, 95% of which is
held by an Icahn-related entity, and to fund the growth and development of the
wireless business. The Company believed that upon consummation of the Wireline
Sale, its wireless business, which had previously generated virtually no
revenue, would be debt-free and would have in excess of $300 million in cash to
fund its operations and for other corporate purposes.
     D. On November 28, 2005, R2, which at the time was the beneficial owner of
more than 4.1 million shares of XO common stock, served a demand on the Company
pursuant to Section 220 of the Delaware General Corporation Law (“GCL”) seeking
copies of certain books and records relating to the Wireline Sale. Shortly
thereafter, similar demands were served by Allegiance, which then beneficially
held approximately 24.9% of the Company’s outstanding common stock, and
Hillenmeyer, an individual

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shareholder who held, and continues to hold, shares of the Company’s outstanding
common stock (R2’s, Allegiance’s and Hillenmeyer’s demands pursuant to
Section 220 of the GCL are collectively referred to as the “220 Demands”).
     E. R2 and Allegiance then filed complaints against the Company relating to
their demands for books and records on December 9, 2005 and December 21, 2005,
respectively (together with the 220 Demands, the “220 Actions”). The Company
responded to these lawsuits by agreeing to produce certain books and records
relating to the Wireline Sale, including minutes of the meetings of the Wireline
Special Committee and the Board and materials prepared by Jefferies. The Company
produced the same documents to Hillenmeyer in response to his request.
     F. On December 29, 2005, R2 filed a complaint captioned R2 Investments v.
Carl C. Icahn, et al. C.A. No. 1862-VCS in the Delaware Court of Chancery
against the Company, its directors and certain affiliates of Mr. Icahn,
including Cardiff and Elk. A substantially similar complaint, captioned
Allegiance Telecom Liquidating Trust v. Carl C. Icahn, et al., C.A.
No. 1877-VCS, was filed by Allegiance on January 9, 2006.
     G. The R2 and Allegiance complaints sought to enjoin the Company’s sale of
its Wireline Business to Elk. The complaints alleged, among other things, that
Icahn, Cardiff, and the director defendants breached their fiduciary duties of
care, good faith and loyalty by permitting Icahn to engage in a self-dealing
scheme that allowed him to acquire all of the Company’s operating assets at an
unfairly low price, and obtain prepayment of his Company debt and redemption of
his preferred stock. Both R2 and Allegiance sought a preliminary injunction and
expedited discovery.

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     H. A similar complaint, captioned Donald J. Hillenmeyer, Jr. v. XO
Communications, Inc., et al. C.A. No. 1880-VCS, and structured as a derivative
action on behalf of the Company, was filed by Hillenmeyer in the Delaware Court
of Chancery on January 11, 2006. The Hillenmeyer complaint reiterated several of
the allegations set forth in the R2 and Allegiance complaints, and sought an
injunction against the Wireline Sale. Like the R2 and Allegiance complaints, the
Hillenmeyer complaint also alleged that Icahn and the director defendants
breached their fiduciary duties of care, good faith and loyalty, by granting
Icahn the right to repayment of debt held by an Icahn-related entity and
redemption of Icahn’s preferred stock, in the event of a sale of the Company’s
Wireline assets. In return, Icahn granted the Company a waiver of the EBITDA
covenants set forth in the Company’s senior secured credit agreement, under
which an Icahn-related entity serves as the primary lender. The Hillenmeyer
complaint added a direct attack on the grant of the waiver, alleging that the
director defendants agreed to this interested-director transaction without
forming a special committee to negotiate with Icahn or determine whether the
transaction was fair to the Company. The Hillenmeyer complaint also demanded
that the director defendants repay to the Company all compensation and other
remuneration paid to them during the period in which they allegedly breached
their fiduciary duties.
     I. The Court of Chancery scheduled a hearing for May 11, 2006 on
Plaintiffs’ motion to enjoin the Wireline Sale, and the three actions were
coordinated for purposes of discovery in connection with the hearing. After the
production of hundreds of thousands of pages of documents by Defendants and
third parties in response

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to Plaintiffs’ requests, on March 22, 2006, Plaintiffs deposed Robert Knauss,
the Chairman of the Special Committee, and on March 23, 2006, Plaintiffs deposed
Adam Dell of the Special Committee.
     J. On March 29, 2006, counsel to the Special Committee notified the Court
that the parties to the EPA authorized and directed the Company to terminate the
EPA. Following a teleconference with the Court on March 29, 2006 and additional
communications with Plaintiffs’ counsel, XO and Elk mutually terminated the EPA
on March 30, 2006, thus mooting certain of Plaintiffs’ Wireline claims then
pending in the Actions.
     K. Plaintiffs assert that XO and Elk terminated the EPA as a result of
(i) information revealed through document discovery and depositions of two of
the three members of the Special Committee, which Plaintiffs believe indicated,
among other things, that the Special Committee played only a limited role in the
sales process, and that the process was in fact dominated by Icahn, and (ii) the
prospect of additional expedited document and deposition discovery that was then
pending.
     L. Defendants dispute those assertions, including Plaintiffs’ contentions
regarding the roles played by the Special Committee and Icahn in the sales
process. Defendants assert that the EPA was terminated as a result of
communications between XO and Elk in which Elk notified XO that (i) Elk believed
that the litigation challenging the Wireline Sale would not end by July 3, 2006,
the date on which Elk would have the right to terminate the Equity Purchase
Agreement, (ii) Elk would exercise its termination right on that date, and
(iii) Elk was willing to mutually terminate the EPA without

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seeking any damages or a break-up fee in order to avoid further distractions to
the Company.
     M. On March 31, 2006, the Company’s stock rose from $2.72 per share to
$3.95 per share, increasing the Company’s market capitalization by approximately
$224 million. Plaintiffs assert that this price change and increase in market
capitalization was caused by termination of the EPA. Defendants dispute this
assertion and the relevance of the increase in stock price and market
capitalization to the termination of the EPA.
     N. On May 24, 2006, the Company filed its proxy statement for its 2006
annual meeting with the Securities and Exchange Commission. The proxy statement
asked that, in addition to the election of directors, XO’s stockholders vote to
approve a proposal to amend XO, LLC’s limited liability company agreement.
     O. On June 1, 2006, Plaintiffs filed a motion for leave to file a
consolidated amended complaint and sought to enjoin the vote on the proposed LLC
agreement amendment. In their proposed consolidated amended complaint,
Plaintiffs alleged, among other things, that the proposed amendments of the XO,
LLC agreement would permit, and were designed to permit, Mr. Icahn to complete
the Wireline Sale or an equivalent transaction without advance notice to — and a
vote of — the minority shareholders of XO.
     P. On June 5, 2006, counsel for the Company informed the Court that the
Company considered the proposed amendment to the XO, LLC Agreement to be
administrative in nature and denied that the amendment would have the effect
asserted by Plaintiffs given existing restrictions under Delaware law.
Nevertheless, counsel

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for the Company advised the Court that the proposed amendment had been withdrawn
and removed from any consideration at XO’s June 21, 2006 annual meeting. The
Company asserted that the amendment’s withdrawal was based not on any
substantive concern about Plaintiffs’ challenge to it, but rather to avoid the
costs and distraction of an expedited preliminary injunction proceeding.
     Q. On June 29, 2006, Plaintiffs filed under seal a consolidated amended
complaint (the “Consolidated Amended Complaint”), derivatively on behalf of the
Company, in the Delaware Court of Chancery. A public version of the Consolidated
Amended Complaint was filed on July 28, 2006. The Consolidated Amended Complaint
realleges breaches of fiduciary duty and corporate waste in connection with the
proposed Wireline Sale and seeks, on behalf of the Company, (1) damages in the
amount of professional fees and expenses incurred in connection with the
proposed Wireline Sale and allegedly resultant lost business and business
opportunities, and (2) rescission of a voluntary prepayment of $100 million of
amounts outstanding under the Company’s senior secured credit agreement, under
which an Icahn-related entity is the primary lender.
     R. On February 27, 2007, Allegiance filed a Stipulation and Order
voluntarily dismissing its action with prejudice as a result of Allegiance’s
sale of all of its XO common stock. The Stipulation and Order allows Allegiance
to seek an award of attorneys’ fees, subject to Defendants’ right to oppose any
such application for attorneys’ fees. The remaining parties began discovery and
the process of negotiating a scheduling stipulation and order.

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     S. On June 1, 2007, to facilitate settlement discussions, the Court of
Chancery entered a stay of the pending Actions, including a stay of the deadline
to file fee applications for any mooted causes of action. On September 24, 2007,
the Court of Chancery extended the stay until October 29, 2007.
     T. On October 9, 2007, Allegiance filed a motion with the Court of Chancery
requesting its attorneys’ fees and expenses in connection with the mooted
Wireline claims (the “Fee Application”). Allegiance’s Fee Application asserted,
among other things, that an aggregate benefit of at least $224 million was
conferred upon the Company as a result of Plaintiffs’ actions.
     U. On October 29, 2007, the Parties reached an agreement in principle to
settle the litigation, including Allegiance’s Fee Application, subject to
entering into this Settlement Agreement and its approval by the Court of
Chancery.
     V. Plaintiffs believe that the claims asserted in the Actions have merit,
and that their attorneys are entitled to reasonable attorneys’ fees and
litigation expenses in connection with the mooted claims asserted therein, on
the ground that their litigation efforts benefited XO and its shareholders and
caused the termination of the EPA, which mooted certain of Plaintiffs’ Wireline
claims then pending in the Actions. Plaintiffs and Plaintiffs’ Counsel, however,
recognize the burden and expense of continued prosecution of the Actions, the
inherent uncertainty and risk of litigation, and the benefit of resolving the
Actions with mutual releases as provided below.
     W. Defendants deny all allegations of wrongdoing or liability with respect
to all claims, events and transactions complained of in the Actions, and also
deny that they

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are liable to Plaintiffs for attorneys’ fees and expenses. Defendants and
Defendants’ counsel, however, recognize the burden and expense of continued
defense of the Actions, the inherent uncertainty and risk of litigation, and the
benefit of resolving the Actions with mutual releases as provided below.
     X. Plaintiffs and Defendants have agreed to the compromise and settlement
of the Actions as provided for herein (the “Settlement”) to avoid the burden and
expense of continued litigation of the Actions, and to compromise and settle
those claims that have been asserted, or that could have been asserted, in the
Actions.
     Y. Plaintiffs and Defendants believe that the terms and conditions of the
Stipulation are fair, reasonable, adequate and proper and acknowledge that the
Settlement is a result of arm’s-length negotiations. The XO Board has determined
that the Settlement is in the best interests of the Company and its
shareholders.
          NOW, THEREFORE, in consideration of the full settlement, satisfaction
and compromise of the Actions as against the Defendant Released Parties (as
defined herein), it is hereby stipulated and agreed that the Actions and all
Settled Claims (as defined herein) are settled and compromised for the
consideration described herein as against the Defendant Released Parties, and
that the Actions shall be dismissed with prejudice and without costs (except as
provided herein and as the Court may award) as against the Defendant Released
Parties, subject to the approval of the Court pursuant to Rule 23.1, on the
following terms and conditions:

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SETTLEMENT TERMS
     As consideration for this Settlement Agreement, the Parties agree to the
following:
     1. Defendant Icahn shall take or cause to be taken such steps as shall be
necessary and appropriate to cause Arnos Corp. to consent to an amendment by XO
Communications, Inc. to the $500,000,000 Senior Secured Term Loan pursuant to
the Amended and Restated Credit and Guarantee Agreement dated as of January 16,
2003 among XO Communications LLC, certain Subsidiaries of XO Communications,
Inc., as Guarantors, Various Lenders, and Mizuho Corporate Bank, LTD., as
Administrative Agent (the “Credit Agreement”), such that on the Effective Date
of the Settlement:

  (a)   The Financial Covenants set forth in Section 6.6 of the Credit Agreement
shall be waived through the due date of July 15, 2009, and to the extent not
already waived, any existing or prior defaults under the Financial Covenants
shall be deemed waived; and     (b)   Interest accruing on and after January 1,
2008 through the due date of July 15, 2009, to Arnos Corp. or its successors and
assigns under the Credit Agreement, or any earlier payment of the loan, shall be
reduced by one hundred fifty (150) basis points.

     2. As soon as practicable after the execution of this Stipulation, the
Parties shall jointly apply to the Court for a scheduling order (the “Scheduling
Order”), substantially in the form attached hereto as Exhibit A, establishing
procedures for the approval of the Settlement.

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     3. Upon the Court’s approval of the Settlement, including any modification
made with the consent of the Parties, the Parties shall jointly request the
Court to enter a Final Judgment and Order, substantially in the form attached
hereto as Exhibit B (the “Final Judgment and Order”).
     4. The effective date (the “Effective Date”) of the Settlement proposed by
this Stipulation shall be the day upon which the Final Judgment and Order
dismissing all claims against Defendants becomes final and is no longer subject
to appeal or reargument, by lapse of time or otherwise.
     5. The Company shall mail the Notice in the form attached hereto as
Exhibit C in accordance with the Scheduling Order and pay the costs and expenses
incurred in providing such Notice to its stockholders. Plaintiffs shall not be
responsible for any such costs, regardless of whether the Settlement is
approved. At or prior to the hearing on the proposed Settlement, the Company
will file with the Court an appropriate affidavit attesting to the mailing of
the notice.
     6. Except as provided in this Stipulation with respect to the Company,
Defendants shall bear no other expenses, costs, damages, or fees incurred by
Plaintiffs or any present or former stockholder of XO, or by any attorney,
expert, advisor agent or representative of any of the foregoing persons in the
220 Actions or the Actions.
     7. Upon the Court’s approval of the Settlement, any and all past, present
or future claims, actions, rights, damages, losses, equities, obligations,
duties, causes of action, suits, demands, costs, expenses, matters and issues,
whether known or unknown, contingent or absolute, accrued or unaccrued, apparent
or unapparent (“Claims”), that

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have been, or could have been asserted by Plaintiffs, Plaintiffs’ trustees,
beneficiaries, agents, representatives, or any other person acting or purporting
to act on behalf of any Plaintiff individually, or by the Company or by any
shareholder of the Company acting or purporting to act on the Company’s behalf
(collectively, the “Plaintiff Releasing Parties”), against Defendants (or any
one of them) and/or any of their respective families, parent entities,
associates, affiliates, or subsidiaries and each and all of their respective
past or present officers, directors, shareholders, partners, members,
representatives, employees, financial or investment advisors, consultants,
accountants, attorneys, investment bankers, commercial bankers, engineers,
advisors or agents, heirs, executors, trustees, general or limited partners or
partnerships, limited liability companies, personal or legal representatives,
estates, administrators, predecessors, successors and assigns, or any other
person acting or purporting to act on behalf of any defendant (collectively, the
“Defendant Released Parties”), whether or not they were served with process and
have appeared in any of the Actions, that are set forth, alleged, or otherwise
referenced, in the 220 Actions, the Consolidated Amended Complaint or any prior
complaint in the Actions, including but not limited to any mismanagement,
failure to act, facts, transactions, occurrences, representations, events,
omissions or acts (including Claims related to the Wireline Sale and the
terminated EPA or for contribution or indemnification) alleged therein, shall be
individually and collectively compromised, settled, waived, released,
discharged, and dismissed with prejudice (the “Plaintiffs’ Settled Claims”),
excepting any Claim to enforce the terms and conditions of the Settlement
itself. Notwithstanding the foregoing, nothing in this Agreement shall

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constitute a compromise, settlement, waiver, release, discharge or dismissal by
the Plaintiff Releasing Parties of (1) any Claims based on allegations of
conduct or events that occurred after June 29, 2006, the date of the filing of
the Consolidated Amended Complaint, unless such Claims were previously set
forth, alleged, or otherwise referenced, in the 220 Actions, the Consolidated
Amended Complaint or any prior complaint in the Actions, or otherwise asserted
in the Actions; or (2) any Claims, interests, orders, judgments, rulings, and
defenses (a) based upon, arising out of, or in any way relating to the Asset
Purchase Agreement by and among Allegiance Telecom, Inc., Allegiance Telecom
Company Worldwide, and XO Communications, Inc. dated February 18, 2004, and
related amendments, modifications, agreements, stipulations, orders, and other
documents, (b) asserted or entered in or in any way relating to the proceedings
under Chapter 11 of the United States Bankruptcy Code of Allegiance Telecom,
Inc., and its affiliates (collectively, “Debtors”) pending before the United
States Bankruptcy Court for the Southern District of New York (the “Bankruptcy
Court”), Case No. 03-13057 (RDD) (jointly administered), or (c) based upon,
arising out of, or in any way relating to Debtors’ plan of reorganization, the
liquidating trust agreement of the Allegiance Telecom Liquidating Trust, and
related agreements, orders, and other documents.
     8. Upon the Court’s approval of the Settlement, any and all Claims, that
have been, or could have been asserted by Defendants, Defendants’ trustees,
beneficiaries, agents, representatives, or any other person acting or purporting
to act on behalf of any Defendant individually (collectively, the “Defendant
Releasing Parties”), against Plaintiffs (or any one of them) and/or any of their
respective families, parent entities,

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associates, affiliates, or subsidiaries and each and all of their respective
past or present officers, directors, shareholders, partners, members,
representatives, employees, financial or investment advisors, consultants,
accountants, attorneys, investment bankers, commercial bankers, engineers,
advisors or agents, heirs, executors, trustees, general or limited partners or
partnerships, limited liability companies, personal or legal representatives,
estates, administrators, predecessors, successors and assigns, or any other
person acting or purporting to act on behalf of any plaintiff (collectively, the
“Plaintiff Released Parties”), whether or not they were served with process and
have appeared in any of the Actions, that are based upon, arise out of, or in
any way relate to Plaintiffs’ conduct in connection with the 220 Actions or the
Actions (“Defendants’ Settled Claims,” and, collectively with Plaintiffs’
Settled Claims, the “Settled Claims”), shall be individually and collectively
compromised, settled, waived, released, discharged and dismissed with prejudice,
excepting any Claim to enforce the terms and conditions of the Settlement
itself. Notwithstanding the foregoing, nothing in the Settlement Agreement shall
constitute a compromise, settlement, waiver, release, discharge, or dismissal by
any of the Defendant Releasing Parties of any Claims, interests, orders,
judgments, rulings, and defenses (1) based upon, arising out of, or in any way
relating to the Asset Purchase Agreement by and among Allegiance Telecom, Inc.,
Allegiance Telecom Company Worldwide, and XO Communications, Inc. dated
February 18, 2004, and related amendments, modifications, agreements,
stipulations, orders, and other documents, (2) asserted or entered in or in any
way relating to the proceedings under Chapter 11 of the United States Bankruptcy
Code of Allegiance Telecom, Inc., and its affiliates

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(collectively, “Debtors”) pending before the United States Bankruptcy Court for
the Southern District of New York (the “Bankruptcy Court”), Case No. 03-13057
(RDD) (jointly administered), or (3) based upon, arising out of, or in any way
relating to Debtors’ plan of reorganization, the liquidating trust agreement of
the Allegiance Telecom Liquidating Trust, and related agreements, orders, and
other documents.
     9. As set forth in paragraphs 7 and 8 above, it is the intention of the
Parties to extinguish the Settled Claims. Consistent with such intention, the
Plaintiff Releasing Parties and the Defendant Releasing Parties agree that in
the event that a court might deem laws that are applicable to general releases
to be applicable to the releases set forth in paragraphs 7 and 8 above (the
“Releases”), including Section 1542 of the California Civil Code, or any other
similar state law, federal law or principle of common law, the Parties waive any
and all rights, to the extent permitted by law, under Section 1542 of the
California Civil Code, or such other similar state law, federal law or principle
of common law which may have the effect of limiting the Releases. Section 1542
of the California Code provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.
The Parties, however, do not concede that any law, other than the law of the
State of Delaware, is applicable to the Settlement or the Settled Claims, nor do
the Parties maintain that general releases are being given pursuant to this
Agreement. The Plaintiff Releasing Parties and the Defendant Releasing Parties
acknowledge that they may

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discover facts in addition to or different from those that they now know or
believe to be true with respect to the subject matter of the Actions, but that
it is their intention to fully, finally, and forever settle and release any and
all Settled Claims without regard to any such additional or different facts.
     10. Neither this Stipulation nor any of the negotiations, statements,
transactions or proceedings in connection with this Settlement shall constitute
or be construed as an admission or concession by any of the Defendants of any
fault, wrongdoing or liability whatsoever, or as an admission that Plaintiffs,
the Company or any shareholder of the Company has suffered any damages, or as an
admission by Plaintiffs of any lack of merit of their claims. Neither this
Stipulation nor any of the negotiations, statements, transactions, or
proceedings in connection with this Settlement shall be deemed, offered or
received in evidence in any civil, criminal, administrative or other proceeding,
or used in any manner whatsoever, including as a presumption, a concession, or
an admission of any fault, wrongdoing, or liability whatsoever on the part of
any Defendant; provided, however, that nothing contained in this Stipulation
shall prevent this Stipulation (or any agreement or order relating thereto) from
being used, offered, or received in evidence in any proceeding to approve,
enforce, or otherwise effectuate the Settlement (or any agreement or order
relating thereto) and, provided further, that the Plaintiff Released Parties,
the Defendant Released Parties, and any of their respective predecessors or
successors-in-interest, may file and use this Stipulation and the Final Judgment
and Order and all documents relating thereto in any action to support a defense
of res judicata,

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collateral estoppel, release, good faith settlement, judgment bar, reduction or
any other theory of claim preclusion, issue preclusion or similar defense.
     11. By signing this Stipulation, Plaintiffs’ Counsel represent and warrant
that Plaintiffs (other than Allegiance) currently hold shares of the Company
stock and have held such shares continuously since prior to the filing of the
original complaints in the Actions and none of their claims or causes of action
have been assigned, encumbered or in any manner transferred in whole or in part.
     12. If the Court does not approve the Settlement or the order approving the
Settlement is reversed, vacated or modified on appeal, then: (a) this
Stipulation shall become null and void for all purposes, and all negotiations,
transactions and proceedings connected with it (i) shall be without prejudice to
the rights of any party to assert any claim or defense in the Actions, (ii)
shall not be deemed or construed as evidence or an admission by any party of any
fact, matter or thing and (iii) shall not be admissible in evidence or used in
any subsequent proceedings in the Actions or any other action or proceeding; and
(b) no party shall be entitled to reimbursement from any other party for
notification costs.
     13. Subject to the approval of the Settlement, Plaintiffs’ Counsel will
apply to the Court for an award of attorneys’ fees and reimbursement of expenses
not to exceed, in the aggregate, $8 million. Plaintiffs’ application shall
allocate their respective fees and expenses such that neither Allegiance’s nor
R2’s portion of the fee award will exceed the amount of professional fees and
expenses actually incurred in connection with the mooted Claims relating to the
Wireline Sale, EPA and any other mooted matters.

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Defendants will not oppose the amount of such fees and expenses, and the Company
shall pay such attorneys’ fees and expenses within that limit as are approved
and ordered by the Court, within ten (10) business days after the Effective
Date, as directed by Plaintiffs’ counsel, unless the Court orders otherwise.
None of Defendants shall bear any expenses, costs, fees or payments of any kind
whatsoever except as expressly set forth in this Stipulation with respect to the
Company.
     14. The obligations of Defendants under this Stipulation, other than the
Company’s obligation to pay costs incurred with providing notice to the
Company’s shareholders of the proposed Settlement, are conditioned upon the
entry of the Final Judgment and Order and all transactions preparatory or
incident thereto.
     15. Within thirty (30) days after payment of any attorneys’ fees awarded by
the Court, Plaintiffs’ Counsel shall destroy or return to Defendants’ counsel
all confidential material produced or otherwise transmitted to Plaintiffs or
their counsel by any defendant in the Actions and all documents containing
information or material derived from those confidential materials, excluding any
pleadings filed with the Court of Chancery in the Actions, which may be
maintained by the Parties in accordance with the Stipulation and Order governing
the production and exchange of confidential information in the Actions.
     16. Disallowance by the Court of any application by Plaintiffs for the
payment of attorneys’ fees and/or expenses, any appeal from any order relating
thereto and any modification or reversal on appeal of any such order shall not
operate to terminate or

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cancel this Stipulation or affect its terms, including the releases, or affect
or delay the finality of the judgment approving this Stipulation.
     17. This Stipulation and its Exhibits shall be deemed to have been mutually
prepared by the Parties hereto and shall not be construed against any of them by
reason of authorship.
     18. This Stipulation constitutes the entire agreement among the Parties
with respect to the settlement of the Actions.
     19. This Stipulation may be amended or any of its provisions waived only by
a writing executed by all Parties hereto.
     20. Any failure by any Party to insist upon the strict performance by any
other party of any of the provisions of this Stipulation shall not be deemed a
waiver of any of the provisions hereof, and such Party, notwithstanding such
failure, shall have the right thereafter to insist upon the strict performance
of any and all of the provisions of this Stipulation.
     21. This Stipulation shall be construed and enforced in accordance with the
laws of the State of Delaware, without regard to the conflicts of law provisions
thereof. This Court will retain exclusive jurisdiction to enforce, construe or
challenge any provision of this Stipulation.
     22. The Parties and their attorneys agree to cooperate fully in seeking
this Court’s approval of this Stipulation and Settlement, and to use their best
efforts to effect, as promptly as practicable, the consummation of the
Settlement and the dismissal of the Actions.

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     23. This Stipulation may be executed in counterparts and all counterparts
so executed shall together be deemed to constitute one complete agreement, and
each such counterpart shall be deemed to be an original. Facsimile copies of
this Stipulation and the signatures of the Parties hereto shall be deemed to be
originals.
     24. The Exhibits to this Stipulation constitute an integral part of this
Stipulation.
     25. This Stipulation shall be binding upon and inure to the benefit of the
Parties hereto, the Plaintiff Released Parties and Defendant Released Parties,
and their respective successors and assigns.
     26. Each of the attorneys executing this Stipulation on behalf of any party
hereto warrants and represents that he or she has been duly authorized and
empowered to execute this Stipulation on behalf of each such respective party.
          IN WITNESS WHEREOF, the Parties hereto have caused the Stipulation to
be executed, by their duly authorized attorneys dated as of January 14, 2008.

          POTTER ANDERSON & CORROON LLP
      /s/ Matthew E. Fischer (#3092)       Donald J. Wolfe, Jr. (#285)     
Matthew E. Fischer (#3092)
Brian C. Ralston (#3770)
Hercules Plaza
1313 N. Market Street
Wilmington, DE 19801
(302) 984-6015
Attorneys for Plaintiff R2 Investments, LDC       

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          ROSENTHAL MONHAIT & GODDESS, P.A.
      /s/ Jessica Zeldin (#3558)       Jessica Zeldin (#3558)      919 Market
Street, Suite 1401
Wilmington, DE 19801
Attorneys for Plaintiff
Donald J. Hillenmeyer, Jr.        RICHARDS LAYTON & FINGER, P.A.
      /s/ Thomas A. Beck (#2086)       Thomas A. Beck (#2086)       Meredith
Stewart (#4960)
One Rodney Square
920 N. King Street
Wilmington, Delaware 19801
(302) 651-7700
Attorneys for AllegianceTelecom Liquidating
Trust (Plaintiffs in former C.A. No. 1877-VCS)        BOUCHARD MARGULES &
FRIEDLANDER, P.A.
      /s/ Andre G. Bouchard (#2504)       Andre G. Bouchard (#2504)      Joel
Friedlander (#3163)
222 Delaware Avenue
Suite 1400
Wilmington, DE 19801
(302) 573-3510
Attorneys for Defendants Adam Dell,
Robert Knauss, and Fredrik Gradin     

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          MORRIS JAMES LLP
      /s/ Patricia R. Uhlenbrock (#4011)       Patricia R. Uhlenbrock (#4011)   
  500 Delaware Avenue, Suite 1500
P.O. Box 2306
Wilmington, DE 19899-2306
(302) 575-7232
Attorneys for Nominal Defendant XO Holdings, Inc.        ASHBY & GEDDES
      /s/ Lawrence C. Ashby (#468)       Lawrence C. Ashby (#468)      Philip
Trainer, Jr. (#2788)
Richard D. Heins (#3000)
Richard L. Renck (#3893)
500 Delaware Avenue, 8th Floor
P.O. Box 1150
Wilmington, Delaware 19899
(302) 654-1888
Attorneys for Defendant Carl C. Icahn
Vincent J. Intrieri, Jon F. Weber, Keith Meister,
Cardiff Holding LLC and Elk Associates, LLC        MORRIS, NICHOLS, ARSHT &
TUNNELL LLP
      /s/ William M. Lafferty (#2755)       William M. Lafferty (#2755)       R.
Judson Scaggs, Jr. (#2676)
Susan W. Waesco (#4476)
Samuel T. Hirzel (#4415)
1201 North Market Street
Wilmington, DE 19801
(302) 658-9200
Attorneys for Defendant Carl J. Grivner       

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