Document:

exv10w7

 

Exhibit 10.7

ESCROW AGREEMENT

     Escrow Agreement (this “Escrow Agreement”), dated as of January 15, 2003,
by and among XO Communications, Inc., a Delaware corporation (the “Parent”), XO
Management Services, Inc., a Washington corporation (the “Subsidiary”, and
together with the Parent, the “Companies”), and U.S. Bank Trust National
Association, as Escrow Agent (the “Escrow Agent”). The Parent and the Escrow
Agent are sometimes referred to herein collectively as the “Parties” and
individually as a “Party.”

     WHEREAS, the Subsidiary is a wholly-owned subsidiary of the Parent; and

     WHEREAS, the Amended and Restated Certificate of Incorporation of the
Parent (the “Charter”) and the agreements set forth on Schedule A hereto
(collectively with the Charter, the “Indemnification Documents”) contain
certain provisions relating to indemnification of, and advancement of expenses
to, among others, current and former directors, officers and employees of the
Companies for certain potential liabilities (each such current or former
director, officer or employee, an “Indemnified Party” and collectively the
“Indemnified Parties”); and

     WHEREAS, each person listed on Schedule B hereto (each a “Designated
Indemnified Party” and collectively the “Designated Indemnified Parties”) is a
current or former director and/or officer of the Companies covered by the
Indemnification Documents;

     WHEREAS, the Companies desire to enter into this Escrow Agreement to
provide a source for payment of the Companies’ obligations under the
Indemnification Documents;

     NOW, THEREFORE, the Companies and the Escrow Agent hereby agree as
follows:

     1.     APPOINTMENT AND ACCEPTANCE. The Companies hereby appoint the Escrow
Agent as escrow agent for the purposes set forth herein and upon the terms and
conditions hereinafter set forth. The Escrow Agent hereby accepts such
appointment and agrees to act as escrow agent hereunder and to hold, invest and
dispose of any funds received by it hereunder in accordance with the terms and
conditions hereinafter set forth.

     2.     INDEMNIFICATION DOCUMENTS NOT LIMITED BY THIS ESCROW AGREEMENT. This
Escrow Agreement and the deposit of the Escrow Deposit (as defined below) and
the payment of the Escrow Deposit for the purposes described herein are without
prejudice to, and are not in limitation of, any obligations of the Companies
contained in the Indemnification Documents or the rights of the Indemnified
Parties thereunder or under any other applicable agreements, statutes or laws.
Except as set forth in Section 10 hereof, nothing herein is intended to or
shall be construed as expanding or contracting the rights and obligations of
the parties hereto pursuant to the Indemnification Documents or other
applicable agreements, statutes or laws.

 

 

     3.     DEPOSIT OF ESCROW DEPOSIT. On the date hereof, the Subsidiary
delivered to the Escrow Agent for deposit in escrow (all such amounts held by
the Escrow Agent in escrow, the “Escrow Fund”) pursuant to the provisions
hereof a wire transfer of immediately available funds in the amount of
$25,000,000 (the “Escrow Deposit”). Receipt of the Escrow Deposit is hereby
acknowledged by the Escrow Agent.

     4.     PURPOSE OF AGREEMENT. This Escrow Agreement has been executed and the
Escrow Deposit has been made in order to assure the availability of funds, to
the extent of the Escrow Deposit, necessary to pay the claims, liabilities,
costs or expenses (including costs and expenses incurred in defending against
any such claims or liabilities) incurred by the Indemnified Parties and for
which the Indemnified Parties are entitled to be indemnified pursuant to the
Indemnification Documents (“Covered Claims”), in the event that the Company
otherwise fails to meet its obligations with respect to the Covered Claims.

     5.     INDEMNIFIED PARTY COMMITTEE.

             5.1    General. A committee (the “Committee”) of representatives of the
Indemnified Parties (each such Committee member an “Indemnified Party
Representative”, and collectively, the “Indemnified Party Representatives”)
shall participate, in the manner set forth in Section 6 hereof, in the
determination of whether any claim of any Indemnified Party is a Covered Claim.
The Committee shall initially consist of three (3) members designated in
accordance with Section 5.2 hereof as of the date hereof, and thereafter shall
consist of such number as may be fixed from time to time by resolution of the
Committee.

             5.2    Appointment of Committee. The following three (3) individuals are
hereby designated as the initial Indemnified Party Representatives: Daniel
Akerson, Dennis Weibling and Gary Begeman.

             5.3    Voting of Committee. A majority of the members of the Committee shall
constitute a quorum. The act of a majority of the members of the Committee
present at any meeting at which a quorum is present shall be the act of such
Committee. The members of the Committee shall act only as a Committee, and the
individual members thereof shall not have any powers as such. Any action
required to be taken at a meeting of the Committee, or any other action, which
may be taken at a meeting of the Committee, may be taken without a meeting if a
consent in writing setting forth the actions so taken shall be signed by a
majority of the members of the Committee, as the case may be. Such consent
shall have the same effect and force as a unanimous vote of the Committee. Any
member of the Committee may participate in a meeting of the Committee by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at this meeting.

             5.4    Resignation, Removal and Appointment. Any Indemnified Party
Representative may resign from the Committee at any time. Such resignation
shall be made in writing and shall take effect at the time specified therein,
or, if no time be specified, at the time of its receipt by the Parent. The
acceptance of a resignation shall not be necessary to make it effective unless
so specified therein. Any Indemnified Party Representative may be removed by
the written consent of a majority of the Designated Indemnified Parties. Any
vacancy in the

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 Committee occurring from any cause whatsoever may be filled by the
unanimous written consent of the remaining members of the Committee or by the
written consent of a majority of the Designated Indemnified Parties.

             5.5    Authority of Majority Indemnified Parties Absolute. Notwithstanding
anything in this Agreement to the contrary, the majority of the Designated
Indemnified Parties (the “Majority Indemnified Parties”) shall have absolute
authority by act of written consent to remove or appoint any Indemnified Party
Representative, which removal or appointment shall be effective when written
notice thereof shall be delivered by the Majority Indemnified Parties to the
Parent and shall have been received by the Parent. Anything herein to the
contrary notwithstanding, any of the Companies shall be entitled to rely upon
any written notification which it receives from the Committee.

     6.     PROCEDURES FOR INDEMNIFICATION

     (a)    Notice of Claims. Promptly upon the discovery of any threatened
action or the commencement of any action with respect to a Covered Claim (each
such action, a “Proceeding”), an Indemnified Party or either of the Companies
(to the extent either of the Companies discover or otherwise become aware of
such Proceeding) shall provide written notice to the Parent and the Committee
of such Covered Claim (a “Notice of Covered Claim”). Promptly upon notice of
or commencement of any Proceeding or receipt of a Notice of Covered Claim, the
Parent shall provide written notice of such Covered Claim to any Indemnified
Party subject to or likely to be affected by the Proceeding.

     (b)    Representation Procedures. Promptly upon receipt of a Notice of
Covered Claim or upon notice or discovery of or commencement of a Proceeding,
the Parent shall, should it determine on a preliminary basis (without being
deemed to have waived its right to take the contrary position at any time
thereafter) that a Proceeding is a Covered Claim, promptly arrange for legal
representation of any Indemnified Parties subject to or otherwise involved in
the Proceeding, individually or, if appropriate, collectively with the Parent
and/or the Subsidiary, in the Parent’s sole discretion, and the Parent shall be
entitled to submit the entire cost thereof, whether or not such cost has
already been paid by Parent, in a Claim Notice (as defined below) including,
without limitation, reasonable attorneys’ fees, disbursements and amounts paid
as the result of or in connection with such Proceeding (collectively, the
“Reasonable Costs”); provided, however, that any Indemnified
Party may notify the Parent in writing that he or she is retaining separate counsel and if (i)
the employment of counsel by such Indemnified Party has been authorized in
writing by the Parent or (ii) such Indemnified Party and the Parent has each
been advised in writing by its or his counsel, such writing in form and
substance reasonably satisfactory to the Parent, that there is a conflict of
interest between such Indemnified Party and either the Parent, the Subsidiary
or any other Indemnified Party in the conduct of the defense of such
Proceeding, such Indemnified Party shall be entitled to submit the entire cost
thereof, to the extent reasonable, in a Claim Notice (as defined below),
including, without limitation, any Reasonable Costs; provided, further,
that such Indemnified Party shall in any event cooperate with and assist the Parent,
the Subsidiary and/or any other Indemnified Party subject to such Proceeding to
the extent reasonably possible. Except as provided above, no Indemnified Party
shall be permitted to conduct the defense of any Covered Claim and the
Companies shall have the right to conduct such defense and make such
determinations as are necessary in connection

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 therewith and the Parent shall have the sole right and authority to settle
any such Covered Claims and either have such settlement together with
applicable costs of defending against such Covered Claim paid for or reimbursed
out of the Escrow Fund, as defined herein, by submission of a Claim Notice, but
only if such settlement contains an unconditional release of all applicable
Indemnified Parities. If the Parent fails timely to defend, contest or
otherwise protect any Indemnified Party against such Proceeding, such
Indemnified Party shall have the right to do so, including, without limitation,
the right to make any compromise or settlement thereof (with the consent of
Parent, not to be unreasonably withheld), and such Indemnified Party shall be
entitled to submit the entire cost thereof in a Claim Notice (as defined
below), including, without limitation, any Reasonable Costs. Notwithstanding
the foregoing, upon receipt of any Claim Notice or Claims Objection, the
Committee may obtain its own legal counsel (the “Committee Counsel”) with
respect to (i) its deliberations on such Claim Notice or Claims Objection and
(ii) any actions or proceedings relating to such Claim Notice or Claims
Objection.

     (c)    Claim Certification. If at any time prior to the Release Date (as
defined below), either Company or any Indemnified Party (each a “Claim Party”))
shall claim that it is entitled to payment of all or a portion of the Escrow
Deposit by the incurrence of a Covered Claim, such Claim Party shall give
notice (the “Claim Notice”) to the Parent and the Committee by delivering such
Claim Notice to the legal counsel of such party as set forth in Section 17.1
herein. The Claim Notice shall be in the form of an affidavit which shall (i)
state the name and address of the Claim Party making the Claim Notice, (ii)
describe the event or events giving rise to the Claim Notice and specifying the
amount of the Escrow Deposit requested to be disbursed to the Claim Party to
indemnify or reimburse the Claim Party for the Covered Claim, (iii) identify
the relevant Indemnification Document(s) pursuant to which the Covered Claim
arises together with a statement describing the nature of the Covered Claim,
(iv) relevant invoices or other supporting documentation, to the extent
available, establishing the amount of the Covered Claim and (v) instructions
for the delivery of any payment of Escrow Deposit made in respect of such
Covered Claim. The Committee and the Parent shall each promptly evaluate any
and all Claim Notices delivered to the Committee and the Parent and determine
in good faith the validity of each such Claim Notice. If both the Committee
and the Parent approve the Claim Notice, a written notification to that effect
and including instructions to deliver the amount certified as valid signed by
two Indemnified Party Representatives and the Parent, (an “Approved Claim
Notice”) shall be delivered to the Escrow Agent with copies of such Approved
Claim Notice delivered to the Designated Indemnified Parties.

     (d)    Disbursement; Objection Procedures. In the event that either the
Committee or the Parent does not approve the Claim Notice, it shall notify the
other in writing of such determination (each such writing, a “Claims
Objection”) and provide a copy of Claims Objection to the party delivering the
Claim Notice and to the Designated Indemnified Parties. The Escrow Agent shall
not disburse any funds until it has (i) received instructions with respect to
the Escrow Funds signed by the Committee and the Parent or (ii) received an
order of a court of competent jurisdiction, in which case it shall comply with
such instructions or the order as the case may be. After payment of any amount
from the Escrow, the Escrow Agent shall promptly deliver a written notice of
payment to the Parent and the Committee.

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     (e)    Expenses of Disputed Claims. The reasonable fees and disbursements of
Committee Counsel incurred in connection with Committee’s consideration of
Claim Notices and Claim Objections and any actions or proceedings relating
thereto shall be paid from the Escrow Account as requested by written request
of the Committee to the Escrow Agent, provided that fees and disbursements in
excess of $50,000 for each related group of Claim Notices and Claim Objections
shall be payable only with the prior, written consent of the Parent, which
consent will not be unreasonably withheld.

     7.     INVESTMENT OF ESCROW DEPOSIT.

     (a)    If the Escrow Agent shall have received specific written investment
instruction from the Company, on a timely basis, to invest the Escrow Fund in
(i) any U.S. Government security, repurchase agreements fully collateralized by
U.S. Government securities or the securities of a U.S. Government agency or
sponsored enterprises; which matures within three months from the date of the
investment; (ii) any commercial paper rated A1/P1 or better; and/or (iii) a
money market mutual fund governed under the 1940 Act which permits redemption
of shares on any business day, the Escrow Agent shall invest the Escrow Fund,
from time to time, pursuant to and as directed in such instructions. The Escrow
Agent shall promptly after the last business day of each calendar month deliver
to the Parent and the Committee a statement setting forth as of the last
business day of the calendar month the cash and securities held hereunder and
all income, interest or proceeds earned thereon; the Companies and the
Indemnified Parties agree that, except for the foregoing, the Escrow Agent
shall have no obligations to monitor, or advise the Companies, the Committee or
the Indemnified Parties with respect to, such investments. On the first
business day of each business quarter of the Parent, to the extent that the sum
of (x) the Escrow Fund, as it exists from time to time, (y) the amount
disbursed by the Escrow Agent as permitted hereby (z) the amount disbursed by
the Escrow Agent to itself for its costs and expenses pursuant to the
provisions hereof, exceeds $25 million, without taking into account any
disbursement to the Parent pursuant to this Paragraph 7, such excess shall be
disbursed promptly by the Escrow Agent by delivering such excess to the Parent
by wire transfer of immediately available funds.

     (b)    Absent its timely receipt of such specific written investment
instruction from the Company, the Escrow Agent shall have no obligation or duty
to invest (or otherwise pay interest on) the Escrow Fund. The Escrow Agent
shall have no liability for any investment losses, including without limitation
any market loss on any investment liquidated prior to maturity in order to make
a payment required hereunder.

     (c)    Tax Reporting. Each of the Indemnified Parties and the other Parties
hereto, agree that, for tax reporting purposes, all interest or other income
earned from the investment of the Escrow Fund in any tax year shall be reported
as allocated to the Parent.

     8.     RELEASE DATE AND TERMINATION OF ESCROW.

     (a)    On the second anniversary of the date on which the Escrow Deposit is
made (“Release Date”), the Escrow Agent shall ascertain the amount of the
escrow balance (the “Escrow Balance”), which amount shall equal the amount of
Escrow Deposit (including all interest or other income attributable thereto and
not previously disbursed) then held hereunder

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 less the amount or estimated amount of Escrow Deposit, if any, then
covered by a Notice of Covered Claim and as to which final disbursement has not
been made, for any reason. On the business day following the Release Date, the
Escrow Agent shall deliver to the Parent the Escrow Balance by wire transfer of
immediately available funds. Within five business days of the later of (i) the
Release Date and (ii) the date of the settlement or final judicial resolution
of all Covered Claims in respect of bona fide third party suits for which
Notices of Covered Claims were filed prior to the Release Date, the Escrow
Agent shall deliver to the Parent any additional Escrow Balance by wire
transfer of immediately available funds. Once all requests for payment of
Covered Claims have been settled and all of the Escrow Deposit has been paid
out in accordance with the foregoing provisions, this Escrow Agreement and all
of the obligations of the Escrow Agent hereunder shall terminate.

     (b)    The Escrow Agent is authorized to liquidate the securities held
hereunder (unless directed in writing by the Parent and the Committee to
distribute such securities in some other specified manner) to the extent
necessary to disburse as provided in this Agreement and shall have no liability
for any loss arising out of any such liquidation.

     9.     ESCROW AGENT’S LIABILITY. The Escrow Agent undertakes to perform such
duties and only such duties as are specifically set forth in this Escrow
Agreement, and no implied covenants or obligations shall be read into this
Escrow Agreement against the Escrow Agent and shall have not be responsible for
any agreements referred to or described herein, including, but not limited to,
the Charter or the Indemnification Agreements. In the absence of bad faith,
gross negligence or willful misconduct on its part, the Escrow Agent may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Escrow Agent. The Escrow Agent may act upon any instrument, certificate,
opinion or other writing believed by it in good faith and without gross
negligence to be genuine, and shall not be liable in connection with the
performance by it of its duties pursuant to the provisions of this Escrow
Agreement, except for its own bad faith, gross negligence or willful
misconduct. The Escrow Agent may consult with counsel of its own choice at its
own expense and shall have full and complete authorization and protection for
any action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion of such counsel. The Escrow Agent may execute
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys. The Escrow Agent shall not be obligated to take
any legal or other action hereunder which might in its judgment involve or
cause it to incur any expense or liability unless it shall have been furnished
with acceptable indemnification. In no event shall the Escrow Agent be liable
for indirect, punitive or special or consequential damages or loss (including
but not limited to lost profits) whatsoever, even if the Escrow Agent has been
informed of the likelihood of such loss or damage and regardless of the form of
action. Notwithstanding any term appearing in this Agreement to the contrary,
in no instance shall the Escrow Agent be required or obligated to distribute
any Escrow Funds (or take any action that may be called for hereunder to be
taken by the Escrow Agent) sooner than two (2) business days after (i) it has
received the applicable documents required under this Agreement in good form,
or (ii) passage of the applicable time period (or both, as applicable under the
terms of this Agreement), as the case may be.

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     10.     INDEMNIFICATION OF ESCROW AGENT AND COMMITTEE. The Companies hereby
jointly and severally agree to indemnify the Escrow Agent, the Committee and
any Indemnified Party Representative for, and to hold each of them harmless
against, any loss, liability or expense incurred without gross negligence,
willful misconduct or bad faith on the part of the Escrow Agent, the Committee
and any Indemnified Party Representative, arising out of or in connection with
this Escrow Agreement, carrying out each of their duties hereunder and, in the
case of the Escrow Agent, accepting the Escrow Deposit, including the costs and
expenses of defending itself against any claim of liability in connection with
the exercise or performance of any of its powers or duties hereunder (including
reasonable fees, expenses and disbursements of counsel). Any amounts claimed
pursuant to this section 10 (the “Indemnification Agent Claims”) by the Escrow
Agent (including, without limitation, any reasonable expenses of the Committee
and any Indemnified Party and any reasonable fees and expenses of Committee
Counsel and counsel to the Escrow Agent), the Committee and/or any Indemnified
Party Representative shall be paid (a) from the Escrow Deposit and (b) if the
Escrow Deposit does not have sufficient funds to pay such claim, any remaining
unpaid amount shall be paid by the Companies. Notwithstanding anything herein
to the contrary, any Indemnification Agent Claims shall be paid promptly upon
demand and are not subject to Section 6 hereof.

     11.     TAX INDEMNIFICATION. Each of the Parent and the Subsidiary agrees,
jointly and severally, (i) to assume for the benefit of the Escrow Agent any
and all obligations imposed now or hereafter by any applicable tax law with
respect to any payment or distribution of the Escrow Fund or performance of
other activities under this Agreement; provided that each Indemnified Person
shall be responsible for such obligations, if any, imposed upon such person by
applicable tax law with respect to any payments or distributions made to such
person, (ii) to instruct the Escrow Agent in writing with respect to the Escrow
Agent’s responsibility for withholding and other taxes, assessments or other
governmental charges, and to instruct the Escrow Agent with respect to any
certifications and governmental reporting that may be required under any laws
or regulations that may be applicable in connection with its acting as Escrow
Agent under this Agreement, and (iii) to indemnify and hold the Escrow Agent
harmless from any liability or obligation on account of taxes, assessments,
additions for late payment, interest, penalties, expenses and other
governmental charges that may be assessed or asserted against the Escrow Agent
in connection with, on account of or relating to the Escrow Fund, the
management established hereby, any payment or distribution of or from the
Escrow Fund pursuant to the terms hereof or other activities performed under
the terms of this Agreement, including without limitation any liability for the
withholding or deduction of (or the failure to withhold or deduct) the same,
and any liability for failure to obtain proper certifications or to report
properly to governmental authorities in connection with this Agreement,
including costs and expenses (including reasonable legal fees and expenses),
interest and penalties. The foregoing indemnification and agreement to hold
harmless shall survive the termination of this Agreement.

     12.     ESCROW AGENT TO FOLLOW INSTRUCTIONS OF THE COMPANIES AND THE
COMMITTEE. Notwithstanding any provision contained herein to the contrary, the
Escrow Agent shall at any time and from time to time take such action hereunder
with respect to the Escrow Deposit (and the securities in which any of the
Escrow Deposit shall have been invested) as shall be directed in writing by
both the Companies and the Committee;

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 provided that the Escrow Agent shall first be indemnified to its
satisfaction with respect to any of its costs or expenses which might be
involved in so acting. In no event shall the Escrow Agent be required or
permitted to act at the direction of the Indemnified Parties, or any of them.
In no event shall the Indemnified Parties be required to join with the
Committee and/or the Companies in any direction or instruction to the Escrow
Agent.

     13.     RESIGNATION OF ESCROW AGENT. The Escrow Agent, or any successor, may
resign at any time, upon giving written notice 60 days before such resignation
shall take effect, to the Companies and the Committee. In the event the Escrow
Agent shall resign or be unable to serve, it shall be succeeded by such bank or
trust company as the Committee shall appoint, or if no appointment is made, by
a bank or trust company appointed by a court of competent jurisdiction. In the
absence of a successor so appointed by the Committee, the Escrow Agent may
petition such a court to appoint a successor escrow agent. The resigning
escrow agent shall transfer to its successor all monies, securities and
investments then held subject to this Escrow Agreement and all pending notices,
instructions and directions then in its possession, and shall thereupon be
discharged, and the successor shall thereupon succeed to all the rights, powers
and duties and shall assume all of the obligations of the resigning escrow
agent.

     14.     ESCROW AGENT’S FEE AND EXPENSES. All reasonable fees of the Escrow
Agent for the services rendered by the Escrow Agent pursuant to the provision
of this Escrow Agreement shall be paid by the Companies promptly after receipt
of a written request for payment by the Escrow Agent.

     15.     MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any
corporation into which the Escrow Agent may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Escrow Agent shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Escrow Agent, shall be the successor of the Escrow Agent
hereunder without the execution or filing of any paper or any further act on
the part of any of the Parties hereto.

     16.     RELATIONSHIP WITH INSURANCE. The Escrow Account shall not be
available to cover Claims with respect to actions or events occurring after the
Effective Date (as such term is defined in the Third Amended Plan of
Reorganization of the Parent, dated July 22, 2002).

     17.     GENERAL PROVISIONS.

                17.1    Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
if delivered personally or received with evidence of confirmation of receipt to
the parties at the following addresses:

	 	(a)	 	If to the Escrow Agent:

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	 	 	 	U.S. Bank Trust National Association

c/o State Street Bank and Trust, N.A.

61 Broadway, 15th Floor

New York, NY 10006

Attn: Jason G. Gregory
	 
	 	(b)	 	If to the Companies:
	 
	 	 	 	XO Communications, Inc.

11111 Sunset Hills Road

Reston, VA 20190

Attn: General Counsel
	 
	 	(c)	 	If to any or all of the Indemnified Parties or the Committee,
at the addresses specified on Schedule A and B.

                17.2    Waiver. The rights and remedies of the Parties to this Escrow
Agreement are cumulative and not alternative. Neither the failure nor any
delay by any Party in exercising any right, power, or privilege under this
Escrow Agreement or the documents referred to in this Escrow Agreement will
operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege.

                17.3    Entire Agreement and Modification. This Escrow Agreement supersedes
all prior oral or written agreements between the Parties with respect to its
subject matter and constitutes (along with the documents referred to in this
Escrow Agreement) a complete and exclusive statement of the terms of the
agreement between the Parties with respect to its subject matter. This Escrow
Agreement may not be amended except by a written agreement executed by the
Companies, the Majority Indemnified Parties and the Escrow Agent.

                17.4    Assignments, Successors and Third-Party Rights. Subject to Section
15 above, no Party may assign any of its rights under this Escrow Agreement
without the prior consent of the other Parties. Subject to the preceding
sentence, this Escrow Agreement will apply to, be binding in all respects upon,
and inure to the benefit of the successors and permitted assigns of the
Parties, and, in the event of the death of an Indemnified Party, to the estate
of such Indemnified Party. It is expressly acknowledged and agreed by the
Parties that the Indemnified Parties are intended to be and shall be third
party beneficiaries of this Escrow Agreement entitled to the benefits specified
herein. Nothing expressed or referred to in this Escrow Agreement will be
construed to give any person other than the parties to this Escrow Agreement
and the Indemnified Parities any legal or equitable right, remedy, or claim
under or with respect to this Escrow Agreement or any provision of this Escrow
Agreement.

                17.5    Severability. If any provision of this Escrow Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Escrow Agreement will remain in full force and effect. Any
provision of this Escrow Agreement held

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 invalid or unenforceable only in part or degree will remain in full force
and effect to the extent not held invalid or unenforceable.

                17.6    Section Headings; Construction. The headings of Sections in this
Escrow Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to “Sections” refer to the
corresponding Sections of this Escrow Agreement. All words used in this Escrow
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word “including” does not
limit the preceding words or terms.

                17.7    Governing Law. This Escrow Agreement issued hereunder shall be
deemed to be a contract made under the laws of the State of New York and for
all purposes shall be governed by and construed in accordance with the laws of
such State, irrespective of any contrary result otherwise required by
applicable conflict or choice of law rules. Each party hereto consents and
submits to the jurisdiction of the courts of the State of New York and of the
federal courts of the Southern District of New York in connection with any
action or proceeding brought against it that arises out of or in connection
with, that is based upon, or that relates to this Escrow Agreement or the
transactions contemplated hereby. In connection with any such action or
proceeding in any such court, each party hereto hereby waives personal service
of any summons, complaint or other process and hereby agrees that service
thereof may be made in accordance with the procedures for giving notice set
forth in Section 15.1 hereof. Each party hereto hereby waives any objection to
jurisdiction or venue in any such court in any such action or proceeding and
agrees not to assert any defense based on lack of jurisdiction or venue in any
such court in any such action or proceeding.

                17.8    Counterparts. This Escrow Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original copy of this
Escrow Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.

                17.9    Strict Construction. The language used in this Escrow Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any Party.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK.

SIGNATURE PAGE FOLLOWS.]

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

	 	 	 
	U.S. BANK TRUST NATIONAL ASSOCIATION
	 
	 
	 
	By:	 	
   /s/ Jason G. Gregory

Name:      Jason G. Gregory

Title:       Assistant Vice President
	 
	 
	 
	 
	 
	 

 

 

	 	 	 
	
XO COMMUNICATIONS, INC.
	 
	 
	By:	 	
/s/  Gary D. Begeman

	Name:	 	
Gary D. Begeman
	Title:	 	
Senior Vice President, General Counsel
	 
	 
	 
	
XO MANAGEMENT SERVICES, INC.
	 
	 
	By:	 	
/s/  Gary D. Begeman

	Name:	 	
Gary D. Begeman
	Title:	 	
Senior Vice President, General Counsel

 

 

Schedule A

Indemnification Documents

Indemnification Agreements, dated July 14, 2002, by and between XO Management
Services, Inc. and each of the following individuals:

Daniel F. Akerson

Nathaniel A. Davis

Craig O. McCaw

Sharon L. Nelson

Jeffery S. Raikes

Dennis M. Weibling

Nicolas Kauser

Sandra J. Horbach

Peter C. Waal

John H. Myers

Wayne M. Rehberger

Nancy B. Gofus

John H. Jacquay

Mark W. Faris

Gary D. Begeman

William F. Garrahan

Mutual Release and Settlement Agreement, dated October 13, 2002, by and among
XO Communications, Inc., Forstmann Little & Co. Equity Partnership-VII, L.P.,
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-VIII, L.P. and Teléfonos de México, S.A. de C.V.

 

 

Schedule B

Designated Indemnified Parties

Daniel F. Akerson

Nathaniel A. Davis

Joseph L. Cole

Sandra J. Horbach

Nicolas Kauser

Craig O. McCaw

John H. Myers

Sharon L. Nelson

Henry R. Nothhaft

Jeffery S. Raikes

Peter C. Waal

Dennis M. Weibling

Wayne M. Rehberger

Nancy B. Gofus

John H. Jacquay

Mark W. Faris

Gary D. Begeman

William F. Garrahan

Michael S. Ruley

R. Gerard Salemme<PAGE>

                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as
of April 1, 2002, by and between Enterasys Networks, Inc., a Delaware
corporation (the "Company"), and William O'Brien (the "Executive").

         1.       Term of Employment; Executive Representation.

                  (a)      Employment Term. Executive shall be employed by the
Company in the capacity described in Section 2 of this Agreement for a term
commencing on April 1, 2002 (the "Effective Date") and ending December 31, 2002.

                  (b)      Executive Representation. Executive hereby represents
to the Company that the execution and delivery of this Agreement by Executive
and the performance by Executive of his duties hereunder shall not constitute a
breach of, or otherwise contravene, the terms of any statute, law, regulation,
or of any employment agreement or other agreement or policy to which Executive
is a party or otherwise bound. Executive further agrees and represents that he
will duly, punctually and faithfully perform and observe any and all rules and
regulations that the Company may now or shall hereafter establish governing the
conduct of its business and/or the performance of Executive's duties hereunder.

         2.       Position.

                  (a)      While employed hereunder, Executive shall serve as
the Company's Interim Chief Executive Officer and shall report directly to the
Company's Board of Directors (the "Board"). In such position, Executive shall
have such authority as is customarily associated with the position of chief
executive officer at other publicly held companies similar to the Company and
shall have such duties, consistent with his position, as may be assigned from
time to time by the Board. Executive shall be nominated to serve on the Board
and shall serve in such capacity for so long as Executive remains an employee of
the Company. While Executive remains an employee of the Company or serves as a
consultant to the Company, Executive agrees to serve as a member of the Board
without additional compensation.

                  (b)      While employed hereunder, Executive will devote
Executive's full business time and best efforts to the performance of
Executive's duties hereunder and will not engage, either directly or indirectly,
in any other business, profession or occupation for compensation or otherwise
that would conflict with the rendering of such services, without the prior
written consent of the Board. Executive may be an outside board member for other
companies that do not compete with the Company, its subsidiaries and/or
affiliates, provided that such services do not interfere with Executive's
responsibilities to the Company, with the prior written approval of the Company,
which shall be in the Company's sole discretion, provided that approval shall
not be unreasonably withheld. It is hereby acknowledged and approved by the
Company that Executive currently serves on the Boards of Directors of Camp,
Dresser & McKee, Inc., Caritas Christi, Inc., and Key Commerce, Inc.
<PAGE>
         3.       Base Salary. While employed hereunder, the Company shall pay
Executive a base salary (the "Base Salary") at the monthly rate of $100,000,
payable in regular installments in accordance with the Company's usual payment
practices. Executive shall be entitled to such increases in Executive's Base
Salary, if any, as may be determined from time to time by the Board. In the
event that Executive remains employed by Company beyond the first anniversary of
the Effective Date, Executive's basic compensation structure will be adjusted to
be competitive with overall compensation packages for Chief Executive Officers
of comparable publicly traded companies, which may include a change in
Executive's annualized base salary and which likely would include an annual cash
incentive bonus.

         4.       Equity Arrangements. Within thirty (30) days following the
Effective Date, Executive shall be granted a stock option (the "Option") to
purchase 500,000 shares of the Company's Common Stock ("Common Stock"). Except
as otherwise provided herein, the Option shall in all respects be subject to
terms and conditions substantially similar to the Company's 1998 Equity
Incentive Plan. The per share exercise price of the Option shall be equal to
the fair market value of a share of Common Stock on the grant date of the
Option. At such time as the Company is eligible to utilize Form S-8, it will use
its best efforts to file and cause to become effect a registration statement on
Form S-8 to register shares issuable upon exercise of the Options.

    The Option shall vest and become exercisable in twelve (12) equal
monthly installments, beginning upon the last day of April, 2002 and in equal
monthly installments over the succeeding eleven (11) months of continued service
with the Company. The vesting and exercisability of the Option shall be
accelerated in the following circumstances:

                  (a)      If for any of the Company's last three fiscal
quarters of the Company's 2002 fiscal year the Company achieves its Revenue
target for such quarter as set forth in the Enterasys Performance Incentive
Plan, the Option shall vest as to 100,000 shares as of the last day of such
quarter and any portion of the option so vested shall become exercisable upon
the determination by the Board of Directors of the Company (in their sole
discretion) that the Company has achieved the applicable Revenue target. For the
avoidance of doubt, the maximum possible cumulative acceleration pursuant to the
immediately preceding sentence is 300,000 shares. For purposes of this
Paragraph, "Revenue" shall have the meaning set forth in the Enterasys
Performance Incentive Plan, a copy of which is attached hereto as Exhibit A, and
"Revenue Target" shall mean the revenue target set forth in the Fiscal Year 2002
Addendum dated June, 2002 to the Enterasys Performance Incentive Plan, a copy of
which is attached hereto as Exhibit B.

                  (b)      The Option shall become vested as to 80,000 shares if
the Company achieves break-even or positive Cash Flow from Operations in any of
the last three quarters of its 2002 fiscal year and any portion of the option so
vested shall become exercisable upon the determination by the Board of Directors
of the Company (in their sole discretion) that the Company has achieved such
Cash Flow from Operations target. For purposes of the foregoing sentence, "Cash
Flow from Operations" shall have the meaning set forth in the Enterasys
Performance Incentive Plan attached hereto as Exhibit A.
<PAGE>
                  (c)      The Option shall become vested as to 70,000 shares if
the Company achieves break-even or positive Operating Income in any of the last
three quarters of the Company's 2002 fiscal year, and any portion of the option
so vested shall become exercisable upon the determination by the Board of
Directors of the Company, or by the Audit Committee thereof, (in their sole
discretion) that the Company has achieved such Operating Income target. For
purposes of the foregoing sentence, "Operating Income" shall have the meaning
set forth in the Enterasys Performance Incentive Plan attached hereto as Exhibit
A.

                  (d)      The shares, if any, as to which the Option vests on
an accelerated basis pursuant to subsections (a), (b) or (c) above shall be
those as to which the Option otherwise would have vested last in time based upon
continued service to the Company.

                  (e)      Notwithstanding the foregoing, the Option shall
immediately vest and become exercisable in the event of a Change in Control (as
defined below). No more than a total of 500,000 shares may become vested under
the Option. The scheduled term of the Option shall be ten (10) years, subject to
earlier termination in the event that Executive terminates continued service to
the Company. In the event that Executive is no longer serving as a member of the
Board and is no longer an employee or consultant to the Company prior to the
tenth (10th) anniversary of the grant date of the Option, the Option shall
terminate on the last to occur of the following dates: (i) the first anniversary
of Executive's termination of service as an employee, consultant and member of
the Board, or (ii) December 31, 2004. Notwithstanding the terms of the previous
sentence, in no event shall the Option be exercisable subsequent to the tenth
(10th) anniversary of the grant date of the Option.
<PAGE>
         As used in this Section 4, the term "Change in Control" shall mean the
occurrence of any of the following events:

                  (a)      the sale or disposition, in one or a series of
related transactions, of all or substantially all, of the assets of the Company
to any "person" or "group" (as such terms are defined in Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended, or any successor
thereto) (the "Act") other than the Permitted Holders (as defined below);

                  (b)      any person or group, other than the Permitted
Holders, is or becomes the Beneficial Owner (as such term is defined in Rule
13d-3 under the Act or any successor rule thereto, except that a person shall be
deemed to have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the total
voting power of the voting stock of the Company (or any entity which controls
the Company), including by way of merger, consolidation, tender or exchange
offer or otherwise; or

                  (c)      during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board (together
with any new directors whose election by such Board or whose nomination for
election by the shareholders of the Company was approved by a vote of a majority
of the directors of the Company, then still in office, who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board, then in office.

         As used in this Section 4, the term "Permitted Holders" shall mean, as
of the date of determination, (i) an employee benefit plan (or trust forming a
part thereof) maintained by the Company, its parent, subsidiary or affiliates,
or (ii) Silver Lake Partners its parent, subsidiary and/or affiliates.

         5.       Employee Benefits. During the Employment Term, Executive shall
be entitled to participate in the Company's employee benefit plans, including
non-qualified programs, as in effect from time to time (collectively "Employee
Benefits"), commensurate with his position and compensation level, in accordance
with the requirements and terms of such Employee Benefits plans, programs and
arrangements; provided, however, that Executive shall at all times be entitled
to Employee Benefits on a basis that is no less favorable in the aggregate than
is provided to any other senior executive of the Company. Beginning on the
Effective Date and continuing for the period of Executive's employment by the
Company, Executive shall accrue paid vacation time and personal days in
accordance with Company policies applicable to it senior executives. In
addition, Executive shall be entitled to the perquisites and other fringe
benefits made available to senior executives of the Company.

         6.       Business Expenses. Executive is authorized to incur reasonable
expenses in carrying out his duties and responsibilities under this Agreement,
including, without limitation, expenses for travel and similar items related to
such duties and responsibilities. The Company will reimburse Executive for all
such expenses upon presentation by Executive from time to time of appropriately
itemized (consistent with the Company's policy) accounts of such expenditures.
<PAGE>
         7.       Relocation Benefits. Executive shall be entitled to
participate in the Company's relocation program on a basis, which is no less
favorable in the aggregate than is provided to any other senior executive of the
Company. Alternatively, for a period not to exceed one year, the Company will
provide temporary housing, mutually acceptable to the Executive and the Company.

         8.       Termination. The Employment Term and Executive's employment
hereunder may be terminated by either party at any time and for any reason or no
reason. Notwithstanding any other provision of this Agreement, the provisions of
this Section 8 shall exclusively govern Executive's rights upon termination of
employment with the Company and its affiliates.

                  (a)      By the Company For Cause.

                           (i)      For purposes of this Agreement, "Cause"
shall be defined as (i) the Executive's continued failure substantially to
perform the material duties of his office (other than as a result of total or
partial incapacity due to physical or mental illness) if such failure continues
following Executive's receipt of written notice from the Company and a period of
thirty (30) days to cure such failure, (ii) the embezzlement or theft by the
Executive of the property of the Company, its subsidiaries or affiliates, (iii)
the commission of any act or any omission on the Executive's part resulting in
the conviction of Executive or a plea of nolo contendre with respect to a
felony, a crime involving moral turpitude, or a crime that materially adversely
affects the performance or the reputation of the Company, its subsidiaries or
affiliates, (iv) Executive's willful malfeasance or willful misconduct in
connection with Executive's duties to the Company, its subsidiaries or
affiliates or any other act or omission which is materially injurious to the
financial condition or business reputation of the Company, its subsidiaries or
affiliates, or (v) a material breach by Executive of the terms of this
Agreement, or any non-compete, non-disclosure, or non-solicitation provisions to
which Executive is subject.

                           (ii)     If Executive's employment is terminated by
the Company for Cause, Executive shall be entitled to receive, reduced by any
amounts owed to the Company by Executive, the amounts described in the following
clauses (A) through (C) set forth below:

                                    (A)      the Base Salary through the date of
         termination;

                                    (B)      reimbursement for any unreimbursed
         business expenses properly incurred by Executive in accordance with
         Company policy prior to the date of Executive's termination; and

                                    (C)      such employee benefits, if any, as
         to which Executive may be entitled under the Employee Benefits plans
         (the amounts described in clauses (A) through (C) hereof, reduced by
         any amounts owed to the Company by Executive, being referred to as the
         "Accrued Rights").

                  Following such termination of Executive's employment by the
Company for Cause, except as set forth in this Section 8(a), Executive shall
have no further rights to any compensation or any other benefits under this
Agreement.
<PAGE>
                  (b)      By the Company Without Cause Prior to December 31,
2002.

                           (i)      The Executive's employment hereunder may be
terminated by the Company without Cause.

                           (ii)     If Executive's employment is terminated by
the Company without Cause (other than by reason of total or partial incapacity
due to physical or mental illness) prior to January 1, 2003, then contingent
upon Executive's full compliance with the provisions set forth in Section 9 of
this Agreement and contingent upon Executive's execution of an effective release
of all claims against the Company in a form reasonably satisfactory to the
Company, Executive shall be entitled to receive:

                                    (A)      the Accrued Rights; and

                                    (B)      continued payment of the Base
         Salary through December 31, 2002;

         Executive shall not be required to mitigate the amount of any payments
or benefits provided for pursuant to this Section 8(b) by seeking other
employment. Following such termination of Executive's employment by the Company
without Cause prior to January 1, 2003, except as set forth in this Section
8(b), Executive shall have no further rights to any compensation or any other
benefits under this Agreement. The benefits described in this Section 8(b) shall
not survive beyond December 31, 2002. In the event that Executive remains
employed by the Company subsequent to December 31, 2002, Executive will not be
entitled to the benefits described in this Section 8(b) unless such benefits are
the subject of a separate agreement between the parties.

                  (c)      Notice of Termination. Any purported termination of
employment by the Company (other than due to Executive's death) shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 13(g) hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of employment under the provision so indicated.

         9.       Nondisclosure of Confidential Information; Non-Competition.

                  (a)      At any time during or after Executive's employment
with the Company, Executive shall not, without the prior written consent of the
Company, use, divulge, disclose or make accessible to any other person, firm,
partnership, corporation or other entity any Confidential Information (as
hereinafter defined) pertaining to the business of the Company or any of its
subsidiaries or affiliates, except (i) while employed by the Company, in the
business of and for the benefit of the Company, or (ii) when required to do so
by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of the Company, or by any administrative
body or legislative body (including a committee thereof) with jurisdiction to
order Executive to divulge, disclose or make accessible such information. For
purposes of this Section 9(a), "Confidential Information" shall mean information
(whether or not in written form) which relates to Silver Lake Partners, the
Company or any of their
<PAGE>
respective subsidiaries or affiliates, or any of their respective businesses or
products (including, without limitation, their financial data, strategic
business plans, and other proprietary information) or to this Agreement, and
which is not known to the public generally (excluding public knowledge which
occurs as a result of Executive's breach of this covenant or the wrongful acts
of others who were under confidentiality obligations as to the item or items
involved), except in the conduct of the business of the Company, as in existence
as of the date of Executive's termination of employment.

                  (b)      As Interim Chief Executive Officer of the Company,
Executive will acquire knowledge of Confidential Information and trade secrets.
Executive acknowledges that the Confidential Information and trade secrets that
the Company has provided and will provide to Executive could play a significant
role were Executive to directly or indirectly be engaged in any business in
competition with the Company or its subsidiaries. For so long as the Executive
is employed by the Company and continuing for one (1) year thereafter, (A)
Executive shall not, directly or indirectly, as a sole proprietor, member of a
partnership, stockholder or investor (other than a stockholder or investor
owning not more than a 5% interest), officer or director of a corporation, or as
an employee, associate, consultant or agent of any person, partnership,
corporation or other business organization or entity other than the Company or
any of its subsidiaries, render any service to or in any way be affiliated with
a competitor (or any person or entity that is reasonably anticipated (to the
general knowledge of the Executive or the public) to become a competitor) of the
Company or any of its subsidiaries or affiliates in the business in which the
Company or any of its subsidiaries or affiliates is engaged and (B) Executive
shall not, on Executive's own behalf or on behalf of any person, firm or
company, directly or indirectly, solicit or offer employment to any person who
has been employed by the Company or its subsidiaries at any time during the 12
months immediately preceding such solicitation. Notwithstanding anything
contained in this Section 9(b) to the contrary, the period of applicability of
this Section 9(b) shall be extended an additional day for each day on which the
Executive is in breach of this Section 9(b).

                  (c)      The results and proceeds of Executive's services
hereunder, including, without limitation, any works of authorship resulting from
Executive's services during Executive's employment with the Company, its
subsidiaries and/or its affiliates and any works in progress, will be
works-for-hire and the Company will be deemed the sole owner throughout the
universe of any and all rights of whatsoever nature therein, whether or not now
or hereafter known, existing, contemplated, recognized or developed, with the
right to use the same in perpetuity in any manner the Company determines in its
sole discretion without any further payment to Executive whatsoever. If, for any
reason, any of such results and proceeds will not legally be a work-for-hire
and/or there are any rights which do not accrue to the Company under the
preceding sentence, then Executive hereby irrevocably assigns and agrees to
assign any and all of Executive's right, title and interest thereto, including,
without limitation, any and all copyrights, patents, trade secrets, trademarks
and/or other rights of whatsoever nature therein, whether or not now or
hereafter known, existing, contemplated, recognized or developed, to the
Company, and the Company will have the right to use the same in perpetuity
throughout the universe in any manner the Company determines without any further
payment to Executive whatsoever. Executive will, from time to time as may be
requested by the Company, (i) during the term of Executive's employment without
further consideration, and (ii) thereafter at Executive's then current hourly
rate, do any and all things which the Company may deem useful
<PAGE>
or desirable to establish or document the Company's exclusive ownership of any
and all rights in any such results and proceeds, including, without limitation,
the execution of appropriate copyright and/or patent applications or
assignments. To the extent Executive has any rights in the results and proceeds
of Executive's services that cannot be assigned in the manner described above,
Executive unconditionally and irrevocably waives the enforcement of such rights.
This subsection is subject to and will not be deemed to limit, restrict, or
constitute any waiver by the Company of any rights of ownership to which the
Company may be entitled by operation of law by virtue of the Company being
Executive's employer.

          10.     Specific Performance. Executive and the Company agree that the
covenants set forth in this Agreement are reasonable covenants under the
circumstances, and further agree that if in the opinion of any court of
competent jurisdiction such restraints are not reasonable in any respect, such
court shall have the right, power and authority to excise or modify such
provision or provisions of such covenant as to the court shall appear not
reasonable and to enforce the remainder of the covenant as so amended. Executive
agrees that any breach of the covenants contained in Section 9 would irreparably
injure the Company. Accordingly, Executive agrees the Company's remedies at law
for a breach or threatened breach of any of the provisions of Section 9 would be
inadequate and, in recognition of this fact, Executive agrees that, in the event
of such a breach or threatened breach, the Company may, without posting any
bond, in addition to pursuing any other remedies it may have in law or in
equity, cease making any payments otherwise required by this Agreement and
obtain equitable relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction or any other equitable
remedy which may then be available against Executive from any court having
jurisdiction over the matter, restraining any further violation of the covenants
set forth in Section 9 by Executive.

          11.     Payment of Legal Fees. The Company agrees to pay Executive's
reasonable legal fees associated with entering into this Agreement upon
receiving an invoice for such legal services.

          12.     Miscellaneous.

                  (a)      Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New Hampshire,
without regard to conflicts of laws principles thereof.

                  (b)      Entire Agreement/Amendments. This Agreement and the
other documents referenced in this Agreement contain the entire understanding of
the parties with respect to the employment of Executive by the Company. There
are no restrictions, agreements, promises, warranties, covenants or undertakings
between the parties with respect to the subject matter herein other than those
expressly set forth herein. This Agreement may not be altered, modified, or
amended except by written instrument signed by the parties hereto. This
Agreement supersedes all prior agreements and understandings (including verbal
agreements) between Executive and the Company regarding the terms and conditions
of Executive's employment with the Company, its subsidiaries and/or its
affiliates (collectively, the "Prior Agreements").
<PAGE>
                  (c)      No Waiver. The failure of a party to insist upon
strict adherence to any term of this Agreement on any occasion shall not be
considered a waiver of such party's rights or deprive such party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.

                  (d)      Severability. The parties intend that the covenants
and agreements contained in the provisions of this Agreement shall be deemed to
be a series of separate covenants and agreements. If, in any judicial
proceeding, a court shall refuse to enforce all of the separate covenants deemed
included in the provisions of this Agreement, then such unenforceable covenants
shall be deemed eliminated from the provisions of this Agreement for the purpose
of such proceeding to the extent necessary to permit the remaining separate
covenants to be enforced in such proceeding. If any one or more of the covenants
contained in this Agreement is for any reason held to be excessively broad as to
duration, geographical scope, activity or subject, it will be construed by
limiting and reducing it, so as to be enforceable to the extent compatible with
the applicable law as it then appears.

                  (e)      Assignment. This Agreement shall not be assignable by
Executive. This Agreement may be assigned by the Company to a company that is a
successor in interest to substantially all of the business operations of the
Company. Such assignment shall become effective when the Company notifies the
Executive of such assignment or at such later date as may be specified in such
notice. Upon such assignment, the rights and obligations of the Company
hereunder shall become the rights and obligations of such successor company,
provided that any assignee expressly assumes the obligations, rights and
privileges of this Agreement.

                  (f)      Successors; Binding Agreement. This Agreement shall
inure to the benefit of and be binding upon personal or legal representatives,
executors, administrators, successors, heirs, distributes, devises and legatees.

                  (g)      Notice. For the purpose of this Agreement, notices
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given if (1) personally delivered, (2)
transmitted by facsimile (with written confirmation), (3) delivered by an
express courier (with written confirmation), or (4) mailed by United States
registered mail (in which case notice shall be deemed given on the third day
after such mailing), return receipt requested, postage prepaid, to the parties
at the addresses set forth below, or to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.

                           If to the Company:

                           Enterasys Networks, Inc.
                           50 Minuteman Road
                           Andover, MA 01810
                           Attention: Chief Legal Officer
<PAGE>
                           If to Executive:

                           To the most recent address of Executive set forth in
                           the personnel records of the Company.

                  (h)      Withholding. The Company may withhold from any
amounts payable under this Agreement such Federal, state and local taxes or
other amounts as may be required to be withheld pursuant to any applicable law,
regulation or other authority to which the Company is subject.

                  (i)      Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

                            [Signatures on next page]
<PAGE>
         IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

                                              ENTERASYS NETWORKS, INC.

                                              By: /s/ Gerald M. Haines II
                                                  -----------------------
                                              Name: Gerald M. Haines II
                                              Title: EVP

                                              EXECUTIVE:

                                                   /s/ William O'Brien
                                              ---------------------------
                                              William O'Brien

                                              ___________________________

                                              ___________________________
                                              Address

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