Document:

Exhibit
10.2

 

EXECUTION
COPY

 

AMENDMENT
NO.1 TO ASSET PURCHASE AGREEMENT

 

This AMENDMENT NO. 1 to the Asset Purchase Agreement
is dated as of April 13, 2004 (this “Amendment”) and is entered into by
and among Allegiance Telecom, Inc., a Delaware corporation (“ATI”),
Allegiance Telecom Company Worldwide, a Delaware corporation (“ATCW”
and, together with ATI, “Sellers” and each individually, a “Seller”),
and XO Communications, Inc., a Delaware corporation (“Buyer”).

 

RECITALS:

 

WHEREAS, Buyer and
Sellers are parties to the Asset Purchase Agreement dated as of February 18,
2004 (the “Asset Purchase Agreement”).

 

WHEREAS, pursuant
to Section 9.6 of the Asset Purchase Agreement, Buyer and Sellers seek
to amend certain provisions appearing in Asset Purchase Agreement.

 

NOW, THEREFORE, intending
to be bound, the parties hereto agree as follows:

 

ARTICLE I                         AMENDMENTS
TO THE ASSET PURCHASE AGREEMENT.

 

SECTION 1.01          Amendment of Section 3.1(a).  Section 3.1(a) of the Asset Purchase
Agreement is hereby amended by inserting the words “(or at Buyer’s discretion
the first (1st) Business Day, unless Buyer elects to defer, but in no event
shall such deferral be later than the fifth (5th) Business Day)” following the
words “no later than the fifth (5th) Business Day”.

 

SECTION 1.02          Amendment of Section 3.2(b)(6).  Section 3.2(b)(6) of the Asset
Purchase Agreement is hereby amended and restated in its entirety as follows:

 

(6) the Deposit Adjustment Amount (if any) (such
Deposit Adjustment Amount to be made on the Closing Date), plus

 

SECTION 1.03          Amendment of Section 3.2(b)(7).  Section 3.2(b)(7) of the Asset
Purchase Agreement is hereby amended and restated in its entirety as follows:

 

(7) the Non-ILEC Cure Adjustment set forth in Section 3.5(c) (such Non-ILEC Cure Adjustment to
be made on the Closing Date) (the Cash Purchase Price, as so adjusted is referred to herein as
the “Adjusted Cash Purchase Price”) and

 

SECTION 1.04          Amendment of Section 3.4(b).  Section 3.4(b) of the Asset Purchase
Agreement is hereby amended and restated in its entirety as follows:

 

(b) As promptly as practicable, but no later than
sixty (60) Business Days after the Early Funding Date, Buyer will prepare and
deliver to ATI a good faith calculation of Net Working Capital as of the close
of business on April 12, 2004 (the “Early Funding Date Working Capital”).  Buyer will prepare the Early

 

 

Funding Date Working Capital in accordance with GAAP
and consistent with ATI’s preparation of its unaudited balance sheet as of
September 30, 2003.  Attached as
Exhibit G is a schedule showing the calculation of Base Working Capital.

 

SECTION 1.05          Amendment of Section 3.5(b).  Section 3.5(b) of the Asset Purchase
Agreement is hereby amended and restated in its entirety as follows:

 

(b) If deposits are required by ILECs in connection
with establishing new interconnection agreements for the Business between the
February 18, 2004 and the Closing Date and such deposits are outstanding at the
time of the Closing Date, the Cash Purchase Price shall be increased by an
amount (the “Deposit Adjustment Amount”) equal to seventy-five
percent (75%) of the first $13 million of such deposits and one hundred
percent (100%) of the deposits above $13 million.

 

SECTION 1.06          Amendment of Section 3.5(c).  The second paragraph appearing in Section
3.5(c) of the Asset Purchase Agreement is hereby amended and restated in
its entirety to as follows:

 

The adjustment to the Cash Purchase Price pursuant to
this Section 3.5(c) is referred to herein as the “Non-ILEC
Cure Adjustment.”  If as of the time
of the Closing Date any reserves are established with respect to disputed Non-ILEC
Cure Amounts pending resolution of such disputes, the Purchase Price adjustment
provided in this Section 3.5(c) shall be made, with respect to the
agreed Non-ILEC Cure Amounts, at the Closing Date, and with respect to
any such reserved amounts, within two (2) Business Days following the
resolution of the disputes.

 

SECTION 1.07          Amendment of Section 7.2(e).  Section 7.2(e) of the Asset Purchase
Agreement is hereby deleted in its entirety.

 

SECTION 1.08          Amendment of Section 7.4(c).  Section 7.4(c) of the Asset Purchase
Agreement is hereby amended and restated in its entirety as follows:

 

(c) Sellers’ Deliveries.  Sellers shall have delivered to Buyer all
items set forth in Section 3.1(b)(i), (ii), (iv), (v) and (vi).

 

ARTICLE II                     AMENDMENT
OF EXHIBITS TO ASSET PURCHASE AGREEMENT.

 

SECTION 2.01          Amendment of Exhibit J.  Exhibit J of the Asset Purchase Agreement is
hereby amended by deleting the words “Bankruptcy Court Entry of Confirmation
Order June 4, 2004” and inserting in their place the words “Bankruptcy Court
Entry of Confirmation Order June 10, 2004.”

 

2

 

ARTICLE III                 MISCELLANEOUS
PROVISIONS.

 

SECTION 3.01          Affirmation of Satisfaction of Early
Funding Date Conditions and Obligation to Close.  By execution of this Amendment, Buyer and Sellers unequivocally
acknowledge satisfaction or waiver of any and all conditions precedent to the
Early Funding Date.

 

SECTION 3.02          Deposit Adjustment Amount and Non-ILEC
Cure Adjustment.  Buyer and Sellers
acknowledge and agree that any Deposit Adjustment Amount or Non-ILEC Cure
Adjustment provided to occur in the Asset Purchase Agreement as of the Early
Funding Date shall occur on the Closing Date, and that Buyer shall deliver to
Sellers by wire transfer of immediately available funds any amounts required
for such adjustments on the Closing Date.

 

SECTION 3.03          Conditions to Effectiveness.  This Amendment shall become effective upon
execution and delivery of this Amendment by each of the parties hereto.

 

SECTION 3.04          Defined Terms.  Capitalized terms used but not defined
herein shall have the meanings assigned to them in Asset Purchase Agreement.

 

SECTION 3.05          Counterparts.  This Amendment may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of a
signature page to this Amendment electronically or by telecopy shall be as
effective as delivery of a manually executed counterpart of this Amendment.

 

SECTION 3.06          Governing Law.  This Amendment shall be construed and interpreted,
and the rights of the parties shall be determined, in accordance with the
Bankruptcy Code and the substantive laws of the State of New York for contracts
expected and likely to be performed solely within such state without regard to
the conflict of laws principles thereof or of any other jurisdiction

 

SECTION 3.07          Effect of Headings.  The section headings herein are for
convenience only and shall not affect the construction hereof.

 

SECTION 3.08          Sale Order.  Nothing in this Amendment shall be deemed to modify the Sale
Order.

 

3

 

IN WITNESS WHEREOF, the parties have caused this
Amendment to be duly executed by their respective officers as of the day and
year first above written.

 

 

	
   

  	
  ALLEGIANCE TELECOM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
    Name:

  
	
   

  	
   

  	
    Title:

  
	
   

  	
   

  
	
   

  	
  ALLEGIANCE TELECOM
  COMPANY WORLDWIDE

  
	
   

  	
  ADGRAFIX CORPORATION

  
	
   

  	
  ALGX BUSINESS INTERNET,
  INC.

  
	
   

  	
  ALLEGIANCE INTERNET,
  INC.

  
	
   

  	
  ALLEGIANCE TELECOM
  INTERNATIONAL, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  ARIZONA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  CALIFORNIA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  COLORADO, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  FLORIDA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  GEORGIA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  ILLINOIS, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  INDIANA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  MARYLAND, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  MASSACHUSETTS, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  MICHIGAN, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  MINNESOTA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  MISSOURI, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  NEVADA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  NEW JERSEY, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  NEW YORK, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  NORTH CAROLINA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  OHIO, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  OKLAHOMA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  OREGON, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  PENNSYLVANIA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  TEXAS, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  THE DISTRICT OF COLUMBIA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  VIRGINIA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  WASHINGTON, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  WISCONSIN, INC.

  
	
   

  	
  ALLEGIANCE TELECOM
  PURCHASING COMPANY

  
	
   

  	
  ALLEGIANCE TELECOM
  SERVICE CORPORATION

  
	
   

  	
  COAST TO COAST
  TELECOMMUNICATIONS, INC.

  
	
   

  	
  HOSTING.COM, INC.

  
	
   

  	
  INTERACCESS
  TELECOMMUNICATIONS CO.

  

 

 

	
   

  	
  JUMP.NET, INC.

  
	
   

  	
  VIRTUALIS SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
    Name:

  
	
   

  	
   

  	
    Title:

  

 

 

	
   

  	
  XO COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
    Name:

  
	
   

  	
   

  	
    Title:Exhibit 10.3

 

EXECUTION COPY

 

OPERATING AGREEMENT

 

This OPERATING AGREEMENT (“Agreement”) is dated as of April 13,
2004 by Allegiance Telecom, Inc. and its subsidiaries listed as Sellers on the
signature page hereto (collectively, “Sellers”), and XO Communications,
Inc., a Delaware corporation or its designee (“Manager”)..

 

WHEREAS, the Sellers and the Manager are parties to an Asset Purchase
Agreement dated as of February 18, 2004 (the “Asset Purchase Agreement”)
whereby Manager has agreed to purchase the Acquired Assets, consisting of the
Early Funding Date Assets and the Non-Transferred Assets, from Sellers;

 

WHEREAS, on February 19, 2004 the Asset Purchase Agreement was approved
by the Bankruptcy Court presiding over the Chapter 11 cases of the Sellers (“Bankruptcy
Court”);

 

WHEREAS, pursuant to the Asset Purchase Agreement, upon the Early
Funding Date the Early Funding Date Assets and the Non-Transferred Assets will
be managed by Manager and, with respect to the Early Funding Date Assets, will
be transferred to Manager upon receipt of the FCC Consents and, with respect to
the Non-Transferred Assets, will be transferred to Manager from time to time
upon receipt of the applicable State PUC Consents;

 

WHEREAS, in order to ensure uninterrupted service to Sellers’ customers
pending issuance of the State PUC Consents, and to avoid associated potential
harm to customers, Sellers and Manager desire that Manager provide management
services to Sellers after the Early Funding Date, in conformity with the rules
and policies of the FCC, the State PUCs and the terms and conditions of the
Asset Purchase Agreement and this Agreement;

 

WHEREAS, this Agreement and the Asset Purchase Agreement are
interrelated according to their respective provisions; and

 

WHEREAS, the Bankruptcy Court has approved this Agreement in connection
with its approval of the Asset Purchase Agreement.

 

NOW, THEREFORE, in consideration of the above recitals and mutual
promises and covenants contained herein, the parties, intending to be legally
bound, agree as follows:

 

 

ARTICLE I

DEFINITIONS

 

Section 1.1             Definitions.
Each term capitalized herein and not otherwise defined shall have the meaning
assigned to it in the Asset Purchase Agreement.

 

“Early Funding Date Assets” means the Acquired Assets which
would not be considered “Non-Transferred Assets” as of the Early Funding Date
under Section 2.5 of the Purchase Agreement.

 

ARTICLE II

APPOINTMENT AND TERM OF THE AGREEMENT

 

Section 2.1                                      Appointment;
Expenses.

 

(a)                                  Manager
hereby agrees, on the terms and conditions set forth herein, to provide
management services to Sellers so as to meet any and all ongoing obligations
associated with the Early Funding Date Assets and the Non-Transferred Assets,
including obligations of Sellers to their respective customers pursuant to
existing contractual relationships and to any new customers that may from time
to time purchase such services from Sellers or their respective customers, in
compliance with the Communications Licenses. 
The duties of Manager under this Agreement shall include:

 

(i)                                     Providing all
operational personnel necessary to the operation of the Early Funding Date
Assets and the Non-Transferred Assets;

 

(ii)                                  Collecting all
accounts receivable, rendering all bills, processing all credit card charges
and keeping books and records substantially in accordance with Sellers’
standard practices prior to the Early Funding Date;

 

(iii)                               Providing all technical
resources necessary to operate the Early Funding Date Assets and the
Non-Transferred Assets to provide a service quality level substantially
consistent with the service quality level Sellers provided prior to the Early
Funding Date;

 

(iv)                              Monitoring all of the
administrative and governmental notice, filing, tax, fee and permit
requirements with respect to the Early Funding Date Assets and the
Non-Transferred Assets (other than any notices, filings or fees associated with
the transfer of the Communications Licenses from Sellers to Manager or other
disposition of the Sellers’ assets, including the Communications Licenses which
are addressed in the Asset Purchase Agreement) and, when such notices, reports
or fees fall due, Manager shall submit to Sellers those notices, reports or
invoices for Sellers to remit to the appropriate agency (together with
instructions

 

2

 

for remission and payment reimbursing Sellers for any fees or taxes
Sellers must pay such agency); and

 

(v)                                 Doing all things
commercially reasonable to carry out the duties of operating and managing the Early
Funding Date Assets and the Non-Transferred Assets in a manner substantially
similar to that of Sellers prior to the Early Funding Date.

 

(b)                                 Consistent
with Manager’s obligations under the Purchase Agreement, Manager hereby agrees
to pay during the Term such newly-accruing actual costs and expenses of the
ongoing operations of the Business. 
Manager shall either pay the same directly, or reimburse Sellers for
(within fifteen (15) days of receipt of an invoice therefor), all such costs
and expenses.

 

(c)                                  Manager
hereby agrees in furtherance of its obligations hereunder to ensure that, not
later than the Early Funding Date, it will fund an account at a commercial bank
selected by Manager and reasonably acceptable to Sellers with at least Three
Million dollars ($3,000,000 ) in cash (the “Reserve Account”) from
which, during the Term, funds may be withdrawn by Sellers, in consultation with
Manager, to pay amounts required to be paid pursuant to Section 2.1
which are due and owing but which Manager has failed to pay within ten (10)
days notice to Manager of Seller’s demand to do so (which 10 day period shall
be tolled during any period in which Manager and Sellers are attempting to
resolve any dispute as to the validity of any such expense).  In the event that any funds (and any
accumulated earnings thereon) shall be on deposit in the Reserve Account at the
conclusion of the Term, and all accrued and unpaid costs required to be paid
pursuant to Sectio­n 2.1 shall have been paid, any balance may, upon
five (5) days’ written notice to the Sellers, be the property of and may be
withdrawn by Manager.

 

(d)                                 In
the event that the Sellers shall be held liable for any costs or expenses
required to be paid by the Manager pursuant to this Agreement for which the
funds deposited in the Reserve Account are insufficient, the Manager hereby
agrees to indemnify the Sellers for all such costs and expenses.

 

ARTICLE III

MANAGEMENT OF THE BUSINESS

 

Section 3.l                                         During
the Term, the Manager shall have the duty to manage the facilities and
operations authorized under the Communications Licenses on behalf of Sellers in
the operation of the Early Funding Date Assets and the Non-Transferred Assets
consistent with the provisions of this Agreement and subject to Sellers’
continued ownership and control of the Early Funding Date and the
Non-Transferred Assets and Sellers’ reasonable supervision and direction.  Manager hereby agrees to report regularly to
Sellers’ designee the status of the operations of the Business.

 

3

 

Section 3.2                                      Sellers
and Manager desire that this Agreement and the obligations performed hereunder
be in full compliance with (i) the terms and conditions of the Communications
Licenses; (ii) the Communications Act of 1934, as amended (the “Act”);
(iii) all applicable rules, regulations and policies of the FCC and the
State PUCs; and (iv) any other applicable federal, state and local law or
regulation.  It is expressly understood
by Sellers and Manager that nothing in this Agreement is intended to give
Manager any right which would be deemed to constitute a transfer of control (as
is defined in the Act and/or any applicable FCC or state rules, regulations or
case law) by the Sellers of any of the Communications Licenses or Non-Transferred
Assets from Sellers to Manager to the extent prohibited by the applicable Law,
rules or regulations of any state or State PUC.

 

Section 3.3                                      Manager
acknowledges and agrees that Sellers have certain rights and obligations
pursuant to the Communications Licenses with respect to activities authorized
thereunder, which include compliance with the Act, and the rules, regulations,
and policies of the FCC and the State PUCs. 
The services provided by Manager hereunder are not intended to diminish
or restrict Sellers’ compliance with their respective obligations under
applicable law or before the FCC or the State PUCs, and this Agreement shall
not be construed to diminish or interfere with any Seller’s obligation or
ability to comply with the rules, regulations or directives of any governmental
or jurisdictional authority with respect to the Communications Licenses or the
Early Funding Date Assets or the Non-Transferred Assets.

 

Section 3.4                                      At
their discretion and at their expense, Sellers may conduct periodic audits
(during normal business hours, upon reasonable notice, and in a manner so as
not to interfere unreasonably with the operation of the Business) of Manager’s
management of the Business to ensure compliance in all material respects with
the Communications Licenses and applicable federal, state and local law or
regulation.  In addition, the Sellers
shall have access and authority to inspect the equipment and related hardware
that is required to transmit and/or receive telecommunications, including but
not limited to network facilities, switching equipment, customer premises
equipment and testing equipment, for any reason, including but not limited to
determining whether under the Manager’s management, the Early Funding Date
Assets or the Non-Transferred Assets are operating in a manner that violates
the terms of this Agreement, the Act or the FCC’s or State PUC’s rules,
regulations, or policies or is otherwise operating in a harmful or unlawful
manner.

 

Section 3.5                                      Manager
shall be responsible for providing the management services in compliance with
the Sellers’ existing tariffs and service contracts, and all applicable law,
including, without limitation, tariffs in effect from time to time.  Manager shall perform the management
services in a professional manner and in accordance with all applicable
professional or industry standards.

 

Section 3.6                                      The
parties shall both have the right to use the Seller Marks during the Term (as
hereinafter defined).  Pending the
receipt of any necessary regulatory approvals of any Governmental Entity with
jurisdiction, the Manager shall take reasonable steps to maintain the distinct
identities of the Sellers using each such entity’s

 

4

 

name and logo in all billing
and other correspondence on behalf of the Sellers, maintaining accurate
accounting books and records of operations for the Non-Transferred Assets
separate from the Manager’s accounting books and records of operations for
other assets and following such other procedures as the parties may mutually
agree upon from time to time.

 

Section 3.7                                      Sellers
shall retain a reasonably sufficient number of qualified employees to supervise
and assist in the operation of the Early Funding Date Assets and the
Non-Transferred Assets and meet Sellers’ associated regulatory
responsibilities, as designated herein and in the Transition Plan.

 

ARTICLE IV

COMPENSATION

 

Section 4.1                                      As
consideration for Manager providing Sellers the management services described
herein, Sellers agree to pay to Manager a monthly fee (“Management Fee”)
equal to the sum of (x) Manager’s costs incurred in providing the
management services as to those Early Funding Date Assets and Non-Transferred
Assets that have not yet become Acquired Assets as described in Section 6.1
(including, without limitation, Manager’s own out-of-pocket expenses and any of
Sellers’ costs that are reimbursed by Manager pursuant to Section 2.1(b) above)
(“Manager’s Aggregate Monthly Expenses”) plus (y) 30% of Manager’s
Aggregate Monthly Expenses.  Manager
shall be paid solely out of the revenue generated by the Early Funding Date
Assets and the Non-Transferred Assets for such month (the “Monthly Fee
Receipts”), collectible by Manager solely from cash receipts related to the
Early Funding Date Assets and the Non-Transferred Assets.  In any month during the Term in which the
Monthly Fee Receipts are not equal to or in excess of the Management Fee,
Sellers will not have any obligation to pay Manager any additional amount or
reimburse Manager for any costs or losses associated with the Early Funding
Date Assets or the Non-Transferred Assets in excess of such receipts (“Payment
Shortfall”), provided that to the extent Monthly Fee Receipts in any month
exceed the Management Fee otherwise due to Manager hereunder (“Excess
Payments”), such Excess Payments shall, first, be applied to reduce Payment
Shortfalls in prior months, if any, and second, any residual Excess Payment
amounts shall be held in escrow to be applied to Payment Shortfalls in future
months, if any.  Upon termination of this Agreement any cash receipts
from customers in excess of the Management Fee shall be remitted to
Sellers.  Notwithstanding the foregoing
and as described in Section 6.1, all cash and other revenue generated after the
Closing Date from Acquired Assets is solely the property of the Buyer.  Sellers and Manager agree to review the fee
set forth above on a monthly basis and to negotiate in good faith a
modification to such fee to reflect changing circumstances or operating results.

 

ARTICLE V

COMPLIANCE WITH APPLICABLE LAWS

 

Section 5.1                                      Compliance
with Applicable Laws and Regulations.

 

(a)                                  Manager
agrees that, in connection with providing the management services hereunder, it
shall comply in all material respects with all applicable laws, ordinances,
rules, regulations, and restrictions, including but not limited

 

5

 

to the Act, the FCC’s and State
PUCs’ rules, regulations, and policies, and local ordinances.

 

(b)                                 Manager
and Sellers recognize that Sellers remain ultimately responsible for compliance
with the terms of the Communications Licenses. 
In that regard, the Manager shall not, without the prior consent of the
Sellers, such consent not to be unreasonably withheld, take the following
actions with respect to the Early Funding Date Assets and the Non-Transferred
Assets:

 

(i)                                     enter into, modify, intentionally breach
or terminate any material agreement relating to the Early Funding Date Assets
and the Non-Transferred Assets, other than in the ordinary course of business;

 

(ii)                                  sell, assign, lease, transfer or
otherwise dispose of any material Early Funding Date Asset or Non-Transferred
Asset or purchase or otherwise acquire any assets for the Sellers except for
non-material assets acquired in the Ordinary Course of Business;

 

(iii)                               alter or change in any material respect
the Sellers’ accounting procedures or accounting practices, including their
practices with respect to the maintenance of working capital balances,
maintenance of inventory and write-downs and charge-offs of accounts
receivable, collection of accounts receivable, payment of accounts payable and
cash management practices generally;

 

(iv)                              initiate, settle or terminate any
material litigation relating to the Early Funding Date Assets or the
Non-Transferred Assets or waive any material rights of the Early Funding Date
Assets or the Non-Transferred Assets;

 

(v)                                 demote or terminate any employee of the
Sellers;

 

(vi)                              hire any employee for the Sellers;

 

(vii)                           delay or hinder the deployment of network
facilities in accordance with the existing network deployment plans relating to
the Non-Transferred Assets; or

 

(viii)                        cause the Sellers to take any action or
neglect to take any action which would constitute a default under this
Agreement or the Asset Purchase Agreement.

 

(c) The parties mutually expect and agree that
Manager will immediately take all actions reasonably required to optimize the
networks and business operations of

 

6

 

Sellers, and to realize all
reasonably achievable network and operational savings and efficiencies. 
For purposes of Section 5.1(b) above and Section this 5.1(c), it is agreed that
it would be unreasonable for Sellers to withhold consent for any actions of
Manager undertaken to achieve such network and business operational
optimization and savings, or to otherwise achieve material expense savings so
long as such actions maintain a level of service quality substantially
substantially consistent with the level of service quality provided by Sellers
prior to the Early Closing Date. 
Notwithstanding the foregoing, Manager shall take no action (without
Sellers’ consent, which shall not be unreasonably withheld) in conflict with
any provision of Purchase Agreement.

 

(d)  The parties hereby agree that Manager shall request Sellers’
consents to the actions referenced in Sections 5.1(b) and 5.1(c) above in
writing to a person or persons to be designated by Sellers.  For purposes
of this Section 5, notice and consent by any party can be achieved by
electronic mail.  Unless the Sellers
refuse in writing to grant consent within one (1) Business Day of receipt of a
request for consent by Manager, consent will be deemed granted.(e)                Sellers shall be
responsible for the filing of all applications, reports, correspondence and
other documentation with the FCC or the State PUCs relating to the Early
Funding Date Assets or the Non-Transferred Assets; provided, however, that Manager shall cooperate in Sellers’
preparation of such filings; and provided,
further, that Manager shall reimburse Sellers for all reasonable
out-of-pocket legal fees and other expenses incurred in connection with such
applications, correspondence and other related matters.  Manager shall provide upon Sellers’
reasonable request any information which will enable them to prepare any
records and reports required by the FCC or the State PUCs and other federal,
state or local government authorities.

 

(f)                                    Manager
shall not make any misrepresentation as to the holder of any of the
Communications Licenses or as to the representative of Sellers before the FCC
or the State PUCs.

 

Section 5.2                                      Obligation
to Renegotiate.  In the event of any
order or decree of an administrative agency or court of competent jurisdiction
or any other action or determination by any Governmental Entity, including
without limitation any material change in or clarification of FCC or State PUC
rules, policies, or precedent, that would cause this Agreement to be invalid,
in whole or in part, or violate any applicable Law, or if the staff of any
State PUC has advised the parties, orally or in writing, that the review of any
request by the parties for authority for the transactions contemplated hereby
will be inordinately delayed or will likely be determined adversely to the
parties, the parties will use their respective reasonable efforts and negotiate
in good faith to modify this Agreement to the minimum extent necessary so as to
comply with such order, decree, action or determination and/or remove any
controversy identified by such Government Entity without material economic
detriment to either party, and to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.  This
Agreement, as so modified, shall then continue in full force and effect.  If after fulfilling the obligation to
renegotiate set forth in this section, the parties mutually determine that they
cannot modify this Agreement to comply with a

 

7

 

Government Entity order,
decree, action, determination, or remove a controversy identified by such State
PUC, Manager may elect not to pursue the transfer or assignment of any affected
Non-Transferred Assets.

 

ARTICLE VI

TERM

 

Section 6.1                                      Term.  This Agreement shall commence on the earlier
of the Early Funding Date and the Closing Date and shall expire upon the
earlier to occur of (x) the transfer or assignment of all Acquired Assets,
including as applicable all State PUC Licenses associated therewith, to the
Manager pursuant to the terms and subject to the conditions of the Asset
Purchase Agreement or to a third party pursuant to Section 6.2 below, or (y)
the six (6) month anniversary of the Early Funding Date; provided, however,
that, in the event and on the date that this Agreement expires pursuant to
clause (y) above, then, to the extent that any State PUC Consent, as
applicable, has not been obtained, the Agreement shall automatically renew, as
necessary, for two (2) additional successive three (3) month periods with
respect to the Non-Transferred Assets until the last of such State PUC Consents
is obtained and any Non-Transferred Assets subject to such State PUC Consents
have been transferred or assigned to the Manager (the initial term and any
extensions thereof are herein referred to as the “Term”), unless, after fulfilling its obligation to
renegotiate set forth in Section 5.2 above, the Manager determines that the
parties cannot modify this Agreement to comply with a Government Entity order,
decree, action, determination or remove a controversy identified by such
Governmental Entity and Manager elects not to pursue the transfer, assignment
or reauthorization of any affected Non-Transferred Assets.  Notwithstanding the foregoing or any other
provision of this Agreement, upon the Closing Date and the transfer of the
Early Funding Date Assets to Manager, the Early Funding Date Assets shall be
considered Acquired Assets under the Asset Purchase Agreement and shall no
longer be subject to this Agreement; and provided further that upon the receipt
from time to time of all necessary consents or approvals from any State PUC
applicable to the Non-Transferred Assets, and the transfer of the Non-Transferred
Assets relating to such State PUC Consent by the Sellers to the Manager
pursuant to Section 2.5 of the Asset Purchase Agreement, such Non-Transferred
Assets shall be considered Acquired Assets under the Asset Purchase Agreement
and shall no longer be subject to this Agreement.

 

Section 6.2                                      Sale
and Disposition of Proceeds. 
Manager may at any time designate an alternative purchaser of some or
all of the Non-Transferred Assets, and upon Sellers’ consent (such consent not
to be unreasonably withheld) Sellers shall use commercially reasonable efforts
to transfer such assets to the alternative purchaser, with all costs and
expenses incurred in connection therewith to be borne by Manager, and promptly
pay over to Manager the net proceeds of such sale.  If any Non-Transferred Assets are not transferred to Manager
within six (6) months of the Closing Date, then, subject to the provisions of
Section 6.1, after that date Manager may give notice to Sellers of an intent to
terminate this Agreement, and Sellers shall promptly thereafter take actions,
at Manager’s expense, to reasonably dispose of any remaining Non-Transferred
Assets, and remit any proceeds arising therefrom to Manager.

 

8

 

ARTICLE VII

MISCELLANEOUS

 

Section 7.1                                      Amendment
and Modification.  This Agreement
may be amended, modified or supplemented only by written agreement of Sellers
and Manager.

 

Section 7.2                                      Waiver
of Compliance; Consents.  Except as
otherwise provided in this Agreement, any failure of any of the parties to
comply with any obligation, covenant or condition herein may be waived by the
party entitled to the benefits thereof only by a written instrument signed by
the party granting such waiver, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, or condition shall not
operate as a waiver of or estoppel with respect to any subsequent or other
failure.

 

Section 7.3                                      Notices.  Unless otherwise provided herein, any
notice, request, instruction or other document to be given hereunder by any
party to any other party shall be in writing and shall be delivered in person
or by courier or facsimile transmission (with such facsimile transmission
confirmed by sending a copy of such notice, request, instruction or other
document by certified mail, return receipt requested, or overnight mail) or
mailed by certified mail, postage prepaid, return receipt requested (such
mailed notice to be effective on the date such receipt is acknowledged), as
follows:

 

	
  If to Sellers:

  
	
   

  
	
  c/o Allegiance Telecom, Inc.

  
	
  700 E. Butterfield Road, Suite 400

  
	
  Lombard, IL 60148

  
	
  Attention:

  	
  Mark B. Tresnowski, Esq.

  
	
   

  	
  Executive Vice President, General Counsel and

  Secretary

  
	
  Fax:  (630) 522-5250

  
	
   

  
	
  With a copy to (which shall not constitute notice):

  
	
   

  
	
  Kirkland & Ellis LLP

  
	
  153 East 53rd

  
	
  New York, NY 10022

  
	
  Attention:

  	
  Jonathan S. Henes, Esq.

  
	
   

  	
  Michael Movsovich, Esq.

  
	
  Fax: (212) 446-4900

  
	
   

  
	
  and

  
	
   

  
	
  Swidler Berlin Shereff Friedman LLP

  
	
  3000 K Street, NW, Suite 300

  
	
  Washington, DC 20007

  
	
  Attention:

  	
  Jean L. Kiddoo, Esq.

  
			

 

9

 

	
  Fax: (202) 424-7645

  
	
   

  
	
  If to Manager:

  
	
   

  
	
  XO Communications, Inc.

  
	
  11111 Sunset Hills Road

  
	
  Reston, Virginia 20190

  
	
  Attention:

  	
  General Counsel

  
	
  Fax:

  	
  (703) 547-2025

  
	
   

  
	
  With a copy to (which shall not constitute notice):

  
	
   

  
	
  Brown Rudnick Berlack Israels

  
	
  120 West 45th Street

  
	
  New York, NY 10036

  
	
  Attention:

  	
  Edward S. Weisfelner

  
	
   

  	
  Steven D. Pohl 

  
	
  Fax:

  	
  (212) 704-0196

  (617) 856-8201

  
	
   

  
	
  And

  
	
   

  
	
  Kelley Drye & Warren, LLP

  
	
  1200 19th Street, NW, Suite 500

  
	
  Washington, DC 20036-2423

  
	
  Attention:  Brad E.
  Mutschelknaus

  
	
  Fax:  (202) 955-9792

  
				

 

or to such other place and with such other copies as either party may
designate as to itself by written notice to the other party.  Notices sent as provided herein shall be
deemed given on the date received by the recipient.  If a recipient rejects or refuses to accept a notice given
pursuant to this Section, or if a notice is not deliverable because of a changed
address or fax number of which no notice was given in accordance with the
provisions hereof, such notice shall be deemed to be received two (2) days
after such notice was mailed (whether as the actual notice or as the
confirmation of a faxed notice) in accordance with the terms hereof.

 

Section 7.4                                      Assignment.  This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto, including by operation of law, without the prior written
consent of the other party; provided,
however, that Manager may assign
this Agreement and any of the rights, interests and obligations hereunder (a)
to any Affiliate upon written notice to Sellers; provided further, however, that Manager shall remain liable
hereunder; and (b) upon receipt of written

 

10

 

consent from Sellers, which
consent shall not be unreasonably withheld, to any person or entity who may
simultaneously acquire all or a substantial part of the Acquired Assets and
agrees to be bound by this Agreement, upon which Manager shall be deemed
relieved of any obligations of “Manager” hereunder arising after the date of
such assignment.  Any assignment of this
Agreement or any of the rights, interests or obligations hereunder in
contravention of this Section 7.4 shall be null and void and shall not bind or
be recognized by any of the Sellers or Manager.

 

Section 7.5                                      No
Third-Party Beneficiaries; Limitation of Liability.  Nothing in this Agreement shall be construed
as giving any person other than the parties hereto any legal or equitable
right, remedy or claim under or with respect to this Agreement.  Manager
shall have no liability to Sellers or any other person or entity for any actual
or alleged damage to the Non-Transferred Assets during the Term.

 

Section 7.6                                      Invalidity.  If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party.

 

Section 7.7                                      Choice
of Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable New York
principles of conflicts of law) as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies.

 

Section 7.8                                      Submission
to Jurisdiction.  The parties hereto
irrevocably submit to the exclusive jurisdiction of the Bankruptcy Court (or
any court exercising appellate jurisdiction over the Bankruptcy Court) over any
dispute arising out of or relating to this Agreement or any other agreement or
instrument contemplated hereby or entered into in connection herewith or any of
the transactions contemplated hereby or thereby. Each party hereby irrevocably
agrees that all claims in respect of such dispute or proceedings may be heard
and determined in such courts. The parties hereby irrevocably waive, to the
fullest extent permitted by applicable law, any objection that they may now or
hereafter have to the laying of venue of any such dispute brought in such court
or any defense of inconvenient forum in connection therewith.

 

Section 7.9                                      Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  Delivery of an executed counterpart of a
signature page to this Agreement by telecopy shall be as effective as delivery
of a manually executed counterpart of this Agreement.  In proving this Agreement, it shall not be necessary to produce or
account for more than one such counterpart signed by the party against whom
enforcement is sought.

 

Section 7.10                                Entire
Agreement; Amendments and Waivers. 
This Agreement, together with the Asset Purchase Agreement (including
the schedules and

 

11

 

exhibits thereto) and the
Transaction Documents constitute the entire agreement between the parties
pertaining to the subject matter hereof and supersede all prior agreements,
understandings, negotiations, and discussions, whether oral or written, of the
parties.  No supplement, modification or
waiver of this Agreement (including, without limitation, any schedule hereto)
shall be binding unless the same is executed in writing by all parties.  No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), and no such waiver shall constitute a
continuing waiver unless otherwise expressly provided.

 

Section 7.11                                Headings.  The headings of the Articles and Sections
herein are inserted for convenience of reference only and are not intended to
be a part of, or to affect the meaning or interpretation of, this Agreement.

 

Section 7.12                                Remedies.  Sellers and Manager hereby acknowledge and
agree that money damages may not be an adequate remedy for any breach or
threatened breach of any of the provisions of this Agreement and that, in such
event, Sellers or their successors or assigns, or Manager or its successors or
assigns, as the case may be, may, in addition to any other rights and remedies
existing in their favor, apply to the Bankruptcy Court for specific
performance, injunctive and/or other relief in order to enforce or prevent any
violations of this Agreement.

 

Section 7.13                                No
Partnership or Joint Venture Created. 
Nothing in this Agreement shall be construed or interpreted to make
Manager and Sellers partners or joint venturers, or to afford any rights to any
third party other than as expressly provided herein.

 

12

 

IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered by the duly authorized officers of Sellers and Buyer as
of the date first above written.

 

	
   

  	
  SELLERS:

  
	
   

  	
   

  
	
   

  	
  ALLEGIANCE TELECOM,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ALLEGIANCE TELECOM COMPANY
  WORLDWIDE

  
	
   

  	
  ADGRAFIX CORPORATION

  
	
   

  	
  ALGX BUSINESS INTERNET,
  INC.

  
	
   

  	
  ALLEGIANCE INTERNET,
  INC.

  
	
   

  	
  ALLEGIANCE TELECOM
  INTERNATIONAL, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  ARIZONA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  CALIFORNIA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  COLORADO, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  FLORIDA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  GEORGIA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  ILLINOIS, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  INDIANA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  MARYLAND, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  MASSACHUSETTS, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  MICHIGAN, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  MINNESOTA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  MISSOURI, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  NEVADA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  NEW JERSEY, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  NEW YORK, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  NORTH CAROLINA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  OHIO, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  OKLAHOMA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  OREGON, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  PENNSYLVANIA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  TEXAS, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  THE DISTRICT OF COLUMBIA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  VIRGINIA, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  WASHINGTON, INC.

  
	
   

  	
  ALLEGIANCE TELECOM OF
  WISCONSIN, INC.

  
	
   

  	
  ALLEGIANCE TELECOM
  PURCHASING COMPANY

  
	
   

  	
  ALLEGIANCE TELECOM
  SERVICE CORPORATION

  
	
   

  	
  COAST TO COAST
  TELECOMMUNICATIONS, INC.

  
	
   

  	
  HOSTING.COM, INC.

  
	
   

  	
  INTERACCESS
  TELECOMMUNICATIONS CO.

  

 

 

	
   

  	
  JUMP.NET, INC.

  
	
   

  	
  VIRTUALIS SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

	
   

  	
  MANAGER:

  
	
   

  	
   

  
	
   

  	
  XO COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

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