Document:

exv10w1

 

Exhibit 10.1

SERIES A WARRANT AGREEMENT

between

XO COMMUNICATIONS, INC.

and

AMERICAN STOCK TRANSFER & TRUST COMPANY,

as Warrant Agent

January 16, 2003

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	SECTION 1.	 	
Appointment of Warrant Agent
	 	 	1	 
	SECTION 2.	 	
Issuances
	 	 	1	 
	SECTION 3.	 	
Form of Warrant Certificates
	 	 	1	 
	SECTION 4.	 	
Execution of Warrant Certificates
	 	 	2	 
	SECTION 5.	 	
Registration and Countersignature
	 	 	2	 
	SECTION 6.	 	
Registration of Transfers and Exchanges
	 	 	3	 
	SECTION 7.	 	
Duration and Exercise of Warrants
	 	 	6	 
	SECTION 8.	 	
Rights Upon Dissolution or Liquidation
	 	 	9	 
	SECTION 9.	 	
Cancellation of Warrants
	 	 	9	 
	SECTION 10.	 	
Mutilated or Missing Warrant Certificates
	 	 	9	 
	SECTION 11.	 	
Reservation of Shares
	 	 	9	 
	SECTION 12.	 	
Stock Exchange Listings
	 	 	10	 
	SECTION 13.	 	
Provision of Financial Information
	 	 	10	 
	SECTION 14.	 	
Adjustment of Exercise Price and Number of Shares
Purchasable or Number of Warrants
	 	 	10	 
	SECTION 15.	 	
Fractional Shares
	 	 	18	 
	SECTION 16.	 	
Notices to Warrantholders
	 	 	18	 
	SECTION 17.	 	
Warrant Agent
	 	 	19	 
	SECTION 18.	 	
Change of Warrant Agent
	 	 	22	 
	SECTION 19.	 	
Merger, Consolidation or Change of Name of Warrant Agent
	 	 	23	 
	SECTION 20.	 	
Miscellaneous
	 	 	23	 

Exhibits

Exhibit A – Form of Global Warrant Certificate

Exhibit B-1 – Form of Election (Physical Delivery)                  

Exhibit B-2 – Form of Election (Depository Trust Company)

 

 

     This SERIES A WARRANT AGREEMENT (this “Agreement”) dated as of
January 16, 2003 is by and between XO COMMUNICATIONS, INC., a Delaware
corporation (the “Company”), and AMERICAN STOCK TRANSFER & TRUST
COMPANY, a New York corporation (in its capacity as warrant agent hereunder,
the “Warrant Agent”).

W I T N E S S E T H

     WHEREAS, pursuant to the Third Amended Plan of Reorganization for the
Company dated July 22, 2002 (as further modified, supplemented or amended, the
“Plan”) under chapter 11 of title 11 of the United States Code, 11
U.S.C. §§ 101 et seq., the Company proposes to issue series A warrants (the
“Warrants”) entitling the holders to purchase initially an aggregate of
up to 9,500,000 shares (as adjusted from time to time pursuant to this
Agreement, the “Shares”) of the Company’s Common Stock, par value $0.01
per share (“Common Stock”);

     WHEREAS, the Warrant Agent, at the request of the Company, has agreed to
act as the agent of the Company in connection with the issuance, registration,
transfer, exchange, exercise and conversion of the Warrants;

     NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereto agree as follows:

     SECTION 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the instructions hereinafter set forth in this Agreement; and the Warrant Agent
hereby accepts such appointment, upon the terms and conditions hereinafter set
forth.

     SECTION 2. Issuances. Subject to the provisions of this Agreement,
in accordance with the terms of the Plan, on (and from time to time after) the
Effective Date (as defined in the Plan), Warrants to purchase the Shares will
be issued and delivered by the Company in the amounts and to the recipients
specified in the Plan. On or after the Effective Date, the Company will
deliver, or cause to be delivered, one or more Global Warrant Certificates (as
defined below) or Definitive Warrant Certificates (as defined below) evidencing
the Warrants in accordance with the terms of the Plan.

     SECTION 3. Form of Warrant Certificates. Subject to Section 6 of
this Agreement, the Warrants to be issued under the Plan to holders of Senior
Notes (as defined in the Plan) shall initially be issued in the form of one or
more global certificates (the “Global Warrant Certificates”), the forms
of election to exercise and of assignment to be printed on the reverse thereof,
in substantially the form set forth in Exhibit A hereto (not including
the information set forth in footnote 1 thereto, but including the information
set forth in footnote 2 thereto) together with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Agreement, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with any law or with any rules made pursuant thereto or with
any rules of any securities exchange or as may, consistently herewith, be
determined by the officers executing such Warrant Certificates, as evidenced by
their execution of the Warrant Certificates.

 

 

     The Global Warrant Certificates shall be deposited on or after the
Effective Date with, or with the Warrant Agent as custodian for, The Depository
Trust Company (the “Depositary”) and registered in the name of Cede &
Co., as the Depositary’s nominee. Each Global Warrant Certificate shall
represent such number of the outstanding Warrants as specified therein, and
each shall provide that it shall represent the aggregate amount of outstanding
Warrants from time to time endorsed thereon and that the aggregate amount of
outstanding Warrants represented thereby may from time to time be reduced or
increased, as appropriate, in accordance with the terms of this Agreement.
Upon request, a Holder may receive from the Depositary and the Warrant Agent
Warrants in definitive form (the “Definitive Warrant Certificates” and,
together with the Global Warrant Certificates, the “Warrant
Certificates”), substantially in the form of Exhibit A (not
including footnote 1 or 2 thereto) as set forth in Section 6 below. The
Warrants to be issued under the Plan to holders of General Unsecured Claims (as
defined in the Plan) shall initially be issued in the form of one or more
Definitive Warrant Certificates.

     SECTION 4. Execution of Warrant Certificates. Warrant Certificates
shall be signed on behalf of the Company by its Chairman of the Board of
Directors, its Chief Executive Officer, its President, a Vice President or its
Treasurer (each, an “Officer”). Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of any such Officer
and may be imprinted or otherwise reproduced on the Warrant Certificates and
for that purpose the Company may adopt and use the facsimile signature of any
Officer.

     If any Officer who shall have signed any of the Warrant Certificates shall
cease to be such Officer before the Warrant Certificates so signed shall have
been countersigned by the Warrant Agent or disposed of by the Company, such
Warrant Certificates nevertheless may be countersigned and delivered or
disposed of as though such Officer had not ceased to be such Officer of the
Company; and any Warrant Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Warrant
Certificate, shall be a proper officer of the Company to sign such Warrant
Certificate, although at the date of the execution of this Agreement any such
person was not such an officer.

     SECTION 5. Registration and Countersignature. The Warrant Agent
shall, upon receipt of the Warrant Certificates duly executed on behalf of the
Company, countersign one or more Warrant Certificates evidencing the Warrants
and shall deliver such Warrant Certificates to or upon the written order of the
Company. A Warrant Certificate shall be, and shall remain, subject to the
provisions of this Agreement until such time as all of the Warrants evidenced
thereby shall have been duly exercised or shall have expired or been canceled
in accordance with the terms hereof.

     No Warrant Certificate shall be valid for any purpose, and no Warrant
evidenced thereby shall be exercisable, until such Warrant Certificate has been
countersigned by the signature of the Warrant Agent. Such signature by the
Warrant Agent upon any Warrant Certificate executed by the Company shall be
conclusive evidence that such Warrant Certificate so countersigned has been
duly issued hereunder.

     The Warrant Agent shall keep, at an office designated for such purpose,
books (the “Warrant Register”) in which, subject to such reasonable
regulations as it may prescribe, it shall register the Warrant Certificates and
exchanges and transfers of outstanding Warrant Certificates

2

 

in accordance with the procedures set forth in Section 6 of this
Agreement, all in form satisfactory to the Company and the Warrant Agent. No
service charge shall be made for any exchange or registration of transfer of
the Warrant Certificates, but the Company may require payment of a sum
sufficient to cover any stamp or other tax or other governmental charge that
may be imposed in connection with any such exchange or registration of
transfer. The Warrant Agent shall have no obligation to effect an exchange or
register a transfer unless and until any payments required by the immediately
preceding sentence have been made.

     Prior to due presentment for registration of transfer or exchange of any
Warrant in accordance with the procedures set forth in this Agreement, the
Warrant Agent and the Company may deem and treat the person in whose name any
Warrant is registered (the “Holder” of such Warrant) as the absolute
owner of such Warrant (notwithstanding any notation of ownership or other
writing made in a Warrant Certificate by anyone), for the purpose of any
exercise thereof, any distribution to the Holder thereof and for all other
purposes, and neither the Warrant Agent nor the Company shall be affected by
notice to the contrary.

     SECTION 6. Registration of Transfers and Exchanges.

         (a) Transfer and Exchange of Global Warrant Certificates or Beneficial
Interests Therein. The transfer and exchange of Global Warrant Certificates or
beneficial interests therein shall be effected through the Depositary, in
accordance with this Agreement and the procedures of the Depositary therefor.

         (b) Exchange of a Beneficial Interest in a Global Warrant Certificate for
a Definitive Warrant Certificate.

              (i) Any Holder of a beneficial interest in a Global Warrant Certificate
may, upon request, exchange such beneficial interest for a Definitive Warrant
Certificate. Upon receipt by the Warrant Agent from the Depositary or its
nominee of written instructions or such other form of instructions as is
customary for the Depositary on behalf of any person having a beneficial
interest in a Global Warrant Certificate, the Warrant Agent shall cause, in
accordance with the standing instructions and procedures existing between the
Depositary and Warrant Agent, the number of Warrants represented by the Global
Warrant Certificate to be reduced by the number of Warrants to be represented
by the Definitive Warrant Certificates to be issued in exchange for the
interest of such person in the Global Warrant Certificate and, following such
reduction, the Company shall execute and the Warrant Agent shall countersign
and deliver to the transferee, as the case may be, a Definitive Warrant
Certificate.

              (ii) Definitive
Warrant Certificates issued in exchange for a beneficial
interest in a Global Warrant Certificate pursuant to this Section 6(b) shall be
registered in such names as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Warrant Agent.
The Warrant Agent shall deliver such Definitive Warrant Certificates to the
persons in whose names such Warrants are so registered.

         (c) Transfer
and Exchange of Definitive Warrant Certificates. When
Definitive Warrant Certificates are presented to the Warrant Agent with a
request:

              (i) to
register the transfer of the Definitive Warrant Certificates; or

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              (ii) to
exchange such Definitive Warrant Certificates for an equal number
of Definitive Warrant Certificates of other authorized denominations,

the Warrant Agent shall register the transfer or make the exchange as requested
if its requirements for such transactions are met; provided, however, that the
Definitive Warrant Certificates presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Warrant Agent, duly
executed by the Holder thereof or by his attorney, duly authorized in writing.

         (d) Restrictions
on Exchange or Transfer of a Definitive Warrant
Certificate for a Beneficial Interest in a Global Warrant Certificate. A
Definitive Warrant Certificate may not be exchanged for a beneficial interest
in a Global Warrant Certificate except upon satisfaction of the requirements
set forth below. Upon receipt by the Warrant Agent of a Definitive Warrant
Certificate, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Warrant Agent, together with written
instructions directing the Warrant Agent to make, or to direct the Depositary
to make, an endorsement on the Global Warrant Certificate to reflect an
increase in the number of Warrants represented by the Global Warrant
Certificate equal to the number of Warrants represented by such Definitive
Warrant Certificate, then the Warrant Agent shall cancel such Definitive
Warrant Certificate and cause, or direct the Depositary to cause, in accordance
with the standing instructions and procedures existing between the Depositary
and the Warrant Agent, the number of Warrants represented by the Global Warrant
Certificate to be increased accordingly. If no Global Warrant Certificates are
then outstanding, the Company shall issue and the Warrant Agent shall
countersign a new Global Warrant Certificate representing the appropriate
number of Warrants.

         (e) Restrictions
on Transfer and Exchange of Global Warrant Certificates.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in Section 6(f)), unless and until it is exchanged in
whole for Definitive Warrant Certificates, a Global Warrant Certificate may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.

         (f) Countersigning
of Definitive Warrant Certificates in Absence of
Depositary. If at any time:

              (i) the
Depositary for the Global Warrant Certificates notifies the
Company that the Depositary is unwilling or unable to continue as Depositary
for the Global Warrant Certificates and a successor Depositary for the Global
Warrant Certificates is not appointed by the Company within 90 days after
delivery of such notice; or

              (ii) the
Company, in its sole discretion, notifies the Warrant Agent in
writing that it elects to cause the issuance of Definitive Warrant Certificates
under this Agreement,

then the Company shall execute, and the Warrant Agent, upon written
instructions signed by an officer of the Company, shall countersign and deliver
Definitive Warrant Certificates, in an

4

 

aggregate number equal to the number of Warrants represented by the Global
Warrant Certificates, in exchange for such Global Warrant Certificates.

         (g) No
Warrants, or shares of Common Stock issuable upon exercise of the
Warrants, shall be sold, exchanged or otherwise transferred in violation of the
Securities Act of 1933, as amended (the “Securities Act”), or state
securities laws. The Company or the Warrant Agent may require that, as a
condition to any sale, exchange or transfer of a Warrant or such shares of
Common Stock that the Holder deliver to the Company and the Warrant Agent an
opinion of counsel, which opinion and counsel shall be reasonably satisfactory
to the Company and to the Warrant Agent, to the effect that such sale, exchange
or transfer is made in compliance with the Securities Act and all applicable
state securities laws or pursuant to an exempt transaction under the Securities
Act and state securities laws. The provisions of this paragraph (g) shall not
apply to the exercise of any Warrant to the extent that the Shares issued upon
such exercise (and any unexercised portion of the Warrant so exercised) shall
be issued to the same Holder that exercised such Warrant.

         
(h) The
Warrant Certificates and the shares of Common Stock issuable upon
exercise of the Warrants shall bear such legends as the Company shall determine
reflecting the restrictions in the immediately preceding Section 6(g).

         
(i)  Cancellation of Global Warrant Certificate. At such time as all
beneficial interests in Global Warrant Certificates have either been exchanged
for Definitive Warrant Certificates, redeemed, repurchased or cancelled, all
Global Warrant Certificates shall be returned to or retained and cancelled by
the Warrant Agent.

         (j) Obligations
with Respect to Transfers and Exchanges of Warrants.

              (i) To
permit registrations of transfers and exchanges, the Company shall
execute and the Warrant Agent is hereby authorized to countersign, in
accordance with the provisions of Section 3 and this Section 6, Definitive
Warrant Certificates and Global Warrant Certificates as required pursuant to
the provisions of this Section 6 and for the purpose of any distribution of
Warrant Certificates contemplated by Section 14.

              (ii) All
Definitive Warrant Certificates and Global Warrant Certificates
issued upon any registration of transfer or exchange of Definitive Warrant
Certificates or Global Warrant Certificates shall be the valid obligations of
the Company, entitled to the same benefits under this Agreement as the
Definitive Warrant Certificates or Global Warrant Certificates surrendered upon
such registration of transfer or exchange.

              (iii) No
service charge shall be made to a Holder for any registration,
transfer or exchange.

              (iv) So
long as the Depositary, or its nominee, is the registered owner of
a Global Warrant Certificate, the Depositary or such nominee, as the case may
be, will be considered the sole owner or holder of the Warrants represented by
such Global Warrant Certificate for all purposes under this Agreement. Except
as provided in Section 6(b) upon the exchange of a beneficial interest in a
Global Warrant Certificate for a Definitive Warrant Certificate, owners of
beneficial interests in a Global Warrant Certificate will not be entitled to

5

 

have any Warrants registered in their names, and will not receive or be
entitled to receive physical delivery of any such Warrants as Definitive
Warrant Certificates and will not be considered the owners or holders thereof
under the Warrants or this Agreement. Neither the Company nor the Warrant
Agent, in its capacity as registrar for such Warrants, will have any
responsibility or liability for any aspect of the records relating to
beneficial interests in a Global Warrant Certificate or for maintaining,
supervising or reviewing any records relating to such beneficial interests.

         (v) Subject
to Sections 6(b), (c), (d) and this Section 6(j), the Warrant
Agent shall, upon receipt of all information required to be delivered
hereunder, from time to time register the transfer of any outstanding Warrants
represented by Warrant Certificates in the Warrant Register, upon surrender of
Warrant Certificates representing such Warrants at the Warrant Agent Office (as
defined below), duly endorsed, and accompanied by a completed form of
assignment, duly signed by the Holder thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney, such signature to be
guaranteed by (i) a bank or trust company, (ii) a broker or dealer that is a
member of the National Association of Securities Dealers, Inc. (the
“NASD”) or (iii) a member of a national securities exchange. Upon any
such registration of transfer, a new Warrant Certificate shall be issued to the
transferee.

     SECTION 7. Duration and Exercise of Warrants.

         (a) The
Warrants shall expire at 5:00 p.m., New York City time on January
16, 2010 (such date, the “Expiration Date”). On the Expiration Date,
the Warrants will become void and of no value.

         (b) Subject
to the provisions of this Agreement, including Section 14,
each Warrant shall entitle the holder thereof to purchase from the Company (and
the Company shall issue and sell to such holder) one fully paid and
nonassessable Share at a price equal to $6.25 per share (subject to the
following sentence and as the same may be hereafter adjusted pursuant to
Section 14, the “Exercise Price”). Notwithstanding any other provision
hereof, in the event that the Rights Shares (as defined in the Plan) are
offered for sale in the Rights Offering (as defined in the Plan) at a price per
share equal to less than $5.00 (such lower price, the “Rights Offering
Price”), then the Exercise Price shall be reduced, effective as of the
Effective Date (as defined in the Plan), to an amount equal to 125% of the
Rights Offering Price.

         (c) From
and after the Effective Date under, and as defined in, the Plan
and until 5:00 p.m., New York City time, on the Expiration Date with respect to
such Warrant, the Holder of a Warrant may exercise such Holder’s right to
purchase Shares by

              (i) providing
written notice of such election (“Warrant Exercise
Notice”) to exercise the Warrant to the Warrant Agent at the address set
forth in Section 20(b) hereof, “Re: XO Communications, Inc. Warrant Exercise”,
by hand or by facsimile, no later than 5:00 p.m., New York City time, on the
Expiration Date, which Warrant Exercise Notice shall be in the form of an
election to purchase Shares of Common Stock of the Company substantially in the
form set forth either (x) in Exhibit B-1 hereto, properly completed and
executed by the Holder; provided that such written notice may only be submitted
by persons who hold Definitive Warrant Certificates, or (y) in Exhibit
B-2 hereto, properly completed and

6

 

executed by the Holder; provided that such written notice may only be
submitted with respect to Warrants held through the book-entry facilities of
the Depositary, by or through persons that are direct participants in the
Depositary;

              (ii) delivering,
either (x) no later than 5:00 p.m., New York City time,
on the business day immediately prior to the Settlement Date, as defined below,
such Warrants to the Warrant Agent by book-entry transfer through the
facilities of the Depositary or (y) no later than 5:00 p.m., New York City
time, on the business day immediately prior to the Settlement Date, the Warrant
Certificates evidencing such Warrants to the Warrant Agent if Definitive
Warrant Certificates have been issued and delivered pursuant to Section 3; and

              (iii) paying
the applicable Exercise Price multiplied by the number of
Shares in respect of which such Warrants are being exercised (the “Exercise
Amount”), together with any applicable taxes and governmental charges. The
date three business days after a Warrant Exercise Notice is delivered is
referred to for all purposes under this Agreement as the “Settlement
Date”.

         (d) The
Exercise Amount shall be payable in lawful money of the United
States of America by wire transfer in immediately available funds of the
Exercise Amount to an account of the Warrant Agent specified in writing by the
Warrant Agent for such purpose or by delivery of a certified check in
immediately available funds of the Exercise Amount to the Warrant Agent at its
corporate office, in each case no later than 5:00 p.m., New York City time, on
the business day immediately prior to the Settlement Date.

         (e) Any
exercise of a Warrant pursuant to the terms of this Agreement
shall be irrevocable and shall constitute a binding agreement between the
Holder and the Company, enforceable in accordance with its terms.

         (f) The
Warrant Agent shall notify the Depositary of (x) the Warrant
Agent’s account at the Depositary to which the Warrants must be delivered by
the business day immediately prior to the Settlement Date for those Warrants to
be exercised through the book-entry facilities of the Depositary and (y) the
address, phone number and facsimile number where holders of the Warrants can
contact the Warrant Agent to which Warrant Exercise Notices are to be
submitted.

         (g) Promptly
following delivery of Warrants to a Holder, the Company shall
notify such Holder (through the clearing system) of (i) the Warrant Agent’s
account at the Depositary to which holders must deliver Warrants on the
business day immediately prior to the Settlement Date, (ii) the Warrant
exercise procedures of the Depositary and (iii) the address, telephone number
and facsimile number where Holders can contact the Warrant Agent and to which
Holders must submit Warrant Exercise Notices if they decide to exercise their
Warrants. At such time, the Company shall also provide then Holders with a
Warrant Exercise Notice and the pertinent instructions as to how to exercise
their Warrants.

         (h) The
Warrant Agent shall:

              (i) examine
all Warrant Exercise Notices and all other documents delivered
to it by or on behalf of holders as contemplated by the Warrant Certificates to
ascertain

7

 

whether, on their face, such Warrant Exercise Notices and any such other
documents have been executed and completed in accordance with their terms and
the terms of the Warrant Certificates;

              (ii) determine
whether the exercising Warrant Holder has delivered the
related Warrants to the Warrant Agent’s account at the Depositary. In each
case where a Warrant Exercise Notice or other document appears on its face to
have been improperly completed or executed or some other irregularity in
connection with the exercise of the Warrants exists, the Warrant Agent shall
endeavor to inform the appropriate parties (including the person submitting
such instrument) of the need for fulfillment of all requirements, specifying
those requirements which appear to be unfulfilled.

              (iii) inform
the Company of and cooperate with and assist the Company in
resolving any reconciliation problems between Warrant Exercise Notices received
and delivery of Warrants to the Warrant Agent’s account;

              (iv) advise
the Company no later than one business day after receipt of a
Warrant Exercise Notice, of (i) the receipt of such Warrant Exercise Notice and
the number of Warrants exercised in accordance with the terms and conditions of
this Agreement, (ii) the instructions with respect to delivery of the shares of
Common Stock of the Company deliverable upon such exercise, subject to timely
receipt from the Depositary of the necessary information, and (iii) such other
information as the Company shall reasonably require;

              (v) notify,
by such time as necessary to ensure a prompt closing, the
Depositary, with a copy to the Company, each account at the Depositary to be
credited with Common Stock and the amount thereof to be credited to each such
account; and

              (vi) subject
to Common Stock being made available to the Warrant Agent by
or on behalf of the Company for delivery to accounts within the Depositary,
liaise with the Depositary and endeavor to effect such delivery to the relevant
accounts at the Depositary in accordance with its requirements.

         (i) As
soon as practicable after the exercise of any Warrant, the Company
shall issue, or otherwise deliver, in authorized denominations to or upon the
order of the Holder of the Warrant Certificates evidencing such Warrants,
either

              (i) if
such Holder holds the Warrants being exercised through the
Depositary’s book-entry transfer facilities, by same-day credit to such
Holder’s account at the Depositary or to the account of a participant in the
Depositary the number of Shares to which such Holder is entitled, in each case
registered in such name and delivered to such account as directed in the
Warrant Exercise Notice by such Holder or by the direct participant in the
Depositary through which such Holder is acting, or

              (ii) if
such Holder holds the Warrants being exercised in the form of
Definitive Warrant Certificates, by delivery to the address designated by such
Holder in its Warrant Exercise Notice of a physical certificate representing
the number of Shares to which such Holder is entitled, in fully registered
form, registered in such name or names as may be directed by such Holder. If
less than all of the Warrants evidenced by a Warrant Certificate surrendered
upon the exercise of Warrants are exercised at any time prior to the date of

8

 

expiration for the Warrants , a new Warrant Certificate or Certificates
shall be issued for the remaining number of Warrants evidenced by the Warrant
Certificate so surrendered, and the Warrant Agent is hereby authorized to
countersign the required new Warrant Certificate or Certificates pursuant to
the provisions of Section 6 and this Section 7.

     SECTION 8. Rights Upon Dissolution or Liquidation. Notwithstanding
any other provision of this Agreement, in the event that, at any time after the
date hereof and prior to the Expiration Date, there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company, then the
Company shall (or shall cause the Warrant Agent to) give notice by first-class
mail to each holder of an outstanding Warrant at such holder’s address as it
appears on the Warrant Register maintained by the Warrant Agent, not less than
twenty days before any date set for definitive action), of the date on which
such dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of the
shares of record of Common Stock or other securities, if any, underlying the
Warrants shall be entitled to exchange their shares for securities, money or
other property deliverable upon such dissolution, liquidation or winding up, as
the case may be.

     SECTION 9. Cancellation of Warrants. If the Company shall purchase
or otherwise acquire Warrants, the Warrant Certificates representing such
Warrants shall thereupon be delivered to the Warrant Agent and be cancelled by
it and retired. The Warrant Agent shall cancel all Warrant Certificates
surrendered for exchange, substitution, transfer or exercise in whole or in
part. Such cancelled Warrant Certificates shall thereafter be disposed of in a
manner satisfactory to the Company.

     SECTION 10. Mutilated or Missing Warrant Certificates. If any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company shall issue, and the Warrant Agent shall countersign and deliver, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing
an equivalent number of Warrants, but only upon receipt of evidence reasonably
satisfactory to the Company and the Warrant Agent of the loss, theft or
destruction of such Warrant Certificate and the posting of an indemnity or
bond, if requested by either the Company or the Warrant Agent, also reasonably
satisfactory to them. Upon the issuance of any new Warrant Certificate under
this Section 10, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable out-of-pocket expenses (including the fees and
expenses of the Warrant Agent) in connection therewith.

     SECTION 11. Reservation of Shares. For the purpose of enabling it
to satisfy any obligation to issue Shares upon exercise of Warrants, the
Company will at all times through the Expiration Date, reserve and keep
available, free from preemptive rights and out of its aggregate authorized but
unissued or treasury shares of Common Stock, the number of Shares deliverable
upon the exercise of all outstanding Warrants, and the transfer agent for the
Company’s Common Stock (such agent, in such capacity, as may from time to time
be appointed by the Company, the “Transfer Agent”) is hereby irrevocably
authorized and directed at all times to reserve such number of authorized and
unissued or treasury shares of Common Stock as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with such

9

 

Transfer Agent and with every transfer agent for any shares of the
Company’s capital stock issuable upon the exercise of Warrants pursuant to
Section 7. The Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent stock certificates issuable upon
exercise of outstanding Warrants, and the Company will supply such Transfer
Agent with duly executed stock certificates for such purpose.

     Before taking any action that would cause an adjustment pursuant to
Section 14 reducing any Exercise Price below the then par value (if any) of the
Shares issuable upon exercise of the Warrants, the Company will take any
corporate action that may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Shares at such Exercise Price as so adjusted.

     The Company covenants that all shares of Common Stock issued upon exercise
of the Warrants will, upon delivery of the Company assuming payment in full of
the Exercise Price therefor, be fully paid and nonassessable and free from all
taxes, liens, charges and security interests of any nature whatsoever other
than such liens, charges and security interests granted by the Holder.

     SECTION 12. Stock Exchange Listings. So long as any Warrants
remain outstanding, if the shares of Common Stock are (i) listed on a national
securities exchange or (ii) listed for quotation on the Nasdaq National Market
System or any other over-the-counter quotation system, the Company will use
commercially reasonable efforts to have each of the shares of Common Stock,
immediately upon their issuance upon exercise of Warrants, listed on such
exchange or system. .

     SECTION 13. Provision of Financial Information. So long as any
Warrants remain outstanding, and whether or not the Company shall be required
to file annual reports, quarterly reports and other documents with the
Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended (the “Reports”),
the Company will either file the Reports with the SEC when due or make the
Reports generally and readily available to the public on its primary website
within five business days of the date by which the Company would have been
required to file such Reports, will promptly upon written request file five
copies of each such Report with the Warrant Agent, and, promptly upon written
request, will supply a copy of any such Report to any Holder or prospective
Holder.

     SECTION 14. Adjustment of Exercise Price and Number of Shares
Purchasable or Number of Warrants. The Exercise Price, the number of
shares of Common Stock purchasable upon the exercise of each Warrant and the
number of Warrants outstanding are subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section 14.

         (a)
Changes in Capital Stock. If the Company at any time or from
time to time after the date hereof shall (i) pay a dividend or make a
distribution on Common Stock, in each case, consisting of shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock (including by means of a stock split), (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock or (iv) issue, in a reclassification of the Common Stock, other
securities of the Company (including any such reclassification in connection
with a consolidation or merger of

10

 

the Company in which the Company is the surviving entity), the number of
Shares purchasable upon exercise of each Warrant immediately prior thereto
shall be adjusted so that the holder of each Warrant shall be entitled upon
exercise to receive the kind and number of Shares or other securities of the
Company which such holder would have owned or have been entitled to receive
after the happening of any of the events described above, had such Warrant been
exercised immediately prior to the happening of such event or any record date
with respect thereto. An adjustment made pursuant to this paragraph (a) shall
become effective on the effective date of such event retroactive to the record
date, if any, for such event.

              (b)
Distributions. If the Company at any time or from time to time
after the date hereof shall distribute to all holders of Common Stock
(including any such distribution made to the shareholders of the Company in
connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, shares of another class
of its capital stock, cash or other property of any nature (other than
distributions and dividends payable in shares of Common Stock and Ordinary Cash
Dividends), or any options, warrants or other rights to subscribe for or
purchase any of the foregoing, then, in each case, the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of shareholders entitled to receive such
distribution by a fraction, the numerator of which shall be the Market Price
(as defined below) per share of Common Stock as of the business day immediately
preceding such record date, less the fair market value (as determined in good
faith by the Board of Directors (including any authorized committee thereof,
the “Board of Directors”), whose determination shall be conclusive for
all purposes and described in a reasonably detailed statement filed with the
Warrant Agent) of the portion of the evidences of indebtedness, shares or
property so to be distributed (net of the exercise price or purchase price
therefor in the case of distribution of options, warrants or other rights to
subscribe or purchase such indebtedness, shares or other property), applicable
to one share, and the denominator of which shall be such Market Price per share
of Common Stock as of the business day immediately preceding such record date.
Such adjustment shall be made whenever any such distribution is made and shall
become effective at the close of business on such record date. The term
“Market Price” shall mean (x) the average closing price of a share of
Common Stock for the ten consecutive trading days immediately preceding, but
not including, the date of exercise of this Warrant as reported on the
principal national securities exchange on which the shares of Common Stock are
listed or admitted to trading or (y) if not listed or admitted to trading on
any national securities exchange, the average of the closing bid and asked
prices during such ten trading day period in the over-the-counter market as
reported by the NASD Automated Quotation System (“Nasdaq”) National
Market or any comparable system or (z) in all other cases, as determined in
good faith by the Board of Directors of the Company, whose determination shall
be conclusive absent manifest error.

     "Ordinary Cash Dividends” means quarterly cash dividends, not to
exceed (in the aggregate in any calendar year) 5% of the value of all Common
Stock outstanding (valued at the Market Price thereof at the close of business
on the date of any such declaration), and not to exceed, in any quarter, the
greater of (x) the net income of the Company for the quarter last ended and (y)
the cumulative increase in retained earnings of the Company from the date of
this Agreement through the end of such quarter.

11

 

         (c)
Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation or merger of the
Company with or into any other person, or any sale, lease or other transfer of
all or substantially all of the assets of the Company to any other person,
shall be effected in such a way that the holders of the holders of the Common
Stock shall be entitled to receive (either directly or upon subsequent
liquidation) stock, securities, cash or other property (whether such stock,
securities, cash or other property are issued or distributed by the Company or
any other person) with respect to or in exchange for the Common Stock (each
such transaction, an “Organic Change”), then, as a condition to
consummation of such Organic Change, lawful, enforceable and adequate provision
shall be made whereby the holders of the Warrants shall thereafter have the
right to acquire and receive upon exercise of such Warrants, in lieu of or
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of such Warrants, such
shares of stock, securities, cash or other property issuable or payable in the
Organic Change with respect to or in exchange for such number of outstanding
shares of Common Stock as would have been received upon exercise of such
Warrants had such Warrants been exercised immediately before such Organic
Change, subject to adjustments for events subsequent to the effective date of
such Organic Change as nearly equivalent as may be practicable to the
adjustments provided for in this Section 14, provided that the Company shall
have the right, at its sole option, to substitute on a per share basis an equal
amount of cash for any such stock, securities or other property which would
otherwise have been issuable or payable to the holder of any Warrant upon
exercise thereof to the extent attributable to the Option Value of such
Warrant. The Company shall not effect any Organic Change unless prior to the
consummation thereof, the successor entity (if different from the Company)
resulting from such consolidation or merger or the entity purchasing or leasing
such assets assumes by written instrument delivered to the Warrant Agent the
obligation to deliver to each such Holder such shares of stock, securities,
cash or other property as, in accordance with the foregoing provisions, such
Holder may be entitled to acquire. In any such event, effective provisions
shall be made in the certificate or articles of incorporation of the resulting
or surviving person, or in any contract of sale, merger, conveyance, lease,
transfer or otherwise, so that the provisions set forth in this Agreement for
the protection of the rights of the holders of the Warrants shall thereafter
continue to be applicable. The foregoing provisions of this Section 14(c)
shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, leases or other transfers. If, at any time
prior to the expiration of eighteen (18) months after the Effective Date of the
Plan, a merger, reorganization, reclassification, consolidation or other
similar transaction involving the Company is consummated (each a “Conversion
Transaction”) whereby the Common Stock held by persons who do not control the
Company immediately prior to the Conversion Transaction is converted into the
right to receive cash or any other consideration which is not common equity
and, as a result of such Conversion Transaction, persons who control the
Company immediately prior to the transaction and/or their affiliates also
control the surviving entity, then the Warrants will become exercisable (such
exercise to be in accordance with the terms contained herein, including,
without limitation, the payment of the Exercise Price) on a per share basis for
the greater of (i) the amount of cash or other consideration delivered to a
non-controlling holder of a share of Common Stock and (ii) the sum of the
Exercise Price and the Option Value on the closing date of such Conversion
Transaction. If this Section 14(c) applies to any reorganization,

12

 

reclassification, consolidation, merger, sale, lease or other transfer,
then neither Section 14(a) nor Section 14(b) shall apply to such transaction.

     "Option Value” means, for any Warrant, or portion of a Warrant for
which cash consideration is substituted for non-cash consideration at the
Company’s option as provided above, the value thereof on a per share basis as
of the most recent practicable date (without giving effect to the Organic
Change in question) as determined in good faith by the board of directors of
the Company immediately prior to such date (based upon the advice of an
independent investment bank of national standing selected by the Company).

         (d)
Below Market Equity Issuances.

              (i) If
at any time or from time to time the Company issues or sells, or is
deemed to issue or sell,

                  (x) prior
to or at consummation of the Plan, any shares of Common Stock,
options to purchase or rights to subscribe for Common Stock, securities by
their terms convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable securities
(other than an issuance of Common Stock as a dividend or in a split of or
subdivision in respect of which an adjustment provided for in paragraph (a)
above applies or Rights Shares issued in the Rights Offering) for consideration
per share of Common Stock less than $5.00 per share (the “Plan Price”),
or

                  (y) after
consummation of the Plan, any shares of Common Stock, options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock, or options to purchase or
rights to subscribe for such convertible or exchangeable securities (other than
(1) an issuance of Common Stock as a dividend or in a split of or subdivision
in respect of which an adjustment provided for in paragraph (a) above applies,
(2) the issuance of Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable securities in respect of which an
adjustment pursuant to clause (i)(x) above applies and has previously been
made, and (3) as set forth in clause (iii) below) for consideration per share
of Common Stock less than (x) in the case of a public offering, the closing
price on the principal exchange on which the Common Stock is quoted on the day
before the pricing of such offering and (y) in all other cases, the Market
Price (as determined pursuant to Section 14(b)) per share of Common Stock as of
the date immediately prior to the first public announcement of such transaction
(or consummation of such transaction if the Common Stock is not then publicly
traded), or the record date for determination of shareholders entitled to
receive (or purchase) such rights, options, warrants, or convertible securities
(or options to purchase convertible securities) in the case of a distribution
or issuance thereof in respect of the Company’s capital stock,

then, and in each such case, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be adjusted by multiplying the number
of shares of Common Stock purchasable upon the exercise of each Warrant
immediately prior to such issuance or sale by a fraction (not less than one),

13

 

                  (A) the
numerator of which equals the product of (1) the number of shares
of Common Stock of the Company outstanding after giving effect to such sale or
issuance (and assuming with respect to rights, options, warrants or convertible
or exchangeable securities (or options or rights to purchase convertible or
exchangeable securities) that all in-the-money rights, options, warrants or
convertible or exchangeable securities (or options or rights to purchase
convertible or exchangeable securities) had been fully exercised or converted
into Common Stock, as the case may be) and (2) the Market Price (as determined
pursuant to Section 14(b)) per share of Common Stock as of immediately prior to
such public announcement date, consummation date or record date, as the case
may be (or, in the case of clause (i)(x) above, the Plan Price); and

                  (B) the
denominator of which equals the sum of (A) the product of (1) the
number of shares of Common Stock of the Company outstanding immediately before
such public announcement date, consummation date or record date as the case may
be (and assuming, with respect to rights, options, warrants or convertible or
exchangeable securities (or options or rights to purchase convertible or
exchangeable securities) that all in-the-money rights, options, warrants or
convertible or exchangeable securities (or options or rights to purchase
convertible or exchangeable securities) had been fully exercised or converted
into Common Stock, as the case may be), and (2) the Market Price (as determined
pursuant to Section 14(b)) per share of Common Stock as of immediately before
such public announcement date, consummation date or record date, as the case
may be (or, in the case of clause (i)(x) above, the Plan Price), and (B) the
aggregate consideration received by the Company for the Common Stock to be so
issued or sold or to be purchased or subscribed for, whether directly or
issuable upon exercise of such rights, options or warrants or upon conversion
or exercise of such convertible or exchangeable securities. For the purposes
of such adjustments, the Common Stock which the holders of any such rights,
options, warrants or convertible or exchangeable securities (or options or
rights to purchase convertible or exchangeable securities) shall be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding as of
the date of such public announcement date, consummation date or record date, as
the case may be. Notwithstanding anything herein to the contrary, no
adjustment to the number of shares of Common Stock purchasable upon the
exercise of each such Warrant shall be made under this Section 14(d) to the
extent that the Holders participate in any such distribution by way of an
adjustment pursuant to Section 14(a), (b) or (c).

              (ii) For
the purposes of any adjustment to the number of shares of Common
Stock purchasable upon the exercise of each Warrant pursuant to Section
14(d)(i), the following provisions shall be applicable:

                  (A) In
the case of the issuance of Common Stock or rights, options,
warrants or convertible or exchangeable securities (or options or rights to
purchase convertible or exchangeable securities) containing the right to
subscribe for or purchase Common Stock for cash in a public offering or private
placement, the consideration shall be deemed to be the amount of cash paid
therefor before deducting therefrom any discounts, commissions or placement
fees payable by the Company to any underwriter or placement agent in connection
with the issuance and sale thereof.

14

 

                  (B) In
the case of the issuance of Common Stock or rights, options,
warrants or convertible or exchangeable securities (or options or rights to
purchase convertible or exchangeable securities) containing the right to
subscribe for or purchase Common Stock for a consideration consisting, in whole
or part, of property other than cash or its equivalent (including in connection
with the acquisition of companies and businesses), the “consideration received
by the Company” shall be the fair market value of said property (as determined
in good faith by the Board of Directors, whose determination shall be
conclusive for all purposes and described in a reasonably detailed statement
filed with the Warrant Agent).

                  (C) In
the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable securities, the following provisions shall
be applicable:

                      (1) The

aggregate maximum number of shares of Common Stock deliverable
upon exercise of such options to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time such options or rights
were issued and for a consideration equal to the consideration, if any,
received by the Company upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the Common Stock
covered thereby.

                      (2) The

aggregate maximum number of shares of Common Stock deliverable
upon conversion of or in exchange of any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such
securities, options, or rights were issued and for a consideration equal to the
consideration received by the Company for any such securities and related
options or rights (excluding any cash received on account of accrued interest
or accrued dividends), plus the additional consideration, if any, to be
received by the Company upon the conversion or exchange of such securities or
the exercise of any related options or rights.

                      (3) Upon

any change in the number of shares or exercise price of Common
Stock deliverable upon exercise of any such options or rights or conversions of
or exchanges for such securities, the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall forthwith be readjusted to
such number as would have been obtained had the adjustment made upon the
issuance of such options, rights or securities not converted prior to such
change or options or rights related to such securities not converted prior to
such change been made upon the basis of such change.

                      (4) No

further adjustment of the number of shares of Common Stock
purchasable upon the exercise of each Warrant adjusted upon the issuance of any
such options, rights, convertible securities or exchangeable securities shall
be made as a result of the actual issuance of Common Stock on the exercise of
any such rights or options or any conversion or exchange of any such
securities.

                      (5) Upon

the expiration of any rights, options, warrants or conversion
privileges (the granting of which resulted in an adjustment to the number of
shares

15

 

of Common Stock purchasable upon exercise of each Warrant pursuant to this
Section 14), if such shall not have been exercised after the date hereof, the
number of shares of Common Stock purchasable upon exercise of each Warrant and
the Exercise Price, to the extent the Warrant has not been exercised, shall,
upon such expiration, be readjusted and shall thereafter be such as they would
have been had they been originally adjusted (or had the original adjustment not
been required, as the case may be) on the basis of (i) the fact that the only
shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion rights and (ii) such shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise
plus the consideration, if any, actually received by the Company (including for
purposes hereof, any underwriting discounts or selling commissions paid by the
Company) for the issuance, sale or grant of all such rights, options, warrants
or conversion rights whether or not exercised.

                      (iii)

No Adjustments in Certain Cases. The adjustments in the
number of Shares purchasable upon exercise of a Warrant under clause (i)(y) of
this paragraph (d) shall not apply to (A) the issuance on or after the
Effective Date of options awarded to employees, officers or directors or other
qualified plan participants of the Company pursuant to an option plan or
another option grant approved by the Board of Directors (“Management
Options”), to purchase shares of Common Stock in an aggregate amount not to
exceed 10% of the Common Stock, on a fully diluted basis after the distribution
of the Post-Termination Securities (as defined in the Plan) (subject to
adjustment for stock splits, stock subdivisions, stock combinations and similar
events) (the “Common Stock Option Pool”), (B) the issuance of Common
Stock upon the exercise of Management Options whose issuance was exempt from
Section 14(d) pursuant to clause (A) above, up to an amount not to exceed the
Common Stock Option Pool, (C) the issuance of Common Stock or other securities
of the Company upon the exercise of the Warrants, the New Series B Warrants or
New Series C Warrants (each as defined in the Plan), (D) any Common Stock or
options for the purchase of Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock issued pursuant to any stock
option, stock purchase or similar plan or arrangement for the benefit or
employees, consultants or directors of the Company or its subsidiaries approved
by the Company’s stockholders and its Board of Directors, and any shares of
Common Stock issuable upon exercise of any such options or convertible or
exchangeable securities, or (E) the issuance of Common Stock pursuant to the
Rights Offering (as defined in, and in accordance with, the Plan).

                  (e)
Other Dilutive Events. The Board of Directors shall make such
additional adjustments in application of such provisions as it deems necessary
or appropriate in its sole discretion, to effectuate the essential intent and
principles established in paragraphs (a) through (d) above, necessary to
preserve the purchase rights represented by each Warrant.

                  (f)
No De Minimis Adjustment. No adjustment in the number of
Shares purchasable upon exercise of a Warrant shall be required unless such
adjustment would require an increase or decrease of at least one percent (1.0%)
in the number of Shares purchasable upon the exercise of each Warrant;
provided, however, that any adjustments that by reason of this
Section 14(f) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations shall be made to
the nearest cent and to the nearest one-hundredth of a share, as the case may
be.

16

 

                  (g)
Exercise Price Adjustment. Whenever the number of shares of
Common Stock purchasable upon the exercise of any Warrant is adjusted as herein
provided (whether or not the Company then or thereafter elects to issue
additional Warrants in substitution for an adjustment in the number of Shares
as provided in Section 14(h)), the Exercise Price payable upon exercise of such
Warrant shall be adjusted by multiplying such Exercise Price immediately prior
to such adjustment by a fraction, of which the numerator shall be the number of
Shares purchasable upon the exercise of such Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Shares so
purchasable immediately thereafter (calculated, in each case, assuming that the
Company does not elect to issue additional Warrants in substitution for an
adjustment in the number of Shares purchasable upon exercise of a Warrant under
Section 14(h), whether or not the Company does in fact so elect).

                  (h)
Common Stock: Other Securities. For the purpose of this
Section 14, the term “shares of Common Stock” shall mean (i) the shares of
stock designated as the Common Stock of the Company at the date of this
Agreement, or (ii) any other class of stock resulting from successive changes
or reclassification of such shares consisting solely of changes in par value,
or from par value to no par value, or from no par value to par value. If at
any time, as a result of an adjustment made pursuant to Sections 14(a) or
14(c), the holders of Warrants shall become entitled to purchase any shares of
the Company other than shares of Common Stock, thereafter the number of such
other shares so purchasable upon exercise of each Warrant and the applicable
Exercise Price of such shares shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to such shares contained in Section 14(a) through (g), inclusive,
above, and the provisions contained in this Agreement with respect to such
shares, shall apply on like terms to any such other shares.

                  (i)
Issuance of Additional Warrants in Lieu of Adjustment. The
Company may elect, in its sole discretion, on or after the date of any
adjustment required by paragraphs (a) or (d) of this Section 14, to adjust the
number of Warrants in substitution for an adjustment in the number of Shares
purchasable upon the exercise of a Warrant. Each of the Warrants outstanding
after such adjustment of the number of Warrants shall be exercisable for the
same number of Shares as immediately prior to such adjustment. Each Warrant
held of record prior to such adjustment of the number of Warrants shall become
that number of Warrants (calculated to the nearest one-hundredth) obtained by
dividing the applicable Exercise Price in effect prior to adjustment of such
Exercise Price by the applicable Exercise Price in effect after adjustment of
such Exercise Price. The Company shall notify the holders of Warrants of its
election to adjust the number of Warrants in the same manner as provided in the
first paragraph of Section 16, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made, and shall
give prompt written notice thereof to the Warrant Agent. This record date may
be the date on which the Exercise Price is adjusted or any day thereafter.
Upon each adjustment of the number of Warrants pursuant to this Section 14(i)
the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Warrants on such record date Warrant Certificates
evidencing, subject to Section 15, the additional Warrants to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Warrant Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Warrant Certificates evidencing all the Warrants to be issued,
executed and registered in the manner specified in Sections 4 and 5 (and which
may bear,

17

 

at the option of the Company, the applicable adjusted Exercise Price) and
shall be registered in the names of the holders of record of Warrant
Certificates on the record date specified in the notice.

                  (j)
No Dilution or Impairment. The Company will not, by amendment
of its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Agreement or the Warrants, but will at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of the Warrants against dilution or other
impairment.

                  (k)
Changes to Form of Warrant Certificate. Irrespective of any
adjustments in an Exercise Price or the number or kind of shares purchasable
upon the exercise of the Warrants, Warrants theretofore or thereafter issued
may continue to express the same price and number and kind of shares as are
stated in the Warrants initially issuable pursuant to this Agreement. The
Company, however, may at any time in its sole discretion make any change in the
form of Warrant Certificate that it may deem appropriate to give effect to such
adjustments and that does not affect the substance of the Warrant Certificate
(including the rights, duties or obligations of the Warrant Agent), and any
Warrant Certificate thereafter issued, whether in exchange or substitution for
an outstanding Warrant Certificate or otherwise, may be in the form as so
changed.

     SECTION 15. Fractional Shares. Notwithstanding any adjustment
pursuant to Section 14 in the number of Shares purchasable upon the exercise of
a Warrant, the Company shall not be required to issue fractions of Shares upon
exercise of the Warrants, or to distribute certificates which evidence
fractional Shares. If Warrant Certificates evidencing more than one Warrant
shall be surrendered for exercise at one time by the same holder, the number of
full Shares which shall be issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Warrants so surrendered. If any fraction
of a share of Common Stock would, except for the provisions of this Section 15,
be issuable upon exercise of any Warrant or Warrants, the Company shall, at its
election, upon the exercise of such Warrant or Warrants, either (a) purchase
such fraction for an amount in cash equal to such fraction of the Market Price
(as determined pursuant to Section 14(b)) of a share of Common Stock, or (b)
round up the number of Shares issued upon exercise of such Warrant or Warrants
to the next whole integer.

     SECTION 16. Notices to Warrantholders. Upon any adjustment of the
number of shares of Common Stock purchasable upon exercise of each Warrant, any
Exercise Price or the number of Warrants outstanding including any adjustment
pursuant to Section 14, the Company, within 10 calendar days thereafter, shall
(i) cause to be filed with the Warrant Agent a certificate signed by the
Chairman of the Board of Directors, Chief Executive Officer, the President or
any Vice President of the Company setting forth the event giving rise to such
adjustment, such Exercise Price and either the number of Shares purchasable
upon exercise of each Warrant or the additional number of Warrants to be issued
for each previously outstanding Warrant, as the case may be, after such
adjustment and setting forth in reasonable detail the method of calculation and
the facts upon which such adjustment was made, and (ii) cause to be given to
each of the registered holders of the Warrant Certificates at such holder’s
address appearing on the Warrant

18

 

Register, written notice of such adjustments by first-class mail, postage
prepaid. Where appropriate, such notice may be given in advance and included
as a part of the notice required to be mailed under the other provisions of
this Section 16. Absent manifest error, the Warrant Agent shall be fully
protected in relying in good faith on any such certificate and in making any
adjustment described therein and shall have no duty with respect to, and shall
not be deemed to have knowledge of, any adjustment unless and until it shall
have received such a certificate.

     In case:

              (a) the
Company shall order, declare, make or pay any dividend payable in
any securities upon its shares of Common Stock or make any distribution (other
than a cash dividend) to the holders of its shares of Common Stock; or

              (b) the
Company shall offer to the holders of its shares of Common Stock
any additional shares of Common Stock or securities convertible into shares of
Common Stock or any right to subscribe thereto; or

              (c) of
any reclassification of the capital stock of the Company (other
than a subdivision or combination of outstanding shares of Common Stock), or of
any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company, or of any
other Organic Change; or

              (d) there
shall be a dissolution, liquidation or winding up of the
Company;

then the Company shall cause written notice of such event to be filed with the
Warrant Agent and shall cause written notice of such event to be given to each
of the registered holders of the Warrant Certificates at such holder’s address
appearing on the Warrant Register, by first-class mail, postage prepaid, and
make prompt written notification thereof to the Warrant Agent, such giving of
notice and publication to be completed at least 10 calendar days (or 20
calendar days in any case specified in clause (d) above) prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution or
subscription rights, or for the determination of stockholders entitled to vote
on such proposed merger, sale, dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of closing the transfer
books, as the case may be. The failure to give the notice required by this
Section 16 or any defect therein shall not affect the legality or validity of
any distribution, right, warrant, dissolution, liquidation or winding up or the
vote upon or any other action taken in connection therewith.

     SECTION 17. Warrant Agent. The Warrant Agent undertakes only the
duties and obligations expressly imposed by this Agreement and the Warrant
Certificate, in each case upon the following terms and conditions, by all of
which the Company and the holders of Warrants, by their acceptance thereof,
shall be bound:

         (a) The
statements contained herein and in the Warrant Certificates shall
be taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the accuracy of any of the same except such as describe the
Warrant Agent or action taken or to be

19

 

taken by it. Except as otherwise provided herein, the Warrant Agent
assumes no responsibility with respect to the execution, delivery or
distribution of the Warrant Certificates.

              (b) The
Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company, nor shall it at
any time be under any duty or responsibility to any holder of a Warrant to make
or cause to be made any adjustment in any Exercise Price or in the number of
Shares issuable upon exercise of any Warrant (except as instructed by the
Company), or to determine whether any facts exist that may require any such
adjustments, or with respect to the nature or extent of or method employed in
making any such adjustments when made.

              (c) The
Warrant Agent may consult at any time with counsel satisfactory to
it (who may also be counsel for the Company), and the Warrant Agent shall incur
no liability or responsibility to the Company or any holder of any Warrant
Certificate in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel,
absent gross negligence, bad faith or willful misconduct (each as determined by
a final order, judgment, ruling or decree of a court of competent jurisdiction)
in the selection and continued retention of such counsel and the reliance on
such counsel’s advice.

              (d) The
Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant Certificate for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate or
other paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.

              (e) The
Company agrees to pay to the Warrant Agent reasonable compensation
for all services rendered by the Warrant Agent under this Agreement, to
reimburse the Warrant Agent upon demand for all reasonable expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the preparation, administration, delivery, execution and
amendment of this Agreement and the performance of its duties under this
Agreement and to indemnify the Warrant Agent and save it harmless against any
and all losses, liabilities and reasonable expenses, including judgments,
damages, fines, penalties, claims, demands, settlements, costs and reasonable
counsel fees and expenses, for anything done or omitted by the Warrant Agent
arising out of or in connection with this Agreement except as a result of its
gross negligence, bad faith or willful misconduct (each as determined by a
final order, judgment, ruling or decree of a court of competent jurisdiction).
The reasonable costs and expenses incurred by the Warrant Agent in enforcing
the right to indemnification shall be paid by the Company unless it is
determined by a final order, judgment, decree or ruling of a court of competent
jurisdiction that the Warrant Agent is not entitled to indemnification due to
its gross negligence, bad faith or willful misconduct.

              (f) The
Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrant
Certificates furnishes the Warrant Agent with reasonable security and indemnity
for any costs or expenses that may be incurred. All rights of action under
this Agreement or under any of the Warrants may be enforced by the Warrant
Agent

20

 

without the possession of any of the Warrant Certificates or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery or judgment shall be for
the ratable benefit of the registered holders of the Warrants, as their
respective rights or interests may appear.

              (g) The
Warrant Agent, and any stockholder, affiliate, director, officer
or employee thereof, may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company is interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it was not the Warrant
Agent under this Agreement, or a stockholder, director, officer or employee of
the Warrant Agent, as the case may be. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.

              (h) The
Warrant Agent shall act hereunder solely as agent for the Company,
and its duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not be liable for anything that it may do or refrain from
doing in connection with this Agreement except in connection with its own gross
negligence, bad faith or willful misconduct (each as determined by a final
order, judgment, decree or ruling of a court of competent jurisdiction). In no
event will the Warrant Agent be liable for special, indirect, incidental,
punitive or consequential loss or damage of any kind whatsoever, even if the
Warrant Agent has been advised of the possibility of such loss or damage. Any
liability of the Warrant Agent under this Agreement to the Company will be
limited to the amount of fees paid by the Company to the Warrant Agent.

              (i) The
Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing of the
provisions of this Agreement.

              (j) The
Warrant Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due and validly authorized execution hereof by the Warrant Agent) or in respect
of the validity or execution of any Warrant Certificate (except its due and
validly authorized countersignature thereof), nor shall the Warrant Agent by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of the Shares to be issued pursuant to this
Agreement or any Warrant Certificate or as to whether the Shares will when
issued be validly issued, fully paid and nonassessable or as to the Exercise
Price or the number of Shares issuable upon exercise of any Warrant.

              (k) The
Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer, any Vice President, the Treasurer, the Secretary or an
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and such instructions shall be full
authorization and protection to the Warrant Agent and the Warrant Agent shall
not be liable for any action taken, suffered to be taken, or omitted to be
taken by it in good faith in

21

 

accordance with instructions of any such officer or in good faith reliance
upon any statement signed by any one of such officers of the Company with
respect to any fact or matter (unless other evidence in respect thereof is
herein specifically prescribed) which may be deemed to be conclusively proved
and established by such signed statement.

              (l) No
provision of this Agreement shall require the Warrant Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
it believes that repayment of such funds or adequate indemnification against
such risk or liability is not reasonably assured to it.

              (m) If
the Warrant Agent shall receive any notice or demand (other than
notice of or demand for exercise of Warrants) addressed to the Company by the
holder of the Warrant Certificates pursuant to the provisions of the Warrant
Certificates, the Warrant Agent shall promptly forward such notice or demand to
the Company.

              (n) The
provisions of this Section 18 shall survive the termination of
this Agreement, the exercise or expiration of the Warrants and the resignation
or removal of the Warrant Agent.

     SECTION 18. Change of Warrant Agent. If the Warrant Agent resigns
(such resignation to become effective not earlier than 90 calendar days after
the giving of written notice thereof to the Company and the registered holders
of Warrant Certificates) or shall be adjudged a bankrupt or insolvent, or shall
file a voluntary petition in bankruptcy or make an assignment for the benefit
of its creditors or consent to the appointment of a receiver of all or any
substantial part of its property or affairs or shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to pay
or meet its debts generally as they become due, or if an order of any court
shall be entered approving any petition filed by or against the Warrant Agent
under the provisions of bankruptcy laws or any similar legislation, or if a
receiver, trustee or other similar official of it or of all or any substantial
part of its property shall be appointed, or if any public officer shall take
charge or control of it or of its property or affairs, for the purpose of
rehabilitation, conservation, protection, relief, winding up or liquidation, or
becomes incapable of acting as Warrant Agent or if the Board of Directors of
the Company by resolution removes the Warrant Agent (such removal to become
effective not earlier than 30 calendar days after the filing of a certified
copy of such resolution with the Warrant Agent and the giving of written notice
of such removal to the registered holders of Warrant Certificates), the Company
shall appoint a successor to the Warrant Agent. If the Company fails to make
such appointment within a period of 30 calendar days after such removal or
after it has been so notified in writing of such resignation or incapacity by
the Warrant Agent or by the registered holder of a Warrant Certificate (in the
case of incapacity), then the registered holder of any Warrant Certificate may
apply to any court of competent jurisdiction for the appointment of a successor
to the Warrant Agent. Pending appointment of a successor to the Warrant Agent,
either by the Company or by such a court, the duties of the Warrant Agent shall
be carried out by the Company. Any successor Warrant Agent, whether appointed
by the Company or by such a court, shall be a bank or trust company, in good
standing, incorporated under the laws of any state or of the United States of
America. As soon as practicable after appointment of the successor Warrant
Agent, the Company shall cause written notice of the change in the Warrant
Agent to be given to each of the registered holders of the Warrant Certificates
at such holder’s address appearing on the Warrant

22

 

Register. After appointment, the successor Warrant Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed. The former
Warrant Agent shall deliver and transfer to the successor Warrant Agent any
property at the time held by it hereunder and execute and deliver, at the
expense of the Company, any further assurance, conveyance, act or deed
necessary for these purposes. Failure to give any notice provided for in this
Section 19 or any defect therein, shall not affect the legality or validity of
the removal of the Warrant Agent or the appointment of a successor Warrant
Agent, as the case may be.

     SECTION 19. Merger, Consolidation or Change of Name of Warrant
Agent. Any person into which the Warrant Agent may be merged or converted
or with which it may be consolidated, or any person resulting from any merger,
conversion or consolidation to which the Warrant Agent is a party, or any
person succeeding to the shareholder services business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any document or any further act on the part of any of the parties
hereto, if such person would be eligible for appointment as a successor Warrant
Agent under the provisions of Section 19. If any of the Warrant Certificates
have been countersigned but not delivered at the time such successor to the
Warrant Agent succeeds under this Agreement, any such successor to the Warrant
Agent may adopt the countersignature of the original Warrant Agent; and if at
that time any of the Warrant Certificates shall not have been countersigned,
any successor to the Warrant Agent may countersign such Warrant Certificates
either in the name of the predecessor Warrant Agent or in the name of the
successor Warrant Agent; and in all such cases such Warrant Certificates shall
have the full force provided in the Warrant Certificates and in this Agreement.

     If at any time the name of the Warrant Agent is changed and at such time
any of the Warrant Certificates have been countersigned but not delivered, the
Warrant Agent whose name has changed may adopt the countersignature under its
prior name; and if at that time any of the Warrant Certificates have not been
countersigned, the Warrant Agent may countersign such Warrant Certificates
either in its prior name or in its changed name; and in all such cases such
Warrant Certificates shall have the full force provided in the Warrant
Certificates and in this Agreement.

     SECTION 20. Miscellaneous.

              (a)
Warrantholder Not Deemed a Stockholder. Nothing contained in
this Agreement or in any of the Warrant Certificates shall be construed as
conferring upon the holders thereof the right to vote or to receive dividends
or to consent or to receive notice as stockholders in respect of the meetings
of stockholders or for the election of directors of the Company or any other
matter, or any rights whatsoever as stockholders of the Company.

              (b)
Notices to Company and Warrant Agent. Any notice or demand
authorized by this Agreement to be given or made by the Warrant Agent or by any
registered holder of any Warrant Certificate to or on the Company shall be
sufficiently given or made if sent by certified mail, return receipt requested,
or by nationally recognized overnight courier service, addressed (until another
address is filed in writing by the Company with the Warrant Agent), or by
facsimile transmission with receipt confirmed, or by personal delivery as
follows:

23

 

	 	XO Communications, Inc.

        11111 Sunset Hills Road

Reston, Virginia 20190

Facsimile: (703) 547-2025

Attention: General Counsel

     If the Company fails to maintain such office or agency or fails to give
such notice of any change in the location thereof, presentation may be made and
notices and demands may be served at the principal office of the Warrant Agent.

     Any notice pursuant to this Agreement to be given by the Company or by any
registered holder of any Warrant Certificate to the Warrant Agent shall be
sufficiently given if sent by certified mail, return receipt requested, or by
nationally recognized overnight courier service, addressed (until another
address is filed in writing by the Warrant Agent with the Company), or by
facsimile transmission with receipt confirmed, or by personal delivery as
follows (the “Warrant Agent Office”):

	 	American Stock Transfer & Trust Company

59 Maiden Lane

New York, New York 10038

Facsimile No.: (718) 921-8335

Attention: Warrant Agent for XO Communications, Inc.

     If the Warrant Agent shall receive any notice or demand addressed to the
Company by the holder of a Warrant Certificate pursuant to the provisions of
the Warrant Certificates, the Warrant Agent shall promptly forward such notice
or demand to the Company.

              (c)
Payment of Taxes and Charges. The Company will from time to
time promptly pay to the Warrant Agent, or make provisions satisfactory to the
Warrant Agent for the payment of, all taxes and charges that may be imposed by
the United States or any state upon the Company or the Warrant Agent in
connection with the issuance or delivery of shares of Common Stock upon the
exercise of any Warrants, but any taxes or charges in connection with the
issuance of Warrant Certificates or certificates for shares of Common Stock in
any name other than that of the registered holder of the Warrant Certificate
surrendered shall be paid by such registered holder; and, in such case, the
Company shall not be required to issue or deliver any Warrant Certificate or
certificate for shares of Common Stock until such taxes or charges shall have
been paid or it has been established to the Company’s satisfaction that no tax
or charge is due. The Warrant Agent shall have no duty or obligation under
this Section unless and until it is satisfied that all such taxes and/or
charges have been paid.

              (d)
Entire Agreement; Amendments. This Agreement constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof. This Agreement may not be amended or supplemented and
no provision hereof may be waived, except in a writing signed by both the
Company and the Warrant Agent and with the prior written consent of holders of
the Warrants exercisable for a majority of the Shares then issuable upon
exercise of the Warrants then outstanding; provided, however,
that the Company and the Warrant Agent

24

 

may from time to time supplement or amend this Agreement without the
approval of any holders of Warrant Certificates in order to cure any ambiguity,
manifest error or other mistake in this Agreement, or to correct or supplement
any provision contained herein that may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters or
questions arising hereunder that the Company and the Warrant Agent may deem
necessary or desirable and that shall not adversely affect, alter or change the
interests of the holders of the Warrants; and provided, further,
that each amendment or supplement that decreases the Warrant Agent’s rights or
increases its duties and responsibilities hereunder shall also require the
prior written consent of the Warrant Agent. Notwithstanding any of the
foregoing, the Company may not increase the Exercise Price, shorten the
duration of the Warrants, or change the securities or other property for which
Warrants are exercisable without the consent of each of the holders affected
thereby.

              (e)
Payments for Consent. The Company shall not directly or
indirectly pay or cause to be paid any consideration, whether by way of fee or
otherwise, to any holder of any Warrants for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this
Agreement or the Warrant Certificates unless such consideration is offered to
be paid or agreed to be paid to all holders of the Warrants which so consent,
waive or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or amendment.

              (f)
Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.

              (g)
Governing Law Venue and Jurisdiction. This Agreement and each
Warrant Certificate 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 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 20(b) 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.

              (h)
Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrant Certificates any legal
or equitable right, remedy or claim under this Agreement, and this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrant Certificates.

25

 

              (i)
Holder of Warrant May Enforce Rights. Notwithstanding any
other provision of this Agreement, any holder of a Warrant Certificate, without
the consent of the Warrant Agent, the holder of any Shares or the holder of any
other Warrant Certificate, may, in his, her or its own behalf and for his, her
or its own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company suitable to enforce, or otherwise in respect of,
his, her or its right to exercise the Warrants evidenced by his, her or its
Warrant Certificate in the manner provided in the Warrant Certificate and in
this Agreement.

              (j)
Obtaining of Governmental Permits. The Company will from time
to time, take all action which may be necessary to obtain and keep effective
any and all permits, consents and approvals of governmental agencies and
authorities and securities act filings under United States federal and state
laws which may be or become required in connection with the issuance, sale,
transfer and delivery of the Shares issued upon exercise of the Warrants, the
exercise of the Warrants, the issuance, sale, transfer and delivery of the
Warrants, or upon the expiration of the period during which the Warrants are
exercisable.

              (k)
Counterparts. This Agreement may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed to be
an original, and all such counterparts shall together constitute but one and
the same instrument.

              (l)
Headings. The headings of sections of this Agreement have been
inserted for convenience of reference only, are not to be considered a part
hereof and in no way modify or restrict any of the terms or provisions hereof.

              (m)
Meaning of Terms Used in Agreement. The language used in this
Agreement shall be deemed to be the language chosen by the parties to express
their mutual intent, and no rule of strict construction shall be applied
against any party. Any references to any federal, state, local or foreign
statute or law shall also refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. Unless the context
otherwise requires: (i) a term has the meaning assigned to it by this
Agreement; (ii) forms of the word “include” mean that the inclusion is not
limited to the items listed; (iii) “or” is disjunctive but not exclusive; (iv)
words in the singular include the plural, and in the plural include the
singular; (v) provisions apply to successive events and transactions; (vi)
“hereof”, “hereunder”, “herein” and “hereto” refer to the entire Agreement and
not any section or subsection; (vii) “$” means the currency of the United
States; (viii) “business day” means any day, except for Saturday and Sunday, on
which banks are not required or authorized by law or executive order to close
in New York City; (ix) “affiliate” shall have the meaning specified in Rule
12b-2 of the Securities Exchange Act of 1934, as amended; (x) “control” shall
have the meaning specified in Rule 12b-2 of the Securities Exchange Act of
1934, as amended; and (xi) “person” means a natural person, a partnership, a
corporation, a limited liability company, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization or other
entity, or a governmental entity or any department, agency or political
subdivision thereof.

              (n)
Severability. If any part of this Agreement shall be held to
be invalid or unenforceable by any court, or regulatory agency or body, such
invalidity or unenforceability shall attach only to such part and shall not
affect the validity or enforceability of the rest of this Agreement.
Furthermore, in lieu of any such invalid or unenforceable provision or
condition, the

26

 

parties hereto intend that there shall be added as a part of this
Agreement a provision as similar in terms and commercial effect to such invalid
or unenforceable provision as may be possible and be valid and enforceable.

[The next page is the signature page]

27

 

     IN WITNESS WHEREOF, the parties hereto have caused this Series A Warrant
Agreement to be executed and delivered as of the day and year first above
written.

	 	 
		XO COMMUNICATIONS, INC
	 
		By: /s/  Gary D. Begeman
		Name:  Gary D. Begeman
		Title: Senior Vice President, General Counsel
	 
	 
		AMERICAN STOCK TRANSFER & TRUST COMPANY
	 
		By:  /s/  Geraldine M. Zarbo 
		Name:  Geraldine M. Zarbo
		Title: Vice President

 

 

EXHIBIT A

[FORM OF FACE OF SERIES A WARRANT CERTIFICATE]

VOID AFTER JANUARY 16, 2010

     This Global Warrant Certificate is held by The Depositary Trust Company
(the “Depositary”) or its nominee in custody for the benefit of the
beneficial owners hereof, and is not transferable to any person under any
circumstances except that (i) this Global Warrant Certificate may be exchanged
in whole but not in part pursuant to Section 6(a) of the Warrant Agreement,
(ii) this Global Warrant Certificate may be delivered to the Warrant Agent for
cancellation pursuant to Section 6(i) of the Warrant Agreement and (iii) this
Global Warrant Certificate may be transferred to a successor Depositary with
the prior written consent of the Company.1

     Unless this Global Warrant Certificate is presented by an authorized
representative of the Depositary to the Company or the Warrant Agent for
registration of transfer, exchange or payment and any certificate issued is
registered in the name of Cede & Co. or such other entity as is requested by an
authorized representative of the Depositary (and any payment hereon is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of the Depositary), any transfer, pledge or other use hereof for
value or otherwise by or to any person is wrongful because the registered owner
hereof, Cede & Co., has an interest herein.1

     Transfers of this Global Warrant Certificate shall be limited to transfers
in whole, but not in part, to nominees of the Depositary or to a successor
thereof or such successor’s nominee, and transfers of portions of this Global
Warrant Certificate shall be limited to transfers made in accordance with the
restrictions set forth in Section 6 of the Warrant Agreement.1

     No registration or transfer of the securities issuable pursuant to the
Warrant will be recorded on the books of the Company until the provisions of
Section 6 of the Warrant Agreement have been complied with.

1      These paragraphs are to be included only if the Warrant is in the form of a
Global Warrant Certificate

 

 

CUSIP No. 983764 14 3

	 	 	 	 	 
	No. ________	 	

	 	WARRANT TO PURCHASE ______
	 	 	 	 	SHARES OF COMMON STOCK

XO COMMUNICATIONS, INC.

SERIES A WARRANT TO PURCHASE COMMON STOCK

     This Series A Warrant Certificate (“Warrant Certificate”) certifies
that ______or its registered assigns, is the registered holder of a
Warrant (the “Warrant”) of XO Communications, Inc., a Delaware
corporation (the “Company”), to purchase the number of shares (the
“Shares”) of Common Stock, par value $0.01 per share (the “Common
Stock”), of the Company set forth above. This Warrant expires on January
16, 2010, (such date, the “Expiration Date”) and entitles the holder to
purchase from the Company the number of fully paid and nonassessable Shares set
forth above at the exercise price (the “Exercise Price”) multiplied by
the number of Shares set forth above (the “Exercise Amount”), payable to
the Company by wire transfer in immediately available funds of the Exercise
Amount to an account of the Warrant Agent specified in writing by the Warrant
Agent for such purpose or by delivery of a certified check in immediately
available funds of the Exercise Amount to the Warrant Agent at its corporate
office, no later than 5:00 p.m., New York City time, on the business day
immediately prior to the Settlement Date (as defined in the Warrant Agreement).
The initial Exercise Price shall be $6.25 (or, if less, 125% of the Rights
Offering Price (as defined in the Warrant Agreement)).

     Subject to the terms and conditions set forth herein and in the Warrant
Agreement, this Warrant may be exercised by the Holder thereof, by:

              (i) providing
written notice of such election (“Warrant Exercise
Notice”) to exercise the Warrant to the Warrant Agent at the address set
forth in the Warrant Agreement, “Re: XO Communications, Inc. Warrant
Exercise”, by hand or by facsimile, no later than 5:00 p.m., New York City
time, on the Expiration Date, which Warrant Exercise Notice shall be in the
form of an election to purchase Shares of Common Stock of the Company
substantially in the form set forth either (x) in Exhibit B-1 to the
Warrant Agreement, properly completed and executed by the Holder; provided that
such written notice may only be submitted by persons who hold Definitive
Warrant Certificates, or (y) in Exhibit B-2 to the Warrant Agreement,
properly completed and executed by the Holder; provided that such written
notice may only be submitted with respect to Warrants held through the
book-entry facilities of the Depositary, by or through persons that are direct
participants in the Depositary;

              (ii) delivering,
either (x) no later than 5:00 p.m., New York City time,
on the business day immediately prior to the Settlement Date, such Warrants to
the Warrant Agent by book-entry transfer through the facilities of the
Depositary or (y) no later than 5:00 p.m., New York City time, on the business
day immediately prior to the Settlement Date, the Warrant Certificates
evidencing such Warrants to the Warrant Agent if Definitive Warrant
Certificates have been issued and delivered pursuant to the Warrant Agreement;
and

A-2

 

         (iii) paying
the applicable Exercise Amount, together with any applicable
taxes and governmental charges.

     The Exercise Price and the number of shares of Common Stock purchasable
upon exercise of this Warrant are subject to adjustment upon the occurrence of
certain events as set forth in the Warrant Agreement.

     No Warrant may be exercised prior to the Effective Date or after the
Expiration Date. After the Expiration Date, the Warrants will become wholly
void and of no value.

     REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT
CERTIFICATE SET FORTH ON THE REVERSE HEREOF. SUCH FURTHER PROVISIONS SHALL FOR
ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE.

     This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.

     IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its duly authorized officer.

     Dated: ______

	 	 
		XO COMMUNICATIONS, INC.
	 
		By:___________________________
		Name:
		Title:

Countersigned:

	 
	AMERICAN STOCK TRANSFER & TRUST COMPANY

as Warrant Agent
	 
	By:___________________________
	Name:
	Title:

A-3

 

[FORM OF REVERSE OF SERIES A WARRANT CERTIFICATE]

XO COMMUNICATIONS, INC.

     The Warrant evidenced by this Warrant Certificate is a part of a duly
authorized issue of Warrants to purchase a maximum of 9,500,000 shares of
Common Stock issued pursuant to that certain Series A Warrant Agreement, dated
as of January 16, 2003 (the “Warrant Agreement”), duly executed and
delivered by the Company and American Stock Transfer & Trust Company, as
Warrant Agent (the “Warrant Agent”). The Warrant Agreement hereby is
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words “holders” or “holder” meaning the registered holders or
registered holder) of the Warrants. A copy of the Warrant Agreement may be
inspected at the Warrant Agent Office and is available upon written request
addressed to the Company. All capitalized terms used herein but not defined
that are defined in the Warrant Agreement shall have the meanings assigned to
them therein.

     Warrants may be exercised to purchase Shares from the Company from the
Effective Date through 5:00 p.m. New York City time on the Expiration Date, at
the Exercise Price set forth on the face hereof, subject to adjustment as
described in the Warrant Agreement. Subject to the terms and conditions set
forth herein and in the Warrant Agreement, the Holder of the Warrant evidenced
by this Warrant Certificate may exercise such Warrant by:

              (i) providing
a Warrant Exercise Notice to the Warrant Agent at the
address set forth in the Warrant Agreement, “Re: XO Communications, Inc.
Warrant Exercise”, by hand or by facsimile, no later than 5:00 p.m., New York
City time, on the Expiration Date, which Warrant Exercise Notice shall be in
the form of an election to purchase Shares of Common Stock of the Company
substantially in the form set forth either (x) in Exhibit B-1 to the
Warrant Agreement, properly completed and executed by the Holder; provided that
such written notice may only be submitted by persons who hold Definitive
Warrant Certificates, or (y) in Exhibit B-2 to the Warrant Agreement,
properly completed and executed by the Holder; provided that such written
notice may only be submitted with respect to Warrants held through the
book-entry facilities of the Depositary, by or through persons that are direct
participants in the Depositary;

              (ii) delivering,
either (x) no later than 5:00 p.m., New York City time,
on the business day immediately prior to the Settlement Date, such Warrants to
the Warrant Agent by book-entry transfer through the facilities of the
Depositary or (y) no later than 5:00 p.m., New York City time, on the business
day immediately prior to the Settlement Date, the Warrant Certificates
evidencing such Warrants to the Warrant Agent if Definitive Warrant
Certificates have been issued and delivered pursuant to Section 3; and

              (iii) paying
the applicable Exercise Amount, together with any applicable
taxes and governmental charges.

The Exercise Amount shall be payable by wire transfer in immediately available
funds of the Exercise Amount to an account of the Warrant Agent specified in
writing by the Warrant Agent

A-1-R

 

for such purpose or by delivery of a certified check in immediately available
funds of the Exercise Amount to the Warrant Agent at its corporate office, no
later than 5:00 p.m., New York City time, on the business day immediately prior
to the Settlement Date. The initial Exercise Price shall be $6.25 (or, if
less, 125% of the Rights Offering Price (as defined in the Warrant Agreement)).

     In the event that upon any exercise of the Warrant evidenced hereby the
number of Shares actually purchased shall be less than the total number of
Shares purchasable upon exercise of the Warrant evidenced hereby, there shall
be issued to the holder hereof, or such holder’s assignee, a new Warrant
Certificate evidencing a Warrant to purchase the Shares not so purchased. No
adjustment shall be made for any cash dividends on any Shares issuable upon
exercise of this Warrant. After the Expiration Date, unexercised Warrants
shall become wholly void and of no value.

     The Company shall not be required to issue fractions of Shares or any
certificates that evidence fractional Shares. If any fraction of a share of
Common Stock would, except for the provisions of the preceding sentence, be
issuable upon exercise of any Warrant or Warrants, the Company shall, at its
election, either (i) purchase such fraction for an amount in cash equal to such
fraction of the Market Price (as defined in the Warrant Agreement) of a share
of Common Stock or (ii) round up the number of Shares issued upon exercise of
such Warrant or Warrants to the next whole integer.

     Warrant Certificates, when surrendered at the Warrant Agent Office by the
registered holder thereof in person or by a legal representative or attorney
duly authorized in writing, by mail or by book-entry delivery through the
facilities of the Depositary may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing Warrants to purchase in the aggregate a like number of Shares.

     No Warrants may be sold, exchanged or otherwise transferred in violation
of the Securities Act or state securities laws. The Company or the Warrant
Agent may require that, as a condition to any sale, exchange or transfer of a
Warrant that the holder deliver to the Company and the Warrant Agent an opinion
of counsel, which opinion of counsel shall be reasonably satisfactory to the
Company, to the effect that such sale, exchange or transfer is made in
compliance with the Securities Act and all applicable state securities laws or
pursuant to an exempt transaction under the Securities Act and such state
securities laws. The provisions of this paragraph shall not apply to the
exercise of any Warrant to the extent that the Shares issued upon such exercise
(and any unexercised portion of the Warrant so exercised) shall be issued to
the same registered holder that exercised such Warrant.

     The Company and Warrant Agent may deem and treat the registered holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone) for the purpose
of any exercise hereof and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary.

A-2-R

 

EXHIBIT B-1

[FORM OF ELECTION TO EXERCISE FOR WARRANT HOLDERS

HOLDING WARRANTS IN FORM OF DEFINITIVE WARRANT

CERTIFICATES WHEN WARRANT CERTIFICATES WILL BE

PHYSICALLY DELIVERED IN CONNECTION WITH THE

WARRANT EXERCISE]

(TO BE EXECUTED UPON EXERCISE OF THE WARRANT)

     The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______newly issued shares
of Common Stock of XO Communications, Inc. (the “Company”) at the
Exercise Price of $____ per share. The undersigned represents, warrants and
promises that it has the full power and authority to exercise and deliver the
Warrants exercised hereby.

     The undersigned represents, warrants and promises that it has delivered or
will deliver in payment for such Shares $______by wire transfer in
immediately available funds of the Exercise Amount to an account of the Warrant
Agent specified in writing by the Warrant Agent for such purpose or by delivery
of a certified check in immediately available funds of the Exercise Amount to
the Warrant Agent at its corporate office, no later than 5:00 p.m., New York
City time, on the business day immediately prior to the Settlement Date:

     The undersigned requests that a certificate representing the Shares be
registered and delivered as follows:

	 	 
	 	

	 	Name
	 
	 
	 	

	 	Address
	 
	 
	 	

	 	Delivery Address (if different)

B-1-1

 

     If such number of Shares is less than the aggregate number of Shares
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the balance of such Shares shall be registered and delivered as
follows:

	 	 	 
	 	 	

	 	 	Name
	 
	 
	 	 	

	 	 	Address
	 
	 
	 	 	

	 	 	Delivery Address (if different)
	 
	 
	
	 	

	Social Security or Other Taxpayer	 	Signature
	Identification Number of Holder	 	 

	 	 
	 	

Note: The above signature must correspond

with the name as written upon the face of

this Warrant Certificate in every

particular, without alteration or

enlargement or any change whatsoever. If

the certificate representing the Shares or

any Warrant Certificate representing

Warrants not exercised is to be registered

in a name other than that in which this

Warrant Certificate is registered, the

signature of the holder hereof must be

guaranteed.

    
	 	 

	 	 
	SIGNATURE GUARANTEED:	 
	 
	
	 

B-1-2

 

EXHIBIT B-2

[FORM OF ELECTION TO EXERCISE WARRANT FOR

HOLDERS HOLDING WARRANTS THROUGH BOOK-ENTRY

FACILITIES OF THE DEPOSITORY TRUST COMPANY

WHEN EXERCISE OF WARRANT WILL OCCUR THROUGH

SUCH FACILITIES]

[TO BE COMPLETED BY DIRECT PARTICIPANT

IN THE DEPOSITORY TRUST COMPANY]

XO Communications, Inc.

Warrants to Purchase _____ Shares of Common Stock

(TO BE EXECUTED UPON EXERCISE OF THE WARRANT)

     The undersigned hereby irrevocably elects to exercise the right,
represented by ______Warrants held for its benefit through the book-entry
facilities of The Depository Trust Company (the “Depositary”), to
purchase ______newly issued shares of Common Stock of XO Communications, Inc.
(the “Company”) at the Exercise Price of $_____ per share.

     The undersigned represents, warrants and promises that (1) it has
delivered or will deliver no later than 5:00 p.m., New York time, on two
business days after the date on which this Warrant Exercise Notice is delivered
the number of Warrants specified below to the Warrant Agent’s account at the
Depositary by book-entry transfer; (2) it has the full power and authority to
exercise and deliver the Warrants exercised hereby; and (3) it has delivered
the exercise price of U.S. $______for each Warrant exercised hereby, by wire
transfer in immediately available funds of the Exercise Amount to an account of
the Warrant Agent specified in writing by the Warrant Agent for such purpose or
by delivery of a certified check in immediately available funds of the Exercise
Amount to the Warrant Agent at its corporate office, no later than 5:00 p.m.,
New York City time, on the business day immediately prior to the Settlement
Date.

     The undersigned requests that the principal amount of Warrants exercised
hereby be in registered form in the authorized denominations, registered in
such names and delivered, all as specified in accordance with the instructions
set forth below; provided, that if the shares of Common Stock are evidenced by
global securities, the shares of Common Stock shall be registered in the name
of the Depositary or its nominee.

B-2-1

 

Dated: ________________________

NOTE: THIS EXERCISE NOTICE MUST BE DELIVERED TO THE WARRANT AGENT, PRIOR TO

5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. THE WARRANT AGENT SHALL

NOTIFY YOU (THROUGH THE CLEARING SYSTEM) OF (1) THE WARRANT AGENT’S ACCOUNT AT

THE DEPOSITARY TO WHICH YOU MUST DELIVER YOUR WARRANTS ON THE EXERCISE DATE AND

(2) THE ADDRESS, PHONE NUMBER AND FACSIMILE NUMBER WHERE YOU CAN CONTACT THE

WARRANT AGENT AND TO WHICH WARRANT EXERCISE NOTICES ARE TO BE SUBMITTED.

NAME OF DIRECT PARTICIPANT IN THE DEPOSITARY:

___________________________________

(PLEASE PRINT)

ADDRESS:_________________________

__________________________________ 

CONTACT NAME:

___________________________________

TELEPHONE (INCLUDING INTERNATIONAL

CODE):

___________________________________

FAX (INCLUDING INTERNATIONAL CODE):

___________________________________

SOCIAL SECURITY OR OTHER TAXPAYER

IDENTIFICATION NUMBER (IF APPLICABLE):

___________________________________

ACCOUNT FROM WHICH WARRANTS ARE

BEING DELIVERED:

___________________________________

DEPOSITARY ACCOUNT NO.

___________________________________

WARRANT EXERCISE NOTICES WILL ONLY BE VALID IF DELIVERED IN ACCORDANCE WITH THE

INSTRUCTIONS SET FORTH IN THIS NOTIFICATION (OR AS OTHERWISE DIRECTED), MARKED

TO THE ATTENTION OF “XO COMMUNICATIONS, INC. WARRANT EXERCISE”.

WARRANT HOLDER DELIVERING WARRANTS, IF OTHER THAN THE DIRECT DTC PARTICIPANT

DELIVERING THIS WARRANT EXERCISE NOTICE

NAME:

___________________________________

(PLEASE PRINT)

ADDRESS:_________________________

__________________________________

CONTACT NAME:

__________________________________

TELEPHONE (INCLUDING INTERNATIONAL

CODE):

__________________________________

FAX (INCLUDING INTERNATIONAL CODE):

__________________________________

SOCIAL SECURITY OR OTHER TAXPAYER

IDENTIFICATION NUMBER (IF APPLICABLE):

__________________________________

ACCOUNT TO WHICH THE SHARES OF

COMMON STOCK ARE TO BE CREDITED:

__________________________________

DEPOSITARY ACCOUNT NO.

__________________________________

B-2-2

 

FILL IN FOR DELIVERY OF THE COMMON STOCK, IF OTHER THAN TO THE PERSON

DELIVERING THIS WARRANT EXERCISE NOTICE:

NAME:

__________________________________ 

(PLEASE PRINT)

ADDRESS:_________________________

__________________________________

CONTACT NAME:

__________________________________

TELEPHONE (INCLUDING INTERNATIONAL CODE):

__________________________________

FAX (INCLUDING INTERNATIONAL CODE):

__________________________________

SOCIAL SECURITY OR OTHER TAXPAYER

IDENTIFICATION NUMBER (IF APPLICABLE):

__________________________________

NUMBER OF WARRANTS BEING EXERCISED:

__________________________________

(ONLY ONE EXERCISE PER WARRANT

EXERCISE NOTICE)

SIGNATURE:

__________________________________

NAME:

__________________________________

CAPACITY IN WHICH SIGNED:

__________________________________

SIGNATURE GUARANTEED:

__________________________________

B-2-2

 

EXHIBIT C

[FORM OF ASSIGNMENT]

(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH

HOLDER DESIRES TO TRANSFER THE WARRANT CERTIFICATE)

     FOR VALUE RECEIVED, the undersigned registered holder hereby sells,
assigns and transfers unto

	 	 	 
	 	 

    
Name of Assignee	 
	 
	 	 

Address of Assignee	 

this Warrant Certificate, together with all right, title and interest therein,
and does irrevocably constitute and appoint ______attorney, to
transfer the within Warrant Certificate to purchase ______shares of Common
Stock to which the Warrant Certificate relates on the books of the Warrant
Agent, with full power of substitution.

	 	 	 
	
	 	

	Dated	 	
Signature

	 	Note: The above signature must
correspond with the name as written
upon the face of this Warrant
Certificate in every particular,
without alteration or enlargement or
any change whatsoever.

	 	 
	
Social Security or Other Taxpayer

Identification Number of Assignee	 
	 
	SIGNATURE GUARANTEED:	 
	 
	 
	
	 

C-1exv10w2

 

Exhibit 10.2

SERIES B WARRANT AGREEMENT

between

XO COMMUNICATIONS, INC.

and

AMERICAN STOCK TRANSFER & TRUST COMPANY,

as Warrant Agent

January 16, 2003

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	SECTION 1.	 	
Appointment of Warrant Agent
	 	 	1	 
	SECTION 2.	 	
Issuances
	 	 	1	 
	SECTION 3.	 	
Form of Warrant Certificates
	 	 	1	 
	SECTION 4.	 	
Execution of Warrant Certificates
	 	 	2	 
	SECTION 5.	 	
Registration and Countersignature
	 	 	2	 
	SECTION 6.	 	
Registration of Transfers and Exchanges
	 	 	3	 
	SECTION 7.	 	
Duration and Exercise of Warrants
	 	 	6	 
	SECTION 8.	 	
Rights Upon Dissolution or Liquidation
	 	 	9	 
	SECTION 9.	 	
Cancellation of Warrants
	 	 	9	 
	SECTION 10.	 	
Mutilated or Missing Warrant Certificates
	 	 	9	 
	SECTION 11.	 	
Reservation of Shares
	 	 	9	 
	SECTION 12.	 	
Stock Exchange Listings
	 	 	10	 
	SECTION 13.	 	
Provision of Financial Information
	 	 	10	 
	SECTION 14.	 	
Adjustment of Exercise Price and Number of Shares
Purchasable or Number of Warrants
	 	 	10	 
	SECTION 15.	 	
Fractional Shares
	 	 	18	 
	SECTION 16.	 	
Notices to Warrantholders
	 	 	18	 
	SECTION 17.	 	
Warrant Agent
	 	 	19	 
	SECTION 18.	 	
Change of Warrant Agent
	 	 	22	 
	SECTION 19.	 	
Merger, Consolidation or Change of Name of Warrant Agent
	 	 	23	 
	SECTION 20.	 	
Miscellaneous
	 	 	23	 

Exhibits

Exhibit A – Form of Global Warrant Certificate

Exhibit B-1 – Form of Election (Physical Delivery)

Exhibit B-2 – Form of Election (Depository Trust Company)

 

 

     This SERIES B
WARRANT AGREEMENT (this “Agreement”) dated as of January 16, 2003 is by
and between XO COMMUNICATIONS, INC., a Delaware corporation (the
“Company”), and AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York
corporation (in its capacity as warrant agent hereunder, the “Warrant
Agent”).

W I T N E S S E T H

     WHEREAS, pursuant to the Third Amended Plan of Reorganization for the
Company dated July 22, 2002 (as further modified, supplemented or amended, the
“Plan”) under chapter 11 of title 11 of the United States Code, 11
U.S.C. §§ 101 et seq., the Company proposes to issue series B warrants (the
“Warrants”) entitling the holders to purchase initially an aggregate of
up to 7,125,000 shares (as adjusted from time to time pursuant to this
Agreement, the “Shares”) of the Company’s Common Stock, par value $0.01
per share (“Common Stock”);

     WHEREAS, the Warrant Agent, at the request of the Company, has agreed to
act as the agent of the Company in connection with the issuance, registration,
transfer, exchange, exercise and conversion of the Warrants;

     NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereto agree as follows:

     SECTION 1.Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the instructions hereinafter set forth in this Agreement; and the Warrant Agent
hereby accepts such appointment, upon the terms and conditions hereinafter set
forth.

     SECTION 2.Issuances. Subject to the provisions of this Agreement,
in accordance with the terms of the Plan, on (and from time to time after) the
Effective Date (as defined in the Plan), Warrants to purchase the Shares will
be issued and delivered by the Company in the amounts and to the recipients
specified in the Plan. On or after the Effective Date, the Company will
deliver, or cause to be delivered, one or more Global Warrant Certificates (as
defined below) or Definitive Warrant Certificates (as defined below) evidencing
the Warrants in accordance with the terms of the Plan.

     SECTION 3.Form of Warrant Certificates. Subject to Section 6 of
this Agreement, the Warrants to be issued under the Plan to holders of Senior
Notes (as defined in the Plan) shall initially be issued in the form of one or
more global certificates (the “Global Warrant Certificates”), the forms
of election to exercise and of assignment to be printed on the reverse thereof,
in substantially the form set forth in Exhibit A hereto (not including
the information set forth in footnote 1 thereto, but including the information
set forth in footnote 2 thereto) together with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Agreement, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with any law or with any rules made pursuant thereto or with
any rules of any securities exchange or as may, consistently herewith, be determined
by the officers executing such Warrant Certificates, as evidenced by their execution
of the Warrant Certificates.

 

 

     The Global Warrant Certificates shall be deposited on or after the
Effective Date with, or with the Warrant Agent as custodian for, The Depository
Trust Company (the “Depositary”) and registered in the name of Cede &
Co., as the Depositary’s nominee. Each Global Warrant Certificate shall
represent such number of the outstanding Warrants as specified therein, and
each shall provide that it shall represent the aggregate amount of outstanding
Warrants from time to time endorsed thereon and that the aggregate amount of
outstanding Warrants represented thereby may from time to time be reduced or
increased, as appropriate, in accordance with the terms of this Agreement.
Upon request, a Holder may receive from the Depositary and the Warrant Agent
Warrants in definitive form (the “Definitive Warrant Certificates” and,
together with the Global Warrant Certificates, the “Warrant
Certificates”), substantially in the form of Exhibit A (not
including footnote 1 or 2 thereto) as set forth in Section 6 below. The
Warrants to be issued under the Plan to holders of General Unsecured Claims (as
defined in the Plan) shall initially be issued in the form of one or more
Definitive Warrant Certificates.

     SECTION 4. Execution of Warrant Certificates. Warrant Certificates
shall be signed on behalf of the Company by its Chairman of the Board of
Directors, its Chief Executive Officer, its President, a Vice President or its
Treasurer (each, an “Officer”). Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of any such Officer
and may be imprinted or otherwise reproduced on the Warrant Certificates and
for that purpose the Company may adopt and use the facsimile signature of any
Officer.

     If any Officer who shall have signed any of the Warrant Certificates shall
cease to be such Officer before the Warrant Certificates so signed shall have
been countersigned by the Warrant Agent or disposed of by the Company, such
Warrant Certificates nevertheless may be countersigned and delivered or
disposed of as though such Officer had not ceased to be such Officer of the
Company; and any Warrant Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Warrant
Certificate, shall be a proper officer of the Company to sign such Warrant
Certificate, although at the date of the execution of this Agreement any such
person was not such an officer.

     SECTION 5. Registration and Countersignature. The Warrant Agent
shall, upon receipt of the Warrant Certificates duly executed on behalf of the
Company, countersign one or more Warrant Certificates evidencing the Warrants
and shall deliver such Warrant Certificates to or upon the written order of the
Company. A Warrant Certificate shall be, and shall remain, subject to the
provisions of this Agreement until such time as all of the Warrants evidenced
thereby shall have been duly exercised or shall have expired or been canceled
in accordance with the terms hereof.

     No Warrant Certificate shall be valid for any purpose, and no Warrant
evidenced thereby shall be exercisable, until such Warrant Certificate has been
countersigned by the signature of the Warrant Agent. Such signature by the
Warrant Agent upon any Warrant Certificate executed by the Company shall be
conclusive evidence that such Warrant Certificate so countersigned has been
duly issued hereunder.

     The Warrant Agent shall keep, at an office designated for such purpose,
books (the “Warrant Register”) in which, subject to such reasonable
regulations as it may prescribe, it shall register the Warrant Certificates and
exchanges and transfers of outstanding Warrant Certificates

2

 

in accordance with
the procedures set forth in Section 6 of this Agreement, all in form
satisfactory to the Company and the Warrant Agent. No service charge shall be
made for any exchange or registration of transfer of the Warrant Certificates,
but the Company may require payment of a sum sufficient to cover any stamp or
other tax or other governmental charge that may be imposed in connection with
any such exchange or registration of transfer. The Warrant Agent shall have no
obligation to effect an exchange or register a transfer unless and until any
payments required by the immediately preceding sentence have been made.

     Prior to due presentment for registration of transfer or exchange of any
Warrant in accordance with the procedures set forth in this Agreement, the
Warrant Agent and the Company may deem and treat the person in whose name any
Warrant is registered (the “Holder” of such Warrant) as the absolute
owner of such Warrant (notwithstanding any notation of ownership or other
writing made in a Warrant Certificate by anyone), for the purpose of any
exercise thereof, any distribution to the Holder thereof and for all other
purposes, and neither the Warrant Agent nor the Company shall be affected by
notice to the contrary.

     SECTION 6. Registration of Transfers and Exchanges.

           (a) Transfer and Exchange of Global Warrant Certificates or Beneficial
Interests Therein. The transfer and exchange of Global Warrant Certificates or
beneficial interests therein shall be effected through the Depositary, in
accordance with this Agreement and the procedures of the Depositary therefor.

           (b) Exchange of a Beneficial Interest in a Global Warrant Certificate for
a Definitive Warrant Certificate.

                 (i) Any Holder of a beneficial interest in a Global Warrant Certificate
may, upon request, exchange such beneficial interest for a Definitive Warrant
Certificate. Upon receipt by the Warrant Agent from the Depositary or its
nominee of written instructions or such other form of instructions as is
customary for the Depositary on behalf of any person having a beneficial
interest in a Global Warrant Certificate, the Warrant Agent shall cause, in
accordance with the standing instructions and procedures existing between the
Depositary and Warrant Agent, the number of Warrants represented by the Global
Warrant Certificate to be reduced by the number of Warrants to be represented
by the Definitive Warrant Certificates to be issued in exchange for the
interest of such person in the Global Warrant Certificate and, following such
reduction, the Company shall execute and the Warrant Agent shall countersign
and deliver to the transferee, as the case may be, a Definitive Warrant
Certificate.

                 (ii) Definitive Warrant Certificates issued in exchange for a beneficial
interest in a Global Warrant Certificate pursuant to this Section 6(b) shall be
registered in such names as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Warrant Agent.
The Warrant Agent shall deliver such Definitive Warrant Certificates to the
persons in whose names such Warrants are so registered.

           (c) Transfer and Exchange of Definitive Warrant Certificates. When
Definitive Warrant Certificates are presented to the Warrant Agent with a
request:

                 (i) to register the transfer of the Definitive Warrant Certificates; or

3

 

                 (ii) to exchange such Definitive Warrant Certificates for an equal number
of Definitive Warrant Certificates of other authorized denominations,

the Warrant Agent shall register the transfer or make the exchange as requested
if its requirements for such transactions are met; provided, however, that the
Definitive Warrant Certificates presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Warrant Agent, duly
executed by the Holder thereof or by his attorney, duly authorized in writing.

           (d) Restrictions on Exchange or Transfer of a Definitive Warrant
Certificate for a Beneficial Interest in a Global Warrant Certificate. A
Definitive Warrant Certificate may not be exchanged for a beneficial interest
in a Global Warrant Certificate except upon satisfaction of the requirements
set forth below. Upon receipt by the Warrant Agent of a Definitive Warrant
Certificate, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Warrant Agent, together with written
instructions directing the Warrant Agent to make, or to direct the Depositary
to make, an endorsement on the Global Warrant Certificate to reflect an
increase in the number of Warrants represented by the Global Warrant
Certificate equal to the number of Warrants represented by such Definitive
Warrant Certificate, then the Warrant Agent shall cancel such Definitive
Warrant Certificate and cause, or direct the Depositary to cause, in accordance
with the standing instructions and procedures existing between the Depositary
and the Warrant Agent, the number of Warrants represented by the Global Warrant
Certificate to be increased accordingly. If no Global Warrant Certificates are
then outstanding, the Company shall issue and the Warrant Agent shall
countersign a new Global Warrant Certificate representing the appropriate
number of Warrants.

           (e) Restrictions on Transfer and Exchange of Global Warrant Certificates.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in Section 6(f)), unless and until it is exchanged in
whole for Definitive Warrant Certificates, a Global Warrant Certificate may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.

           (f) Countersigning of Definitive Warrant Certificates in Absence of
Depositary. If at any time:

                 (i) the Depositary for the Global Warrant Certificates notifies the
Company that the Depositary is unwilling or unable to continue as Depositary
for the Global Warrant Certificates and a successor Depositary for the Global
Warrant Certificates is not appointed by the Company within 90 days after
delivery of such notice; or

                 (ii) the Company, in its sole discretion, notifies the Warrant Agent in
writing that it elects to cause the issuance of Definitive Warrant Certificates
under this Agreement,

then the Company shall execute, and the Warrant Agent, upon written
instructions signed by an officer of the Company, shall countersign and deliver
Definitive Warrant Certificates, in an

4

 

aggregate number equal to the number of
Warrants represented by the Global Warrant Certificates, in exchange for such
Global Warrant Certificates.

           (g) No Warrants, or shares of Common Stock issuable upon exercise of the
Warrants, shall be sold, exchanged or otherwise transferred in violation of the
Securities Act of 1933, as amended (the “Securities Act”), or state
securities laws. The Company or the Warrant Agent may require that, as a
condition to any sale, exchange or transfer of a Warrant or such shares of
Common Stock that the Holder deliver to the Company and the Warrant Agent an
opinion of counsel, which opinion and counsel shall be reasonably satisfactory
to the Company and to the Warrant Agent, to the effect that such sale, exchange
or transfer is made in compliance with the Securities Act and all applicable
state securities laws or pursuant to an exempt transaction under the Securities
Act and state securities laws. The provisions of this paragraph (g) shall not
apply to the exercise of any Warrant to the extent that the Shares issued upon
such exercise (and any unexercised portion of the Warrant so exercised) shall
be issued to the same Holder that exercised such Warrant.

           (h) The Warrant Certificates and the shares of Common Stock issuable upon
exercise of the Warrants shall bear such legends as the Company shall determine
reflecting the restrictions in the immediately preceding Section 6(g).

           (i) Cancellation of Global Warrant Certificate. At such time as all
beneficial interests in Global Warrant Certificates have either been exchanged
for Definitive Warrant Certificates, redeemed, repurchased or cancelled, all
Global Warrant Certificates shall be returned to or retained and cancelled by
the Warrant Agent.

           (j) Obligations with Respect to Transfers and Exchanges of Warrants.

                 (i) To permit registrations of transfers and exchanges, the Company shall
execute and the Warrant Agent is hereby authorized to countersign, in
accordance with the provisions of Section 3 and this Section 6, Definitive
Warrant Certificates and Global Warrant Certificates as required pursuant to
the provisions of this Section 6 and for the purpose of any distribution of
Warrant Certificates contemplated by Section 14.

                 (ii) All Definitive Warrant Certificates and Global Warrant Certificates
issued upon any registration of transfer or exchange of Definitive Warrant
Certificates or Global Warrant Certificates shall be the valid obligations of
the Company, entitled to the same benefits under this Agreement as the
Definitive Warrant Certificates or Global Warrant Certificates surrendered upon
such registration of transfer or exchange.

                 (iii) No service charge shall be made to a Holder for any registration,
transfer or exchange.

                 (iv) So long as the Depositary, or its nominee, is the registered owner of
a Global Warrant Certificate, the Depositary or such nominee, as the case may
be, will be considered the sole owner or holder of the Warrants represented by
such Global Warrant Certificate for all purposes under this Agreement. Except
as provided in Section 6(b) upon the exchange of a beneficial interest in a
Global Warrant Certificate for a Definitive Warrant Certificate, owners of
beneficial interests in a Global Warrant Certificate will not be entitled to

5

 

have any Warrants registered in their names, and will not receive or be
entitled to receive physical delivery of any such Warrants as Definitive
Warrant Certificates and will not be considered the owners or holders thereof
under the Warrants or this Agreement. Neither the Company nor the Warrant
Agent, in its capacity as registrar for such Warrants, will have any
responsibility or liability for any aspect of the records relating to
beneficial interests in a Global Warrant Certificate or for maintaining,
supervising or reviewing any records relating to such beneficial interests.

                 (v) Subject to Sections 6(b), (c), (d) and this Section 6(j), the Warrant
Agent shall, upon receipt of all information required to be delivered
hereunder, from time to time register the transfer of any outstanding Warrants
represented by Warrant Certificates in the Warrant Register, upon surrender of
Warrant Certificates representing such Warrants at the Warrant Agent Office (as
defined below), duly endorsed, and accompanied by a completed form of
assignment, duly signed by the Holder thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney, such signature to be
guaranteed by (i) a bank or trust company, (ii) a broker or dealer that is a
member of the National Association of Securities Dealers, Inc. (the
“NASD”) or (iii) a member of a national securities exchange. Upon any
such registration of transfer, a new Warrant Certificate shall be issued to the
transferee.

     SECTION 7. Duration and Exercise of Warrants.

           (a) The Warrants shall expire at 5:00 p.m., New York City time on January
16, 2010 (such date, the “Expiration Date”). On the Expiration Date,
the Warrants will become void and of no value.

           (b) Subject to the provisions of this Agreement, including Section 14,
each Warrant shall entitle the holder thereof to purchase from the Company (and
the Company shall issue and sell to such holder) one fully paid and
nonassessable Share at a price equal to $7.50 per share (subject to the
following sentence and as the same may be hereafter adjusted pursuant to
Section 14, the “Exercise Price”). Notwithstanding any other provision
hereof, in the event that the Rights Shares (as defined in the Plan) are
offered for sale in the Rights Offering (as defined in the Plan) at a price per
share equal to less than $5.00 (such lower price, the “Rights Offering
Price”), then the Exercise Price shall be reduced, effective as of the
Effective Date (as defined in the Plan), to an amount equal to 150% of the
Rights Offering Price.

           (c) From and after the Effective Date under, and as defined in, the Plan
and until 5:00 p.m., New York City time, on the Expiration Date with respect to
such Warrant, the Holder of a Warrant may exercise such Holder’s right to
purchase Shares by

                 (i) providing written notice of such election (“Warrant Exercise
Notice”) to exercise the Warrant to the Warrant Agent at the address set
forth in Section 20(b) hereof, “Re: XO Communications, Inc. Warrant Exercise”, by hand or
by facsimile, no later than 5:00 p.m., New York City time, on the Expiration
Date, which Warrant Exercise Notice shall be in the form of an election to
purchase Shares of Common Stock of the Company substantially in the form set
forth either (x) in Exhibit B-1 hereto, properly completed and executed
by the Holder; provided that such written notice may only be submitted by
persons who hold Definitive Warrant Certificates, or (y) in Exhibit B-2
hereto, properly completed and

6

 

executed by the Holder; provided that such
written notice may only be submitted with respect to Warrants held through the
book-entry facilities of the Depositary, by or through persons that are direct
participants in the Depositary;

                 (ii) delivering, either (x) no later than 5:00 p.m., New York City time,
on the business day immediately prior to the Settlement Date, as defined below,
such Warrants to the Warrant Agent by book-entry transfer through the
facilities of the Depositary or (y) no later than 5:00 p.m., New York City
time, on the business day immediately prior to the Settlement Date, the Warrant
Certificates evidencing such Warrants to the Warrant Agent if Definitive
Warrant Certificates have been issued and delivered pursuant to Section 3; and

                 (iii) paying the applicable Exercise Price multiplied by the number of
Shares in respect of which such Warrants are being exercised (the “Exercise
Amount”), together with any applicable taxes and governmental charges. The
date three business days after a Warrant Exercise Notice is delivered is
referred to for all purposes under this Agreement as the “Settlement
Date”.

           (d) The Exercise Amount shall be payable in lawful money of the United
States of America by wire transfer in immediately available funds of the
Exercise Amount to an account of the Warrant Agent specified in writing by the
Warrant Agent for such purpose or by delivery of a certified check in
immediately available funds of the Exercise Amount to the Warrant Agent at its
corporate office, in each case no later than 5:00 p.m., New York City time, on
the business day immediately prior to the Settlement Date.

           (e) Any exercise of a Warrant pursuant to the terms of this Agreement
shall be irrevocable and shall constitute a binding agreement between the
Holder and the Company, enforceable in accordance with its terms.

           (f) The Warrant Agent shall notify the Depositary of (x) the Warrant
Agent’s account at the Depositary to which the Warrants must be delivered by
the business day immediately prior to the Settlement Date for those Warrants to
be exercised through the book-entry facilities of the Depositary and (y) the
address, phone number and facsimile number where holders of the Warrants can
contact the Warrant Agent to which Warrant Exercise Notices are to be
submitted.

           (g) Promptly following delivery of Warrants to a Holder, the Company shall
notify such Holder (through the clearing system) of (i) the Warrant Agent’s
account at the Depositary to which holders must deliver Warrants on the
business day immediately prior to the Settlement Date, (ii) the Warrant
exercise procedures of the Depositary and (iii) the address, telephone number
and facsimile number where Holders can contact the Warrant Agent and to which
Holders must submit Warrant Exercise Notices if they decide to exercise their
Warrants. At such time, the Company shall also provide then Holders with a Warrant
Exercise Notice and the pertinent instructions as to how to exercise their
Warrants.

           (h) The Warrant Agent shall:

                 (i) examine all Warrant Exercise Notices and all other documents delivered
to it by or on behalf of holders as contemplated by the Warrant Certificates to
ascertain

7

 

whether, on their face, such Warrant Exercise Notices and any such
other documents have been executed and completed in accordance with their terms
and the terms of the Warrant Certificates;

                 (ii) determine whether the exercising Warrant Holder has delivered the
related Warrants to the Warrant Agent’s account at the Depositary. In each
case where a Warrant Exercise Notice or other document appears on its face to
have been improperly completed or executed or some other irregularity in
connection with the exercise of the Warrants exists, the Warrant Agent shall
endeavor to inform the appropriate parties (including the person submitting
such instrument) of the need for fulfillment of all requirements, specifying
those requirements which appear to be unfulfilled.

                 (iii) inform the Company of and cooperate with and assist the Company in
resolving any reconciliation problems between Warrant Exercise Notices received
and delivery of Warrants to the Warrant Agent’s account;

                 (iv) advise the Company no later than one business day after receipt of a
Warrant Exercise Notice, of (i) the receipt of such Warrant Exercise Notice and
the number of Warrants exercised in accordance with the terms and conditions of
this Agreement, (ii) the instructions with respect to delivery of the shares of
Common Stock of the Company deliverable upon such exercise, subject to timely
receipt from the Depositary of the necessary information, and (iii) such other
information as the Company shall reasonably require;

                 (v) notify, by such time as necessary to ensure a prompt closing, the
Depositary, with a copy to the Company, each account at the Depositary to be
credited with Common Stock and the amount thereof to be credited to each such
account; and

                 (vi) subject to Common Stock being made available to the Warrant Agent by
or on behalf of the Company for delivery to accounts within the Depositary,
liaise with the Depositary and endeavor to effect such delivery to the relevant
accounts at the Depositary in accordance with its requirements.

           (i) As soon as practicable after the exercise of any Warrant, the Company
shall issue, or otherwise deliver, in authorized denominations to or upon the
order of the Holder of the Warrant Certificates evidencing such Warrants,
either

                 (i) if such Holder holds the Warrants being exercised through the
Depositary’s book-entry transfer facilities, by same-day credit to such
Holder’s account at the Depositary or to the account of a participant in the
Depositary the number of Shares to which such Holder is entitled, in each case
registered in such name and delivered to such account as directed in the
Warrant Exercise Notice by such Holder or by the direct participant in the
Depositary through which such Holder is acting, or

                 (ii) if such Holder holds the Warrants being exercised in the form of
Definitive Warrant Certificates, by delivery to the address designated by such
Holder in its Warrant Exercise Notice of a physical certificate representing
the number of Shares to which such Holder is entitled, in fully registered
form, registered in such name or names as may be directed by such Holder. If
less than all of the Warrants evidenced by a Warrant Certificate surrendered
upon the exercise of Warrants are exercised at any time prior to the date of

8

 

expiration for the Warrants , a new Warrant Certificate or Certificates shall
be issued for the remaining number of Warrants evidenced by the Warrant
Certificate so surrendered, and the Warrant Agent is hereby authorized to
countersign the required new Warrant Certificate or Certificates pursuant to
the provisions of Section 6 and this Section 7.

     SECTION 8. Rights Upon Dissolution or Liquidation. Notwithstanding
any other provision of this Agreement, in the event that, at any time after the
date hereof and prior to the Expiration Date, there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company, then the
Company shall (or shall cause the Warrant Agent to) give notice by first-class
mail to each holder of an outstanding Warrant at such holder’s address as it
appears on the Warrant Register maintained by the Warrant Agent, not less than
twenty days before any date set for definitive action), of the date on which
such dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of the
shares of record of Common Stock or other securities, if any, underlying the
Warrants shall be entitled to exchange their shares for securities, money or
other property deliverable upon such dissolution, liquidation or winding up, as
the case may be.

     SECTION 9. Cancellation of Warrants. If the Company shall purchase
or otherwise acquire Warrants, the Warrant Certificates representing such
Warrants shall thereupon be delivered to the Warrant Agent and be cancelled by
it and retired. The Warrant Agent shall cancel all Warrant Certificates
surrendered for exchange, substitution, transfer or exercise in whole or in
part. Such cancelled Warrant Certificates shall thereafter be disposed of in a
manner satisfactory to the Company.

     SECTION 10. Mutilated or Missing Warrant Certificates. If any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company shall issue, and the Warrant Agent shall countersign and deliver, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing
an equivalent number of Warrants, but only upon receipt of evidence reasonably
satisfactory to the Company and the Warrant Agent of the loss, theft or
destruction of such Warrant Certificate and the posting of an indemnity or
bond, if requested by either the Company or the Warrant Agent, also reasonably
satisfactory to them. Upon the issuance of any new Warrant Certificate under
this Section 10, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable out-of-pocket expenses (including the fees and
expenses of the Warrant Agent) in connection therewith.

     SECTION 11. Reservation of Shares. For the purpose of enabling it
to satisfy any obligation to issue Shares upon exercise of Warrants, the
Company will at all times through the Expiration Date, reserve and keep
available, free from preemptive rights and out of its
aggregate authorized but unissued or treasury shares of Common Stock, the
number of Shares deliverable upon the exercise of all outstanding Warrants, and
the transfer agent for the Company’s Common Stock (such agent, in such
capacity, as may from time to time be appointed by the Company, the
“Transfer Agent”) is hereby irrevocably authorized and directed at all
times to reserve such number of authorized and unissued or treasury shares of
Common Stock as shall be required for such purpose. The Company will keep a
copy of this Agreement on file with such

9

 

Transfer Agent and with every transfer
agent for any shares of the Company’s capital stock issuable upon the exercise
of Warrants pursuant to Section 7. The Warrant Agent is hereby irrevocably
authorized to requisition from time to time from such Transfer Agent stock
certificates issuable upon exercise of outstanding Warrants, and the Company
will supply such Transfer Agent with duly executed stock certificates for such
purpose.

     Before taking any action that would cause an adjustment pursuant to
Section 14 reducing any Exercise Price below the then par value (if any) of the
Shares issuable upon exercise of the Warrants, the Company will take any
corporate action that may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Shares at such Exercise Price as so adjusted.

     The Company covenants that all shares of Common Stock issued upon exercise
of the Warrants will, upon delivery of the Company assuming payment in full of
the Exercise Price therefor, be fully paid and nonassessable and free from all
taxes, liens, charges and security interests of any nature whatsoever other
than such liens, charges and security interests granted by the Holder.

     SECTION 12. Stock Exchange Listings. So long as any Warrants
remain outstanding, if the shares of Common Stock are (i) listed on a national
securities exchange or (ii) listed for quotation on the Nasdaq National Market
System or any other over-the-counter quotation system, the Company will use
commercially reasonable efforts to have each of the shares of Common Stock,
immediately upon their issuance upon exercise of Warrants, listed on such
exchange or system. .

     SECTION 13. Provision of Financial Information. So long as any
Warrants remain outstanding, and whether or not the Company shall be required
to file annual reports, quarterly reports and other documents with the
Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended (the “Reports”),
the Company will either file the Reports with the SEC when due or make the
Reports generally and readily available to the public on its primary website
within five business days of the date by which the Company would have been
required to file such Reports, will promptly upon written request file five
copies of each such Report with the Warrant Agent, and, promptly upon written
request, will supply a copy of any such Report to any Holder or prospective
Holder.

     SECTION 14. Adjustment of Exercise Price and Number of Shares
Purchasable or Number of Warrants. The Exercise Price, the number of
shares of Common Stock purchasable upon the exercise of each Warrant and the
number of Warrants outstanding are subject to adjustment from time to time upon
the occurrence of the events enumerated in this Section 14.

           (a) Changes in Capital Stock. If the Company at any time or from
time to time after the date hereof shall (i) pay a dividend or make a
distribution on Common Stock, in each case, consisting of shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock (including by means of a stock split), (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock or (iv) issue, in a reclassification of the Common Stock, other
securities of the Company (including any such reclassification in connection
with a consolidation or merger of

10

 

the Company in which the Company is the
surviving entity), the number of Shares purchasable upon exercise of each
Warrant immediately prior thereto shall be adjusted so that the holder of each
Warrant shall be entitled upon exercise to receive the kind and number of
Shares or other securities of the Company which such holder would have owned or
have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (a) shall become effective on the effective
date of such event retroactive to the record date, if any, for such event.

           (b) Distributions. If the Company at any time or from time to time
after the date hereof shall distribute to all holders of Common Stock
(including any such distribution made to the shareholders of the Company in
connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, shares of another class
of its capital stock, cash or other property of any nature (other than
distributions and dividends payable in shares of Common Stock and Ordinary Cash
Dividends), or any options, warrants or other rights to subscribe for or
purchase any of the foregoing, then, in each case, the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date for the determination of shareholders entitled to receive such
distribution by a fraction, the numerator of which shall be the Market Price
(as defined below) per share of Common Stock as of the business day immediately
preceding such record date, less the fair market value (as determined in good
faith by the Board of Directors (including any authorized committee thereof,
the “Board of Directors”), whose determination shall be conclusive for
all purposes and described in a reasonably detailed statement filed with the
Warrant Agent) of the portion of the evidences of indebtedness, shares or
property so to be distributed (net of the exercise price or purchase price
therefor in the case of distribution of options, warrants or other rights to
subscribe or purchase such indebtedness, shares or other property), applicable
to one share, and the denominator of which shall be such Market Price per share
of Common Stock as of the business day immediately preceding such record date.
Such adjustment shall be made whenever any such distribution is made and shall
become effective at the close of business on such record date. The term
“Market Price” shall mean (x) the average closing price of a share of
Common Stock for the ten consecutive trading days immediately preceding, but
not including, the date of exercise of this Warrant as reported on the
principal national securities exchange on which the shares of Common Stock are
listed or admitted to trading or (y) if not listed or admitted to trading on
any national securities exchange, the average of the closing bid and asked
prices during such ten trading day period in the over-the-counter market as
reported by the NASD Automated Quotation System (“Nasdaq”) National
Market or any comparable system or (z) in all other cases, as determined in
good faith by the Board of Directors of the Company, whose determination shall
be conclusive absent manifest error.

     "Ordinary Cash Dividends” means quarterly cash dividends, not to
exceed (in the aggregate in any calendar year) 5% of the value of all Common
Stock outstanding (valued at the Market Price thereof at the close of business
on the date of any such declaration), and not to exceed, in any quarter, the
greater of (x) the net income of the Company for the quarter last ended and (y)
the cumulative increase in retained earnings of the Company from the date of
this Agreement through the end of such quarter.

11

 

           (c) Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation or merger of the
Company with or into any other person, or any sale, lease or other transfer of
all or substantially all of the assets of the Company to any other person,
shall be effected in such a way that the holders of the holders of the Common
Stock shall be entitled to receive (either directly or upon subsequent
liquidation) stock, securities, cash or other property (whether such stock,
securities, cash or other property are issued or distributed by the Company or
any other person) with respect to or in exchange for the Common Stock (each
such transaction, an “Organic Change”), then, as a condition to
consummation of such Organic Change, lawful, enforceable and adequate provision
shall be made whereby the holders of the Warrants shall thereafter have the
right to acquire and receive upon exercise of such Warrants, in lieu of or
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon exercise of such Warrants, such
shares of stock, securities, cash or other property issuable or payable in the
Organic Change with respect to or in exchange for such number of outstanding
shares of Common Stock as would have been received upon exercise of such
Warrants had such Warrants been exercised immediately before such Organic
Change, subject to adjustments for events subsequent to the effective date of
such Organic Change as nearly equivalent as may be practicable to the
adjustments provided for in this Section 14, provided that the Company shall
have the right, at its sole option, to substitute on a per share basis an equal
amount of cash for any such stock, securities or other property which would
otherwise have been issuable or payable to the holder of any Warrant upon
exercise thereof to the extent attributable to the Option Value of such
Warrant. The Company shall not effect any Organic Change unless prior to the
consummation thereof, the successor entity (if different from the Company)
resulting from such consolidation or merger or the entity purchasing or leasing
such assets assumes by written instrument delivered to the Warrant Agent the
obligation to deliver to each such Holder such shares of stock, securities,
cash or other property as, in accordance with the foregoing provisions, such
Holder may be entitled to acquire. In any such event, effective provisions
shall be made in the certificate or articles of incorporation of the resulting
or surviving person, or in any contract of sale, merger, conveyance, lease,
transfer or otherwise, so that the provisions set forth in this Agreement for
the protection of the rights of the holders of the Warrants shall thereafter
continue to be applicable. The foregoing provisions of this Section 14(c)
shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, leases or other transfers. If, at any time
prior to the expiration of eighteen (18) months after the Effective Date of the
Plan, a merger, reorganization, reclassification, consolidation or other
similar transaction involving the Company is consummated (each a “Conversion
Transaction”) whereby the Common Stock held by persons who do not control the
Company immediately prior to the Conversion Transaction is converted into the
right to receive cash or any other consideration which is not common equity
and, as a result of such Conversion Transaction, persons who control the
Company immediately prior to the transaction and/or their affiliates also
control the surviving entity, then the Warrants will
become exercisable (such exercise to be in accordance with the terms
contained herein, including, without limitation, the payment of the Exercise
Price) on a per share basis for the greater of (i) the amount of cash or other
consideration delivered to a non-controlling holder of a share of Common Stock
and (ii) the sum of the Exercise Price and the Option Value on the closing date
of such Conversion Transaction. If this Section 14(c) applies to any
reorganization,

12

 

reclassification, consolidation, merger, sale, lease or other
transfer, then neither Section 14(a) nor Section 14(b) shall apply to such
transaction.

     "Option Value” means, for any Warrant, or portion of a Warrant for
which cash consideration is substituted for non-cash consideration at the
Company’s option as provided above, the value thereof on a per share basis as
of the most recent practicable date (without giving effect to the Organic
Change in question) as determined in good faith by the board of directors of
the Company immediately prior to such date (based upon the advice of an
independent investment bank of national standing selected by the Company).

           (d) Below Market Equity Issuances.

                 (i) If at any time or from time to time the Company issues or sells, or is
deemed to issue or sell,

                       (x) prior to or at consummation of the Plan, any shares of Common Stock,
options to purchase or rights to subscribe for Common Stock, securities by
their terms convertible into or exchangeable for Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable securities
(other than an issuance of Common Stock as a dividend or in a split of or
subdivision in respect of which an adjustment provided for in paragraph (a)
above applies or Rights Shares issued in the Rights Offering) for consideration
per share of Common Stock less than $5.00 per share (the “Plan Price”),
or

                       (y) after consummation of the Plan, any shares of Common Stock, options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock, or options to purchase or
rights to subscribe for such convertible or exchangeable securities (other than
(1) an issuance of Common Stock as a dividend or in a split of or subdivision
in respect of which an adjustment provided for in paragraph (a) above applies,
(2) the issuance of Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable securities in respect of which an
adjustment pursuant to clause (i)(x) above applies and has previously been
made, and (3) as set forth in clause (iii) below) for consideration per share
of Common Stock less than (x) in the case of a public offering, the closing
price on the principal exchange on which the Common Stock is quoted on the day
before the pricing of such offering and (y) in all other cases, the Market
Price (as determined pursuant to Section 14(b)) per share of Common Stock as of
the date immediately prior to the first public announcement of such transaction
(or consummation of such transaction if the Common Stock is not then publicly
traded), or the record date for determination of shareholders entitled to
receive (or purchase) such rights, options, warrants, or convertible securities
(or options to purchase convertible securities) in the case of a distribution
or issuance thereof in respect of the Company’s capital stock,

then, and in each such case, the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall be adjusted by multiplying the number
of shares of Common Stock purchasable upon the exercise of each Warrant
immediately prior to such issuance or sale by a fraction (not less than one),

13

 

                       (A) the numerator of which equals the product of (1) the number of shares
of Common Stock of the Company outstanding after giving effect to such sale or
issuance (and assuming with respect to rights, options, warrants or convertible
or exchangeable securities (or options or rights to purchase convertible or
exchangeable securities) that all in-the-money rights, options, warrants or
convertible or exchangeable securities (or options or rights to purchase
convertible or exchangeable securities) had been fully exercised or converted
into Common Stock, as the case may be) and (2) the Market Price (as determined
pursuant to Section 14(b)) per share of Common Stock as of immediately prior to
such public announcement date, consummation date or record date, as the case
may be (or, in the case of clause (i)(x) above, the Plan Price); and

                       (B) the denominator of which equals the sum of (A) the product of (1) the
number of shares of Common Stock of the Company outstanding immediately before
such public announcement date, consummation date or record date as the case may
be (and assuming, with respect to rights, options, warrants or convertible or
exchangeable securities (or options or rights to purchase convertible or
exchangeable securities) that all in-the-money rights, options, warrants or
convertible or exchangeable securities (or options or rights to purchase
convertible or exchangeable securities) had been fully exercised or converted
into Common Stock, as the case may be), and (2) the Market Price (as determined
pursuant to Section 14(b)) per share of Common Stock as of immediately before
such public announcement date, consummation date or record date, as the case
may be (or, in the case of clause (i)(x) above, the Plan Price), and (B) the
aggregate consideration received by the Company for the Common Stock to be so
issued or sold or to be purchased or subscribed for, whether directly or
issuable upon exercise of such rights, options or warrants or upon conversion
or exercise of such convertible or exchangeable securities. For the purposes
of such adjustments, the Common Stock which the holders of any such rights,
options, warrants or convertible or exchangeable securities (or options or
rights to purchase convertible or exchangeable securities) shall be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding as of
the date of such public announcement date, consummation date or record date, as
the case may be. Notwithstanding anything herein to the contrary, no
adjustment to the number of shares of Common Stock purchasable upon the
exercise of each such Warrant shall be made under this Section 14(d) to the
extent that the Holders participate in any such distribution by way of an
adjustment pursuant to Section 14(a), (b) or (c).

                 (ii) For the purposes of any adjustment to the number of shares of Common
Stock purchasable upon the exercise of each Warrant pursuant to Section
14(d)(i), the following provisions shall be applicable:

                       (A) In the case of the issuance of Common Stock or rights, options,
warrants or convertible or exchangeable securities (or options or rights to
purchase convertible or exchangeable securities) containing the right to
subscribe for or purchase Common Stock for cash in a public offering or private
placement, the consideration shall be
deemed to be the amount of cash paid therefor before deducting therefrom
any discounts, commissions or placement fees payable by the Company to any
underwriter or placement agent in connection with the issuance and sale
thereof.

14

 

                       (B) In the case of the issuance of Common Stock or rights, options,
warrants or convertible or exchangeable securities (or options or rights to
purchase convertible or exchangeable securities) containing the right to
subscribe for or purchase Common Stock for a consideration consisting, in whole
or part, of property other than cash or its equivalent (including in connection
with the acquisition of companies and businesses), the “consideration received
by the Company” shall be the fair market value of said property (as determined
in good faith by the Board of Directors, whose determination shall be
conclusive for all purposes and described in a reasonably detailed statement
filed with the Warrant Agent).

                       (C) In the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable securities, the following provisions shall
be applicable:

                             (1) The aggregate maximum number of shares of Common Stock deliverable
upon exercise of such options to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time such options or rights
were issued and for a consideration equal to the consideration, if any,
received by the Company upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the Common Stock
covered thereby.

                             (2) The aggregate maximum number of shares of Common Stock deliverable
upon conversion of or in exchange of any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such
securities, options, or rights were issued and for a consideration equal to the
consideration received by the Company for any such securities and related
options or rights (excluding any cash received on account of accrued interest
or accrued dividends), plus the additional consideration, if any, to be
received by the Company upon the conversion or exchange of such securities or
the exercise of any related options or rights.

                             (3) Upon any change in the number of shares or exercise price of Common
Stock deliverable upon exercise of any such options or rights or conversions of
or exchanges for such securities, the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall forthwith be readjusted to
such number as would have been obtained had the adjustment made upon the
issuance of such options, rights or securities not converted prior to such
change or options or rights related to such securities not converted prior to
such change been made upon the basis of such change.

                             (4) No further adjustment of the number of shares of Common Stock
purchasable upon the exercise of each Warrant adjusted upon the issuance of any
such options, rights, convertible securities or exchangeable securities shall
be made as a result of the actual issuance of Common Stock on the exercise of any such rights or
options or any conversion or exchange of any such securities.

                             (5) Upon the expiration of any rights, options, warrants or conversion
privileges (the granting of which resulted in an adjustment to the number of
shares

15

 

of Common Stock purchasable upon exercise of each Warrant pursuant to
this Section 14), if such shall not have been exercised after the date hereof,
the number of shares of Common Stock purchasable upon exercise of each Warrant
and the Exercise Price, to the extent the Warrant has not been exercised,
shall, upon such expiration, be readjusted and shall thereafter be such as they
would have been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) on the basis of (i) the fact
that the only shares of Common Stock so issued were the shares of Common Stock,
if any, actually issued or sold upon the exercise of such rights, options,
warrants or conversion rights and (ii) such shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company upon
such exercise plus the consideration, if any, actually received by the Company
(including for purposes hereof, any underwriting discounts or selling
commissions paid by the Company) for the issuance, sale or grant of all such
rights, options, warrants or conversion rights whether or not exercised.

                       (iii) No Adjustments in Certain Cases. The adjustments in the
number of Shares purchasable upon exercise of a Warrant under clause (i)(y) of
this paragraph (d) shall not apply to (A) the issuance on or after the
Effective Date of options awarded to employees, officers or directors or other
qualified plan participants of the Company pursuant to an option plan or
another option grant approved by the Board of Directors (“Management
Options”), to purchase shares of Common Stock in an aggregate amount not to
exceed 10% of the Common Stock, on a fully diluted basis after the distribution
of the Post-Termination Securities (as defined in the Plan) (subject to
adjustment for stock splits, stock subdivisions, stock combinations and similar
events) (the “Common Stock Option Pool”), (B) the issuance of Common
Stock upon the exercise of Management Options whose issuance was exempt from
Section 14(d) pursuant to clause (A) above, up to an amount not to exceed the
Common Stock Option Pool, (C) the issuance of Common Stock or other securities
of the Company upon the exercise of the Warrants, the New Series A Warrants or
New Series C Warrants (each as defined in the Plan), (D) any Common Stock or
options for the purchase of Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock issued pursuant to any stock
option, stock purchase or similar plan or arrangement for the benefit or
employees, consultants or directors of the Company or its subsidiaries approved
by the Company’s stockholders and its Board of Directors, and any shares of
Common Stock issuable upon exercise of any such options or convertible or
exchangeable securities, or (E) the issuance of Common Stock pursuant to the
Rights Offering (as defined in, and in accordance with, the Plan).

                       (e) Other Dilutive Events. The Board of Directors shall make such
additional adjustments in application of such provisions as it deems necessary
or appropriate in its sole discretion, to effectuate the essential intent and
principles established in paragraphs (a) through (d) above, necessary to
preserve the purchase rights represented by each Warrant.

                       (f) No De Minimis Adjustment. No adjustment in the number of
Shares purchasable upon exercise of a Warrant shall be required unless such
adjustment would require an increase or decrease of at least one percent (1.0%) in the
number of Shares purchasable upon the exercise of each Warrant;
provided, however, that any adjustments that by reason of this
Section 14(f) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations shall be made to
the nearest cent and to the nearest one-hundredth of a share, as the case may
be.

16

 

           (g) Exercise Price Adjustment. Whenever the number of shares of
Common Stock purchasable upon the exercise of any Warrant is adjusted as herein
provided (whether or not the Company then or thereafter elects to issue
additional Warrants in substitution for an adjustment in the number of Shares
as provided in Section 14(h)), the Exercise Price payable upon exercise of such
Warrant shall be adjusted by multiplying such Exercise Price immediately prior
to such adjustment by a fraction, of which the numerator shall be the number of
Shares purchasable upon the exercise of such Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Shares so
purchasable immediately thereafter (calculated, in each case, assuming that the
Company does not elect to issue additional Warrants in substitution for an
adjustment in the number of Shares purchasable upon exercise of a Warrant under
Section 14(h), whether or not the Company does in fact so elect).

           (h) Common Stock: Other Securities. For the purpose of this
Section 14, the term “shares of Common Stock” shall mean (i) the shares of
stock designated as the Common Stock of the Company at the date of this
Agreement, or (ii) any other class of stock resulting from successive changes
or reclassification of such shares consisting solely of changes in par value,
or from par value to no par value, or from no par value to par value. If at
any time, as a result of an adjustment made pursuant to Sections 14(a) or
14(c), the holders of Warrants shall become entitled to purchase any shares of
the Company other than shares of Common Stock, thereafter the number of such
other shares so purchasable upon exercise of each Warrant and the applicable
Exercise Price of such shares shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to such shares contained in Section 14(a) through (g), inclusive,
above, and the provisions contained in this Agreement with respect to such
shares, shall apply on like terms to any such other shares.

           (i) Issuance of Additional Warrants in Lieu of Adjustment. The
Company may elect, in its sole discretion, on or after the date of any
adjustment required by paragraphs (a) or (d) of this Section 14, to adjust the
number of Warrants in substitution for an adjustment in the number of Shares
purchasable upon the exercise of a Warrant. Each of the Warrants outstanding
after such adjustment of the number of Warrants shall be exercisable for the
same number of Shares as immediately prior to such adjustment. Each Warrant
held of record prior to such adjustment of the number of Warrants shall become
that number of Warrants (calculated to the nearest one-hundredth) obtained by
dividing the applicable Exercise Price in effect prior to adjustment of such
Exercise Price by the applicable Exercise Price in effect after adjustment of
such Exercise Price. The Company shall notify the holders of Warrants of its
election to adjust the number of Warrants in the same manner as provided in the
first paragraph of Section 16, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made, and shall
give prompt written notice thereof to the Warrant Agent. This record date may
be the date on which the Exercise Price is adjusted or any day thereafter.
Upon each adjustment of the number of Warrants pursuant to this Section 14(i)
the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Warrants on such record date Warrant Certificates
evidencing, subject to Section 15, the additional Warrants to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Warrant Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Warrant Certificates evidencing all the Warrants to be issued,
executed and registered in the manner specified in Sections 4 and 5 (and which
may bear,

17

 

at the option of the Company, the applicable adjusted Exercise Price)
and shall be registered in the names of the holders of record of Warrant
Certificates on the record date specified in the notice.

           (j) No Dilution or Impairment. The Company will not, by amendment
of its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Agreement or the Warrants, but will at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of the Warrants against dilution or other
impairment.

           (k) Changes to Form of Warrant Certificate. Irrespective of any
adjustments in an Exercise Price or the number or kind of shares purchasable
upon the exercise of the Warrants, Warrants theretofore or thereafter issued
may continue to express the same price and number and kind of shares as are
stated in the Warrants initially issuable pursuant to this Agreement. The
Company, however, may at any time in its sole discretion make any change in the
form of Warrant Certificate that it may deem appropriate to give effect to such
adjustments and that does not affect the substance of the Warrant Certificate
(including the rights, duties or obligations of the Warrant Agent), and any
Warrant Certificate thereafter issued, whether in exchange or substitution for
an outstanding Warrant Certificate or otherwise, may be in the form as so
changed.

     SECTION 15. Fractional Shares. Notwithstanding any adjustment
pursuant to Section 14 in the number of Shares purchasable upon the exercise of
a Warrant, the Company shall not be required to issue fractions of Shares upon
exercise of the Warrants, or to distribute certificates which evidence
fractional Shares. If Warrant Certificates evidencing more than one Warrant
shall be surrendered for exercise at one time by the same holder, the number of
full Shares which shall be issuable upon exercise thereof shall be computed on
the basis of the aggregate number of Warrants so surrendered. If any fraction
of a share of Common Stock would, except for the provisions of this Section 15,
be issuable upon exercise of any Warrant or Warrants, the Company shall, at its
election, upon the exercise of such Warrant or Warrants, either (a) purchase
such fraction for an amount in cash equal to such fraction of the Market Price
(as determined pursuant to Section 14(b)) of a share of Common Stock, or (b)
round up the number of Shares issued upon exercise of such Warrant or Warrants
to the next whole integer.

     SECTION 16. Notices to Warrantholders. Upon any adjustment of the
number of shares of Common Stock purchasable upon exercise of each Warrant, any
Exercise Price or the number of Warrants outstanding including any adjustment
pursuant to Section 14, the Company, within 10 calendar days thereafter, shall
(i) cause to be filed with the Warrant Agent a
certificate signed by the Chairman of the Board of Directors, Chief
Executive Officer, the President or any Vice President of the Company setting
forth the event giving rise to such adjustment, such Exercise Price and either
the number of Shares purchasable upon exercise of each Warrant or the
additional number of Warrants to be issued for each previously outstanding
Warrant, as the case may be, after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
adjustment was made, and (ii) cause to be given to each of the registered
holders of the Warrant Certificates at such holder’s address appearing on the
Warrant

18

 

Register, written notice of such adjustments by first-class mail,
postage prepaid. Where appropriate, such notice may be given in advance and
included as a part of the notice required to be mailed under the other
provisions of this Section 16. Absent manifest error, the Warrant Agent shall
be fully protected in relying in good faith on any such certificate and in
making any adjustment described therein and shall have no duty with respect to,
and shall not be deemed to have knowledge of, any adjustment unless and until
it shall have received such a certificate.

     In case:

           (a) the Company shall order, declare, make or pay any dividend payable in
any securities upon its shares of Common Stock or make any distribution (other
than a cash dividend) to the holders of its shares of Common Stock; or

           (b) the Company shall offer to the holders of its shares of Common Stock
any additional shares of Common Stock or securities convertible into shares of
Common Stock or any right to subscribe thereto; or

           (c) of any reclassification of the capital stock of the Company (other
than a subdivision or combination of outstanding shares of Common Stock), or of
any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company, or of any
other Organic Change; or

           (d) there shall be a dissolution, liquidation or winding up of the
Company;

then the Company shall cause written notice of such event to be filed with the
Warrant Agent and shall cause written notice of such event to be given to each
of the registered holders of the Warrant Certificates at such holder’s address
appearing on the Warrant Register, by first-class mail, postage prepaid, and
make prompt written notification thereof to the Warrant Agent, such giving of
notice and publication to be completed at least 10 calendar days (or 20
calendar days in any case specified in clause (d) above) prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution or
subscription rights, or for the determination of stockholders entitled to vote
on such proposed merger, sale, dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of closing the transfer
books, as the case may be. The failure to give the notice required by this
Section 16 or any defect therein shall not affect the legality or validity of
any distribution, right, warrant, dissolution, liquidation or winding up or the
vote upon or any other action taken in connection therewith.

     SECTION 17. Warrant Agent. The Warrant Agent undertakes only the
duties and obligations expressly imposed by this Agreement and the Warrant
Certificate, in each case upon the following terms and conditions, by all of
which the Company and the holders of Warrants, by their acceptance thereof,
shall be bound:

           (a) The statements contained herein and in the Warrant Certificates shall
be taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the accuracy of any of the same except such as describe the
Warrant Agent or action taken or to be

19

 

taken by it. Except as otherwise
provided herein, the Warrant Agent assumes no responsibility with respect to
the execution, delivery or distribution of the Warrant Certificates.

           (b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company, nor shall it at
any time be under any duty or responsibility to any holder of a Warrant to make
or cause to be made any adjustment in any Exercise Price or in the number of
Shares issuable upon exercise of any Warrant (except as instructed by the
Company), or to determine whether any facts exist that may require any such
adjustments, or with respect to the nature or extent of or method employed in
making any such adjustments when made.

           (c) The Warrant Agent may consult at any time with counsel satisfactory to
it (who may also be counsel for the Company), and the Warrant Agent shall incur
no liability or responsibility to the Company or any holder of any Warrant
Certificate in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel,
absent gross negligence, bad faith or willful misconduct (each as determined by
a final order, judgment, ruling or decree of a court of competent jurisdiction)
in the selection and continued retention of such counsel and the reliance on
such counsel’s advice.

           (d) The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant Certificate for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate or
other paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.

           (e) The Company agrees to pay to the Warrant Agent reasonable compensation
for all services rendered by the Warrant Agent under this Agreement, to
reimburse the Warrant Agent upon demand for all reasonable expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the preparation, administration, delivery, execution and
amendment of this Agreement and the performance of its duties under this
Agreement and to indemnify the Warrant Agent and save it harmless against any
and all losses, liabilities and reasonable expenses, including judgments,
damages, fines, penalties, claims, demands, settlements, costs and reasonable
counsel fees and expenses, for anything done or omitted by the Warrant Agent
arising out of or in connection with this Agreement except as a result of its
gross negligence, bad faith or willful misconduct (each as determined by a
final order, judgment, ruling or decree of a court of competent jurisdiction).
The reasonable costs and expenses incurred by the Warrant Agent in enforcing
the right to indemnification shall be paid by the Company unless it is
determined by a final order, judgment,
decree or ruling of a court of competent jurisdiction that the Warrant
Agent is not entitled to indemnification due to its gross negligence, bad faith
or willful misconduct.

           (f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrant
Certificates furnishes the Warrant Agent with reasonable security and indemnity
for any costs or expenses that may be incurred. All rights of action under
this Agreement or under any of the Warrants may be enforced by the Warrant
Agent

20

 

without the possession of any of the Warrant Certificates or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery or judgment shall be for
the ratable benefit of the registered holders of the Warrants, as their
respective rights or interests may appear.

           (g) The Warrant Agent, and any stockholder, affiliate, director, officer
or employee thereof, may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction
in which the Company is interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it was not the Warrant
Agent under this Agreement, or a stockholder, director, officer or employee of
the Warrant Agent, as the case may be. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.

           (h) The Warrant Agent shall act hereunder solely as agent for the Company,
and its duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not be liable for anything that it may do or refrain from
doing in connection with this Agreement except in connection with its own gross
negligence, bad faith or willful misconduct (each as determined by a final
order, judgment, decree or ruling of a court of competent jurisdiction). In no
event will the Warrant Agent be liable for special, indirect, incidental,
punitive or consequential loss or damage of any kind whatsoever, even if the
Warrant Agent has been advised of the possibility of such loss or damage. Any
liability of the Warrant Agent under this Agreement to the Company will be
limited to the amount of fees paid by the Company to the Warrant Agent.

           (i) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing of the
provisions of this Agreement.

           (j) The Warrant Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due and validly authorized execution hereof by the Warrant Agent) or in respect
of the validity or execution of any Warrant Certificate (except its due and
validly authorized countersignature thereof), nor shall the Warrant Agent by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of the Shares to be issued pursuant to this
Agreement or any Warrant Certificate or as to whether the Shares will when
issued be validly issued, fully paid and nonassessable or as to the Exercise
Price or the number of Shares issuable upon exercise of any Warrant.

           (k) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer, any Vice President, the Treasurer, the Secretary or an
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and such instructions shall be full
authorization and protection to the Warrant Agent and the Warrant Agent shall
not be liable for any action taken, suffered to be taken, or omitted to be
taken by it in good faith in

21

 

accordance with instructions of any such officer
or in good faith reliance upon any statement signed by any one of such officers
of the Company with respect to any fact or matter (unless other evidence in
respect thereof is herein specifically prescribed) which may be deemed to be
conclusively proved and established by such signed statement.

           (l) No provision of this Agreement shall require the Warrant Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
it believes that repayment of such funds or adequate indemnification against
such risk or liability is not reasonably assured to it.

           (m) If the Warrant Agent shall receive any notice or demand (other than
notice of or demand for exercise of Warrants) addressed to the Company by the
holder of the Warrant Certificates pursuant to the provisions of the Warrant
Certificates, the Warrant Agent shall promptly forward such notice or demand to
the Company.

           (n) The provisions of this Section 18 shall survive the termination of
this Agreement, the exercise or expiration of the Warrants and the resignation
or removal of the Warrant Agent.

     SECTION 18. Change of Warrant Agent. If the Warrant Agent resigns
(such resignation to become effective not earlier than 90 calendar days after
the giving of written notice thereof to the Company and the registered holders
of Warrant Certificates) or shall be adjudged a bankrupt or insolvent, or shall
file a voluntary petition in bankruptcy or make an assignment for the benefit
of its creditors or consent to the appointment of a receiver of all or any
substantial part of its property or affairs or shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to pay
or meet its debts generally as they become due, or if an order of any court
shall be entered approving any petition filed by or against the Warrant Agent
under the provisions of bankruptcy laws or any similar legislation, or if a
receiver, trustee or other similar official of it or of all or any substantial
part of its property shall be appointed, or if any public officer shall take
charge or control of it or of its property or affairs, for the purpose of
rehabilitation, conservation, protection, relief, winding up or liquidation, or
becomes incapable of acting as Warrant Agent or if the Board of Directors of
the Company by resolution removes the Warrant Agent (such removal to become
effective not earlier than 30 calendar days after the filing of a certified
copy of such resolution with the Warrant Agent and the giving of written notice
of such removal to the registered holders of Warrant Certificates), the Company
shall appoint a successor to the Warrant Agent. If the Company fails to make
such appointment within a period of 30 calendar days after such removal or
after it has been so notified in writing of such resignation or incapacity by
the Warrant Agent or by the registered holder of a Warrant Certificate (in the
case of incapacity), then the registered holder of any Warrant Certificate may
apply to any court of competent jurisdiction for the appointment of a successor
to the Warrant Agent. Pending appointment of a successor to the Warrant Agent, either by
the Company or by such a court, the duties of the Warrant Agent shall be
carried out by the Company. Any successor Warrant Agent, whether appointed by
the Company or by such a court, shall be a bank or trust company, in good
standing, incorporated under the laws of any state or of the United States of
America. As soon as practicable after appointment of the successor Warrant
Agent, the Company shall cause written notice of the change in the Warrant
Agent to be given to each of the registered holders of the Warrant Certificates
at such holder’s address appearing on the Warrant

22

 

Register. After appointment,
the successor Warrant Agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally named as Warrant Agent
without further act or deed. The former Warrant Agent shall deliver and
transfer to the successor Warrant Agent any property at the time held by it
hereunder and execute and deliver, at the expense of the Company, any further
assurance, conveyance, act or deed necessary for these purposes. Failure to
give any notice provided for in this Section 19 or any defect therein, shall
not affect the legality or validity of the removal of the Warrant Agent or the
appointment of a successor Warrant Agent, as the case may be.

     SECTION 19. Merger, Consolidation or Change of Name of Warrant
Agent. Any person into which the Warrant Agent may be merged or converted
or with which it may be consolidated, or any person resulting from any merger,
conversion or consolidation to which the Warrant Agent is a party, or any
person succeeding to the shareholder services business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any document or any further act on the part of any of the parties
hereto, if such person would be eligible for appointment as a successor Warrant
Agent under the provisions of Section 19. If any of the Warrant Certificates
have been countersigned but not delivered at the time such successor to the
Warrant Agent succeeds under this Agreement, any such successor to the Warrant
Agent may adopt the countersignature of the original Warrant Agent; and if at
that time any of the Warrant Certificates shall not have been countersigned,
any successor to the Warrant Agent may countersign such Warrant Certificates
either in the name of the predecessor Warrant Agent or in the name of the
successor Warrant Agent; and in all such cases such Warrant Certificates shall
have the full force provided in the Warrant Certificates and in this Agreement.

     If at any time the name of the Warrant Agent is changed and at such time
any of the Warrant Certificates have been countersigned but not delivered, the
Warrant Agent whose name has changed may adopt the countersignature under its
prior name; and if at that time any of the Warrant Certificates have not been
countersigned, the Warrant Agent may countersign such Warrant Certificates
either in its prior name or in its changed name; and in all such cases such
Warrant Certificates shall have the full force provided in the Warrant
Certificates and in this Agreement.

     SECTION 20. Miscellaneous.

           (a) Warrantholder Not Deemed a Stockholder. Nothing contained in
this Agreement or in any of the Warrant Certificates shall be construed as
conferring upon the holders thereof the right to vote or to receive dividends
or to consent or to receive notice as stockholders in respect of the meetings
of stockholders or for the election of directors of the Company or any other
matter, or any rights whatsoever as stockholders of the Company.

           (b) Notices to Company and Warrant Agent. Any notice or demand
authorized by this Agreement to be given or made by the Warrant Agent or by any
registered holder of any Warrant Certificate to or on the Company shall be
sufficiently given or made if sent by certified mail, return receipt requested,
or by nationally recognized overnight courier service, addressed (until another
address is filed in writing by the Company with the Warrant Agent), or by
facsimile transmission with receipt confirmed, or by personal delivery as
follows:

23

 

	 
	XO Communications, Inc.
	11111 Sunset Hills Road
	Reston, Virginia 20190
	Facsimile: (703) 547-2025
	Attention: General Counsel

     If the Company fails to maintain such office or agency or fails to give
such notice of any change in the location thereof, presentation may be made and
notices and demands may be served at the principal office of the Warrant Agent.

     Any notice pursuant to this Agreement to be given by the Company or by any
registered holder of any Warrant Certificate to the Warrant Agent shall be
sufficiently given if sent by certified mail, return receipt requested, or by
nationally recognized overnight courier service, addressed (until another
address is filed in writing by the Warrant Agent with the Company), or by
facsimile transmission with receipt confirmed, or by personal delivery as
follows (the “Warrant Agent Office”):

	 
	American Stock Transfer & Trust Company
	59 Maiden Lane
	New York, New York 10038
	Facsimile No.: (718) 921-8335
	Attention: Warrant Agent for XO Communications, Inc.

     If the Warrant Agent shall receive any notice or demand addressed to the
Company by the holder of a Warrant Certificate pursuant to the provisions of
the Warrant Certificates, the Warrant Agent shall promptly forward such notice
or demand to the Company.

           (c) Payment of Taxes and Charges. The Company will from time to
time promptly pay to the Warrant Agent, or make provisions satisfactory to the
Warrant Agent for the payment of, all taxes and charges that may be imposed by
the United States or any state upon the Company or the Warrant Agent in
connection with the issuance or delivery of shares of Common Stock upon the
exercise of any Warrants, but any taxes or charges in connection with the
issuance of Warrant Certificates or certificates for shares of Common Stock in
any name other than that of the registered holder of the Warrant Certificate
surrendered shall be paid by such registered holder; and, in such case, the
Company shall not be required to issue or deliver any Warrant Certificate or
certificate for shares of Common Stock until such taxes or charges shall have
been paid or it has been established to the Company’s satisfaction that no tax
or charge is due. The Warrant Agent shall have no duty or obligation under
this Section unless and until it is satisfied that all such taxes and/or
charges have been paid.

           (d) Entire Agreement; Amendments. This Agreement constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof. This Agreement may not be amended or supplemented and
no provision hereof may be waived, except in a writing signed by both the
Company and the Warrant Agent and with the prior written consent of holders of
the Warrants exercisable for a majority of the Shares then issuable upon
exercise of the Warrants then outstanding; provided, however,
that the Company and the Warrant Agent

24

 

may from time to time supplement or
amend this Agreement without the approval of any holders of Warrant
Certificates in order to cure any ambiguity, manifest error or other mistake in
this Agreement, or to correct or supplement any provision contained herein that
may be defective or inconsistent with any other provision herein, or to make
any other provisions in regard to matters or questions arising hereunder that
the Company and the Warrant Agent may deem necessary or desirable and that
shall not adversely affect, alter or change the interests of the holders of the
Warrants; and provided, further, that each amendment or
supplement that decreases the Warrant Agent’s rights or increases its duties
and responsibilities hereunder shall also require the prior written consent of
the Warrant Agent. Notwithstanding any of the foregoing, the Company may not
increase the Exercise Price, shorten the duration of the Warrants, or change
the securities or other property for which Warrants are exercisable without the
consent of each of the holders affected thereby.

           (e) Payments for Consent. The Company shall not directly or
indirectly pay or cause to be paid any consideration, whether by way of fee or
otherwise, to any holder of any Warrants for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this
Agreement or the Warrant Certificates unless such consideration is offered to
be paid or agreed to be paid to all holders of the Warrants which so consent,
waive or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or amendment.

           (f) Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.

           (g) Governing Law Venue and Jurisdiction. This Agreement and each
Warrant Certificate 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 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 20(b) 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.

           (h) Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrant Certificates any legal
or equitable right, remedy or claim under this Agreement, and this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrant Certificates.

25

 

           (i) Holder of Warrant May Enforce Rights. Notwithstanding any
other provision of this Agreement, any holder of a Warrant Certificate, without
the consent of the Warrant Agent, the holder of any Shares or the holder of any
other Warrant Certificate, may, in his, her or its own behalf and for his, her
or its own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company suitable to enforce, or otherwise in respect of,
his, her or its right to exercise the Warrants evidenced by his, her or its
Warrant Certificate in the manner provided in the Warrant Certificate and in
this Agreement.

           (j) Obtaining of Governmental Permits. The Company will from time
to time, take all action which may be necessary to obtain and keep effective
any and all permits, consents and approvals of governmental agencies and
authorities and securities act filings under United States federal and state
laws which may be or become required in connection with the issuance, sale,
transfer and delivery of the Shares issued upon exercise of the Warrants, the
exercise of the Warrants, the issuance, sale, transfer and delivery of the
Warrants, or upon the expiration of the period during which the Warrants are
exercisable.

           (k) Counterparts. This Agreement may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed to be
an original, and all such counterparts shall together constitute but one and
the same instrument.

           (l) Headings. The headings of sections of this Agreement have been
inserted for convenience of reference only, are not to be considered a part
hereof and in no way modify or restrict any of the terms or provisions hereof.

           (m) Meaning of Terms Used in Agreement. The language used in this
Agreement shall be deemed to be the language chosen by the parties to express
their mutual intent, and no rule of strict construction shall be applied
against any party. Any references to any federal, state, local or foreign
statute or law shall also refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. Unless the context
otherwise requires: (i) a term has the meaning assigned to it by this
Agreement; (ii) forms of the word “include” mean that the inclusion is not
limited to the items listed; (iii) “or” is disjunctive but not exclusive; (iv)
words in the singular include the plural, and in the plural include the
singular; (v) provisions apply to successive events and transactions; (vi)
“hereof”, “hereunder”, “herein” and “hereto” refer to the entire Agreement and
not any section or subsection; (vii) “$” means the currency of the United
States; (viii) “business day” means any day, except for Saturday and Sunday, on
which banks are not required or authorized by law or executive order to close
in New York City; (ix) “affiliate” shall have the meaning specified in Rule
12b-2 of the Securities Exchange Act of 1934, as amended; (x) “control” shall
have the meaning specified in Rule 12b-2 of the Securities Exchange Act of
1934, as amended; and (xi) “person” means a natural person, a partnership, a
corporation, a limited liability company, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization or other entity, or
a governmental entity or any department, agency or political subdivision
thereof.

           (n) Severability. If any part of this Agreement shall be held to
be invalid or unenforceable by any court, or regulatory agency or body, such
invalidity or unenforceability shall attach only to such part and shall not
affect the validity or enforceability of the rest of this Agreement.
Furthermore, in lieu of any such invalid or unenforceable provision or
condition, the

26

 

parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms and commercial effect to such
invalid or unenforceable provision as may be possible and be valid and
enforceable.

[The next page is the signature page]

27

 

     IN WITNESS WHEREOF, the parties hereto have caused this Series A Warrant
Agreement to be executed and delivered as of the day and year first above
written.

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

Name:   Gary D. Begeman

Title:  Senior Vice President, General Counsel

	 	 
	 	AMERICAN STOCK TRANSFER & TRUST
COMPANY
	 
	 	By: /s/  Geraldine M. Zarbo            
                     

Name:    Geraldine M. Zarbo

Title:   Vice President

 

 

EXHIBIT A

[FORM OF FACE OF SERIES B WARRANT CERTIFICATE]

VOID AFTER JANUARY 16, 2010

     This Global Warrant Certificate is held by The Depositary Trust Company
(the “Depositary”) or its nominee in custody for the benefit of the
beneficial owners hereof, and is not transferable to any person under any
circumstances except that (i) this Global Warrant Certificate may be exchanged
in whole but not in part pursuant to Section 6(a) of the Warrant Agreement,
(ii) this Global Warrant Certificate may be delivered to the Warrant Agent for
cancellation pursuant to Section 6(i) of the Warrant Agreement and (iii) this
Global Warrant Certificate may be transferred to a successor Depositary with
the prior written consent of the Company.1

     Unless this Global Warrant Certificate is presented by an authorized
representative of the Depositary to the Company or the Warrant Agent for
registration of transfer, exchange or payment and any certificate issued is
registered in the name of Cede & Co. or such other entity as is requested by
an authorized representative of the Depositary (and any payment hereon is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of the Depositary), any transfer, pledge or other use hereof for
value or otherwise by or to any person is wrongful because the registered owner
hereof, Cede & Co., has an interest herein.1

     Transfers of this Global Warrant Certificate shall be limited to transfers
in whole, but not in part, to nominees of the Depositary or to a successor
thereof or such successor’s nominee, and transfers of portions of this Global
Warrant Certificate shall be limited to transfers made in accordance with the
restrictions set forth in Section 6 of the Warrant Agreement.1

     No registration or transfer of the securities issuable pursuant to the
Warrant will be recorded on the books of the Company until the provisions of
Section 6 of the Warrant Agreement have been complied with.

__________________

1      These paragraphs are to be included only if the Warrant is in the form of a Global Warrant Certificate

 

 

CUSIP No. 983764 15 0

	 	 	 	 
	No______	 	 	        
                             
                     
                     
                  WARRANT TO PURCHASE _________

                     
                      
                       
                      SHARES OF COMMON STOCK
	 	 	 	 

XO COMMUNICATIONS, INC.

SERIES B WARRANT TO PURCHASE COMMON STOCK

     This Series B Warrant Certificate (“Warrant Certificate”) certifies
that ______or its registered assigns, is the registered holder of a
Warrant (the “Warrant”) of XO Communications, Inc., a Delaware
corporation (the “Company”), to purchase the number of shares (the
“Shares”) of Common Stock, par value $0.01 per share (the “Common
Stock”), of the Company set forth above. This Warrant expires on January
16, 2010, (such date, the “Expiration Date”) and entitles the holder to
purchase from the Company the number of fully paid and nonassessable Shares set
forth above at the exercise price (the “Exercise Price”) multiplied by
the number of Shares set forth above (the “Exercise Amount”), payable to
the Company by wire transfer in immediately available funds of the Exercise
Amount to an account of the Warrant Agent specified in writing by the Warrant
Agent for such purpose or by delivery of a certified check in immediately
available funds of the Exercise Amount to the Warrant Agent at its corporate
office, no later than 5:00 p.m., New York City time, on the business day
immediately prior to the Settlement Date (as defined in the Warrant Agreement).
The initial Exercise Price shall be $7.50 (or, if less, 150% of the Rights
Offering Price (as defined in the Warrant Agreement)).

     Subject to the terms and conditions set forth herein and in the Warrant
Agreement, this Warrant may be exercised by the Holder thereof, by:

                 (i) providing written notice of such election (“Warrant Exercise
Notice”) to exercise the Warrant to the Warrant Agent at the address set
forth in the Warrant Agreement, “Re: XO Communications, Inc. Warrant
Exercise”, by hand or by facsimile, no later than 5:00 p.m., New York City
time, on the Expiration Date, which Warrant Exercise Notice shall be in the
form of an election to purchase Shares of Common Stock of the Company
substantially in the form set forth either (x) in Exhibit B-1 to the
Warrant Agreement, properly completed and executed by the Holder; provided that
such written notice may only be submitted by persons who hold Definitive
Warrant Certificates, or (y) in Exhibit B-2 to the Warrant Agreement,
properly completed and executed by the Holder; provided that such written
notice may only be submitted with respect to Warrants held through the
book-entry facilities of the Depositary, by or through persons that are direct
participants in the Depositary;

                 (ii) delivering, either (x) no later than 5:00 p.m., New York City time,
on the business day immediately prior to the Settlement Date, such Warrants to
the Warrant Agent by book-entry transfer through the facilities of the
Depositary or (y) no later than 5:00 p.m., New York City time, on the business
day immediately prior to the Settlement Date, the
Warrant Certificates evidencing such Warrants to the Warrant Agent if
Definitive Warrant Certificates have been issued and delivered pursuant to the
Warrant Agreement; and

A-2

 

                 (iii) paying the applicable Exercise Amount, together with any applicable
taxes and governmental charges.

     The Exercise Price and the number of shares of Common Stock purchasable
upon exercise of this Warrant are subject to adjustment upon the occurrence of
certain events as set forth in the Warrant Agreement.

     No Warrant may be exercised prior to the Effective Date or after the
Expiration Date. After the Expiration Date, the Warrants will become wholly
void and of no value.

     REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT
CERTIFICATE SET FORTH ON THE REVERSE HEREOF. SUCH FURTHER PROVISIONS SHALL FOR
ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE.

     This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.

     IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its duly authorized officer.

     Dated:______

	 	 
	 	XO COMMUNICATIONS, INC
	 
	 	By:________________________

Name:

Title:

Countersigned:

AMERICAN STOCK TRANSFER & TRUST COMPANY
as Warrant Agent

By:____________________

Name:

Title:

A-3

 

[FORM OF REVERSE OF SERIES B WARRANT CERTIFICATE]

XO COMMUNICATIONS, INC.

     The Warrant evidenced by this Warrant Certificate is a part of a duly
authorized issue of Warrants to purchase a maximum of 7,125,000 shares of
Common Stock issued pursuant to that certain Series B Warrant Agreement, dated
as of January 16, 2003 (the “Warrant Agreement”), duly executed and
delivered by the Company and American Stock Transfer & Trust Company, as
Warrant Agent (the “Warrant Agent”). The Warrant Agreement hereby is
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words “holders” or “holder” meaning the registered holders or
registered holder) of the Warrants. A copy of the Warrant Agreement may be
inspected at the Warrant Agent Office and is available upon written request
addressed to the Company. All capitalized terms used herein but not defined
that are defined in the Warrant Agreement shall have the meanings assigned to
them therein.

     Warrants may be exercised to purchase Shares from the Company from the
Effective Date through 5:00 p.m. New York City time on the Expiration Date, at
the Exercise Price set forth on the face hereof, subject to adjustment as
described in the Warrant Agreement. Subject to the terms and conditions set
forth herein and in the Warrant Agreement, the Holder of the Warrant evidenced
by this Warrant Certificate may exercise such Warrant by:

                 (i) providing a Warrant Exercise Notice to the Warrant Agent at the
address set forth in the Warrant Agreement, “Re: XO Communications, Inc.
Warrant Exercise”, by hand or by facsimile, no later than 5:00 p.m., New York
City time, on the Expiration Date, which Warrant Exercise Notice shall be in
the form of an election to purchase Shares of Common Stock of the Company
substantially in the form set forth either (x) in Exhibit B-1 to the
Warrant Agreement, properly completed and executed by the Holder; provided that
such written notice may only be submitted by persons who hold Definitive
Warrant Certificates, or (y) in Exhibit B-2 to the Warrant Agreement,
properly completed and executed by the Holder; provided that such written
notice may only be submitted with respect to Warrants held through the
book-entry facilities of the Depositary, by or through persons that are direct
participants in the Depositary;

                 (ii) delivering, either (x) no later than 5:00 p.m., New York City time,
on the business day immediately prior to the Settlement Date, such Warrants to
the Warrant Agent by book-entry transfer through the facilities of the
Depositary or (y) no later than 5:00 p.m., New York City time, on the business
day immediately prior to the Settlement Date, the Warrant Certificates
evidencing such Warrants to the Warrant Agent if Definitive Warrant
Certificates have been issued and delivered pursuant to Section 3; and

                 (iii) paying the applicable Exercise Amount, together with any applicable
taxes and governmental charges.

     The Exercise Amount shall be payable by wire transfer in immediately available
funds of the Exercise Amount to an account of the Warrant Agent specified in
writing by the Warrant Agent

A-1-R

 

for such purpose or by delivery of a certified check in immediately available
funds of the Exercise Amount to the Warrant Agent at its corporate office, no
later than 5:00 p.m., New York City time, on the business day immediately prior
to the Settlement Date. The initial Exercise Price shall be $7.50 (or, if
less, 150% of the Rights Offering Price (as defined in the Warrant Agreement)).

     In the event that upon any exercise of the Warrant evidenced hereby the
number of Shares actually purchased shall be less than the total number of
Shares purchasable upon exercise of the Warrant evidenced hereby, there shall
be issued to the holder hereof, or such holder’s assignee, a new Warrant
Certificate evidencing a Warrant to purchase the Shares not so purchased. No
adjustment shall be made for any cash dividends on any Shares issuable upon
exercise of this Warrant. After the Expiration Date, unexercised Warrants
shall become wholly void and of no value.

     The Company shall not be required to issue fractions of Shares or any
certificates that evidence fractional Shares. If any fraction of a share of
Common Stock would, except for the provisions of the preceding sentence, be
issuable upon exercise of any Warrant or Warrants, the Company shall, at its
election, either (i) purchase such fraction for an amount in cash equal to such
fraction of the Market Price (as defined in the Warrant Agreement) of a share
of Common Stock or (ii) round up the number of Shares issued upon exercise of
such Warrant or Warrants to the next whole integer.

     Warrant Certificates, when surrendered at the Warrant Agent Office by the
registered holder thereof in person or by a legal representative or attorney
duly authorized in writing, by mail or by book-entry delivery through the
facilities of the Depositary may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing Warrants to purchase in the aggregate a like number of Shares.

     No Warrants may be sold, exchanged or otherwise transferred in violation
of the Securities Act or state securities laws. The Company or the Warrant
Agent may require that, as a condition to any sale, exchange or transfer of a
Warrant that the holder deliver to the Company and the Warrant Agent an opinion
of counsel, which opinion of counsel shall be reasonably satisfactory to the
Company, to the effect that such sale, exchange or transfer is made in
compliance with the Securities Act and all applicable state securities laws or
pursuant to an exempt transaction under the Securities Act and such state
securities laws. The provisions of this paragraph shall not apply to the
exercise of any Warrant to the extent that the Shares issued upon such exercise
(and any unexercised portion of the Warrant so exercised) shall be issued to
the same registered holder that exercised such Warrant.

     The Company and Warrant Agent may deem and treat the registered holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone) for the purpose
of any exercise hereof and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary.

A-2-R

 

EXHIBIT B-1

[FORM OF ELECTION TO EXERCISE FOR WARRANT HOLDERS

HOLDING WARRANTS IN FORM OF DEFINITIVE WARRANT

CERTIFICATES WHEN WARRANT CERTIFICATES WILL BE

PHYSICALLY DELIVERED IN CONNECTION WITH THE

WARRANT EXERCISE]

(TO BE EXECUTED UPON EXERCISE OF THE WARRANT)

     The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase
______ newly issued shares
of Common Stock of XO Communications, Inc. (the “Company”) at the
Exercise Price of $ ______ per share. The undersigned represents, warrants and
promises that it has the full power and authority to exercise and deliver the
Warrants exercised hereby.

     The undersigned represents, warrants and promises that it has delivered or
will deliver in payment for such Shares $______by wire transfer in
immediately available funds of the Exercise Amount to an account of the Warrant
Agent specified in writing by the Warrant Agent for such purpose or by delivery
of a certified check in immediately available funds of the Exercise Amount to
the Warrant Agent at its corporate office, no later than 5:00 p.m., New York
City time, on the business day immediately prior to the Settlement Date:

     The undersigned requests that a certificate representing the Shares be
registered and delivered as follows:

	 	 	 
	 	 	
____________________________________

Name
	 	 	 
	 	 	
____________________________________

Address
	 	 	 
	 	 	
____________________________________

Delivery Address (if different)

B-1-1

 

     If such number of Shares is less than the aggregate number of Shares
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the balance of such Shares shall be registered and delivered as
follows:

	 	 	 
	 	 	
____________________________________

Name
	 	 	 
	 	 	
____________________________________

Address
	 	 	 
	 	 	
____________________________________

Delivery Address (if different)
	 	 	 
	______________________________

Social Security or Other Taxpayer

Identification Number of Holder	 	
____________________________________

Signature
	 	 	 
	 	 	
Note: The above signature must correspond
with the name as written upon the face of
this Warrant Certificate in every
particular, without alteration or
enlargement or any change whatsoever. If
the certificate representing the Shares or
any Warrant Certificate representing
Warrants not exercised is to be registered
in a name other than that in which this
Warrant Certificate is registered, the
signature of the holder hereof must be
guaranteed
	 	 	 
	SIGNATURE GUARANTEED:	 	 
	 	 	 
	______________________________	 	 

B-1-2

 

EXHIBIT B-2

[FORM OF ELECTION TO EXERCISE WARRANT FOR

HOLDERS HOLDING WARRANTS THROUGH BOOK-ENTRY

FACILITIES OF THE DEPOSITORY TRUST COMPANY

WHEN EXERCISE OF WARRANT WILL OCCUR THROUGH

SUCH FACILITIES]

[TO BE COMPLETED BY DIRECT PARTICIPANT

IN THE DEPOSITORY TRUST COMPANY]

XO Communications, Inc.

Warrants to Purchase ______Shares of Common Stock

(TO BE EXECUTED UPON EXERCISE OF THE WARRANT)

     The undersigned hereby irrevocably elects to exercise the right,
represented by ______ Warrants held for its benefit through the book-entry
facilities of The Depository Trust Company (the “Depositary”), to
purchase ______ newly issued shares of Common Stock of XO Communications, Inc.
(the “Company”) at the Exercise Price of
$______ per share.

     The undersigned represents, warrants and promises that (1) it has
delivered or will deliver no later than 5:00 p.m., New York time, on two
business days after the date on which this Warrant Exercise Notice is delivered
the number of Warrants specified below to the Warrant Agent’s account at the
Depositary by book-entry transfer; (2) it has the full power and authority to
exercise and deliver the Warrants exercised hereby; and (3) it has delivered
the exercise price of U.S. $______for each Warrant exercised hereby, by wire
transfer in immediately available funds of the Exercise Amount to an account of
the Warrant Agent specified in writing by the Warrant Agent for such purpose or
by delivery of a certified check in immediately available funds of the Exercise
Amount to the Warrant Agent at its corporate office, no later than 5:00 p.m.,
New York City time, on the business day immediately prior to the Settlement
Date.

     The undersigned requests that the principal amount of Warrants exercised
hereby be in registered form in the authorized denominations, registered in
such names and delivered, all as specified in accordance with the instructions
set forth below; provided, that if the shares of Common Stock are evidenced by
global securities, the shares of Common Stock shall be registered in the name
of the Depositary or its nominee.

B-2-1

 

	 	 	 
	Dated: ____________

NOTE: THIS EXERCISE NOTICE MUST BE DELIVERED TO THE WARRANT AGENT, PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. THE WARRANT AGENT SHALL
NOTIFY YOU (THROUGH THE CLEARING SYSTEM) OF (1) THE WARRANT AGENT’S ACCOUNT AT
THE DEPOSITARY TO WHICH YOU MUST DELIVER YOUR WARRANTS ON THE EXERCISE DATE AND
(2) THE ADDRESS, PHONE NUMBER AND FACSIMILE NUMBER WHERE YOU CAN CONTACT THE
WARRANT AGENT AND TO WHICH WARRANT EXERCISE NOTICES ARE TO BE SUBMITTED.

NAME OF DIRECT PARTICIPANT IN THE DEPOSITARY:

____________________________________

(PLEASE PRINT)

ADDRESS: ___________________________

____________________________________

CONTACT NAME: _____________________

TELEPHONE (INCLUDING INTERNATIONAL

CODE): ______________________________

FAX (INCLUDING INTERNATIONAL CODE):

____________________________________

SOCIAL SECURITY OR OTHER TAXPAYER

IDENTIFICATION NUMBER (IF APPLICABLE):

____________________________________

ACCOUNT FROM WHICH WARRANTS ARE

BEING DELIVERED:

____________________________________

DEPOSITARY ACCOUNT NO.

____________________________________

	 	WARRANT EXERCISE NOTICES WILL ONLY BE VALID IF DELIVERED IN ACCORDANCE WITH THE
INSTRUCTIONS SET FORTH IN THIS NOTIFICATION (OR AS OTHERWISE DIRECTED), MARKED
TO THE ATTENTION OF “XO COMMUNICATIONS, INC. WARRANT EXERCISE”.

WARRANT HOLDER DELIVERING WARRANTS, IF OTHER THAN THE DIRECT DTC PARTICIPANT
DELIVERING THIS WARRANT EXERCISE NOTICE

NAME: ______________________________

(PLEASE PRINT)

ADDRESS: ___________________________

____________________________________

CONTACT NAME: _____________________

TELEPHONE (INCLUDING INTERNATIONAL

CODE): ______________________________

FAX (INCLUDING INTERNATIONAL CODE):

____________________________________

SOCIAL SECURITY OR OTHER TAXPAYER

IDENTIFICATION NUMBER (IF APPLICABLE):

____________________________________

ACCOUNT TO WHICH THE SHARES OF
COMMON STOCK ARE
TO BE CREDITED:

____________________________________

DEPOSITARY ACCOUNT NO.

____________________________________

B-2-2

 

	 	 	 
	FILL IN FOR DELIVERY OF THE COMMON STOCK, IF OTHER THAN TO THE PERSON
DELIVERING THIS WARRANT EXERCISE NOTICE:

NAME: ______________________________

(PLEASE PRINT)

ADDRESS: ___________________________

____________________________________

CONTACT NAME: _____________________

TELEPHONE (INCLUDING INTERNATIONAL

CODE): ______________________________

FAX (INCLUDING INTERNATIONAL CODE):

____________________________________

SOCIAL SECURITY OR OTHER TAXPAYER

IDENTIFICATION NUMBER (IF APPLICABLE):

____________________________________

NUMBER OF WARRANTS BEING EXERCISED:

____________________________________

(ONLY ONE EXERCISE PER WARRANT

EXERCISE NOTICE)

SIGNATURE: _________________________

NAME: ______________________________

CAPACITY IN WHICH SIGNED:

____________________________________

SIGNATURE GUARANTEED:

____________________________________

	 	 

B-2-2

 

EXHIBIT C

[FORM OF ASSIGNMENT]

(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH

HOLDER DESIRES TO TRANSFER THE WARRANT CERTIFICATE)

     FOR VALUE RECEIVED, the undersigned registered holder hereby sells,
assigns and transfers unto

 

______________________________
Name of Assignee

______________________________
Address of Assignee

this Warrant Certificate, together with all right, title and interest therein,
and does irrevocably constitute and appoint ______attorney, to
transfer the within Warrant Certificate to purchase ______shares of Common
Stock to which the Warrant Certificate relates on the books of the Warrant
Agent, with full power of substitution.

	 	 	 
	______________________________

Dated	 	
______________________________

Signature
	 	 	 
	 	 	
Note: The above signature must correspond with the name as written
upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever.
	 	 	 
	______________________________

Social Security or Other Taxpayer 

Identification Number of Assignee 
	 	 
	 	 	 
	SIGNATURE GUARANTEED:	 	 
	 	 	 
	______________________________	 	 

C-1

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