Document:

<Page>

                                                                   EXHIBIT 10.40
                                                                    CONFIDENTIAL

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

                              AMENDED AND RESTATED

             CONFIDENTIAL SETTLEMENT AGREEMENT AND MUTUAL RELEASE(1)

     This AMENDED AND RESTATED CONFIDENTIAL SETTLEMENT AGREEMENT AND MUTUAL
RELEASE ("AGREEMENT") is entered into as of this 27th day of February 2004 (the
"EXECUTION DATE") by and between LEVEL 3 COMMUNICATIONS, LLC, a Delaware limited
liability company ("LEVEL 3"), ALLEGIANCE TELECOM COMPANY WORLDWIDE, a Delaware
corporation ("ALLEGIANCE") and XO Communications, Inc., a Delaware corporation
or its designee (the "PURCHASER"). Level 3, Allegiance and Purchaser (except
where specifically indicated) may be referred to individually as a "PARTY" and
together as the "PARTIES". This Agreement supercedes and replaces that certain
Confidential Settlement Agreement and Mutual Release dated as of February 27,
2004 between Level 3 and Allegiance.

     For purposes of this Agreement, Level 3 is defined to include Level 3
Communications, LLC together, where applicable, with all of its relevant
corporate parents, subsidiaries, and affiliated entities, and all of the agents,
employees, officers and directors of any of them.

     For purposes of this Agreement, Allegiance is defined to include Allegiance
Telecom Company Worldwide together, where applicable, with all of its relevant
corporate parents, subsidiaries, and affiliated entities, and all of the agents,
employees, officers and directors of any of them, and includes Allegiance and
all of its corporate parents, subsidiaries, and affiliated entities in their
respective capacities as debtors and debtors-in-possession in the Bankruptcy
Case, as hereinafter defined.

     For purposes of this Agreement, Purchaser is defined to include XO
Communications, Inc. together, where applicable, with all of its relevant
corporate parents, subsidiaries, and affiliated entities, and all of the agents,
employees, officers and directors of any of them.

----------
(1) On March 5, 2004, the Court entered an order (the "Settlement Agreement Seal
Order") authorizing the Debtors to, among other things, file only a redacted
version of the Settlement Agreement; and providing that the redacted information
in the Settlement Agreement remain confidential. The Court further allowed the
Debtors to serve the unredacted Settlement Agreement only on the Court, the U.S.
Trustee, attorneys for the Creditors Committee and attorneys for the Debtors'
prepetition secured lenders (the "Prepetition Lenders"). Moreover, under the
terms of the Settlement Agreement Seal Motion, the Settlement Agreement shall
not be made available to the general public or any parties in interest in these
chapter 11 cases; PROVIDED that the Settlement Agreement may be provided to
certain persons, at the discretion of the Debtors, who are subject to
confidentiality obligation to the Debtors; AND PROVIDED FURTHER that any such
person receiving an unredacted version of the Settlement Agreement pursuant to
this Order shall also be bound by this Order to maintain the confidentiality of
the Settlement Agreement.

THIS IS THE REDACTED VERSION OF THE AMENDED AND RESTATED SETTLEMENT AGREEMENT.

<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

                                   BACKGROUND

     A.   Allegiance and Level 3's predecessor-in-interest, Genuity Solutions,
Inc. ("GENUITY"), entered into an Integrated Network Solution Purchase Agreement
on or about July 24, 2000 (as amended, the "INSPA"), pursuant to which
Allegiance agreed to supply, and Genuity agreed to procure, an integrated
network solution which Genuity used to support its dial-up modem services
business. Capitalized terms used but not otherwise defined herein shall have the
meanings set forth in the INSPA.

     B.   On February 4, 2003, Genuity (in its own bankruptcy cases filed in the
United States Bankruptcy Court for the Southern District of New York) assumed
the INSPA and the INSPA was assigned to Level 3.

     C.   A number of disputes have arisen between Allegiance and Level 3
concerning the performance of Allegiance's responsibilities under the INSPA,
Level 3 has claimed entitlement to certain performance warranty remedies and
other remedies available to it under the INSPA and Allegiance has disputed such
claim.

     D.   On May 14, 2003 (the "PETITION DATE"), Allegiance and most of its
direct and indirect domestic subsidiaries each filed voluntary petitions
(collectively, the "BANKRUPTCY CASE") under Chapter 11 of Title 11 of the United
States Code, 11 U.S.C. Section101, ET SEQ. (the "BANKRUPTCY CODE") with the
United States Bankruptcy Court for the Southern District of New York (the
"BANKRUPTCY COURT") and Allegiance is currently operating its business and
managing its property as a debtor-in-possession.

     E.   In January and February 2004, Allegiance delivered notices of default
under the INSPA to Level 3. Level 3 has disputed the notice of default.

     F.   On February 4, 2004, Level 3 filed a motion (the "CREDIT MOTION"), in
part under seal, to permit recoupment and for other relief. Allegiance has
disputed the Credit Motion.

     G.   On February 8, 2004, Level 3 filed a complaint (the "COMPLAINT"),
filed in part under seal, for certain declaratory relief relating to the INSPA.
Allegiance disputes the allegations contained in the Complaint.

     H.   On February 18, 2004, Purchaser entered into an agreement with
Allegiance (the "ASSET PURCHASE AGREEMENT") pursuant to which it agreed to
purchase substantially all of the assets of Allegiance and other assets
described therein, but excluding (among other assets) the INSPA, the KMC
Agreement (as defined herein) and related managed modem facilities and business
assets specified in the Asset Purchase Agreement and/or the Disclosure Schedules
(as defined in the Asset Purchase Agreement).

     I.   Allegiance and Level 3 now seek to amicably resolve, compromise and
settle any and all claims or demands with respect to the INSPA, and to orderly
terminate the INSPA subject to and in accordance with the terms hereof.

                                        2
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

     J.   The Parties agree that the transactions contemplated hereby and the
consideration exchanged in respect thereof and hereof constitute contemporaneous
exchanges for new value and that such consideration is of reasonably equivalent
value in exchange for the transactions contemplated hereby.

     In consideration of the foregoing premises and the mutual covenants and
agreements contained herein, subject to the entry of the Bankruptcy Court
Approval Order (as defined in Section 11 below) each of the Parties agrees as
set forth below.

1.   THE TRANSACTION. The transaction contemplated by this Agreement shall take
     place in two stages: (a) commencing immediately (but subject to entry of
     the Bankruptcy Court Approval Order), the Parties shall perform pursuant to
     Section 2 below; and (b) on the "EARLY FUNDING DATE" (as defined in the
     Asset Purchase Agreement), the transaction described in Section 3 below
     shall be consummated; the Parties acknowledge, however, that the two stages
     may occur simultaneously if the Early Funding Date shall occur prior to or
     contemporaneous with the entry of the Bankruptcy Court Approval Order.

2.   IMMEDIATE TRANSACTIONS.

     (a)  [**REDACTED]

     (b)  Commencing on the Execution Date, Allegiance and Level 3 shall work to
          procure and cooperate with Level 3 in the procurement of consents from
          the suppliers of the Off-Net Assets (as defined in Section 4 hereof)
          as may be required in order for Level 3 to continue to use the Off-Net
          Assets (including software contained therein) for their intended use.
          The costs of obtaining any licenses or consents from such suppliers
          shall be borne solely by Level 3.

     (c)  Commencing on the Execution Date, the Parties shall commence
          preparation of the agreed Migration Plan (as defined in Section 8
          below).

     (d)  Level 3's obligations to make the Purchase Price Payment under the
          INSPA which were allegedly due and payable in February 2004 shall be
          suspended pending the Parties' efforts to secure the Bankruptcy Court
          Approval Order (such suspension shall terminate if this Agreement is
          deemed void AB INITIO pursuant to Section 12 hereof).

     (e)  Level 3 shall reimburse Allegiance for payments made by Allegiance to
          KMC under and pursuant to the KMC Agreement (each as defined in
          Section 3 below) for services delivered to Allegiance in support of
          the INSPA relating to the period of time from and after February 1,
          2004 through the soonest to occur of the Early Funding Date or the
          Option Exercise Date. Level 3 shall have the right to review and audit
          all invoices and other materials delivered to Allegiance from KMC in
          order to confirm the validity and accuracy of the charges imposed by
          KMC under the KMC Agreement. To the extent that Level 3 wishes to have
          the "Competitive

                                        3
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

          Offer" (as defined in the KMC Agreement) provisions of the KMC
          Agreement invoked prior to the assumption and assignment thereof to
          Level 3, Allegiance agrees to cooperate with Level 3 in regard to the
          enforcement of such rights.

3.   EARLY FUNDING DATE TRANSACTIONS. Subject to entry of the Bankruptcy Court
     Approval Order, from and after the Early Funding Date:

     (a)  The INSPA shall be terminated and no Party shall have any continuing
          obligations under the INSPA except as set forth in this Agreement.

     (b)  The Parties' obligations respecting Termination Assistance Services
          (as set forth in Section 7 below) shall become effective with respect
          to the migration of the all of the Ports as to both Allegiance until
          the Closing Date and as to the Purchaser from and after the Closing
          Date.

     (c)  Pursuant to Section 5.6 of the INSPA, title in and to all of the
          "BUY-OUT ASSETS" shall be conveyed to Level 3 free and clear of all
          liens, interests, claims, or encumbrances (and the Parties shall work
          to create a schedule ("SCHEDULE 3(C)") listing all such Buy-Out
          Assets). For the avoidance of doubt, the Buy-Out Assets are the
          "Buyout Assets" referred to on Schedule 6.26 of the Disclosure
          Schedules (as defined in the Asset Purchase Agreement). With respect
          to the conveyance of the Buy-Out Assets, any software licenses or
          rights of use shall be conveyed to Level 3 if and only if such rights
          are transferable to Level 3 pursuant to applicable law (and Allegiance
          makes no representation to Level 3 with respect to the transferability
          of such rights). Commencing on the Bankruptcy Court Approval Date,
          Allegiance and Level 3 shall work to procure consents from the
          suppliers of the Buy-Out Assets as may be required in order for Level
          3 to continue to use (from and after the Early Funding Date) the
          Buy-Out Assets (including software contained therein) for their
          intended use. The costs of obtaining any licenses or consents from
          such suppliers, or the costs associated with asserting the
          transferability of software licenses or rights of use, shall be borne
          solely by Level 3. Any maintenance agreements that Allegiance has with
          respect to the Buy-Out Assets are not being conveyed, assigned or
          assumed by Level 3 or Purchaser, and Level 3 shall, from and after the
          effective date of conveyance of the Buy-Out Assets to Level 3, be
          responsible for all maintenance respecting the Buy-Out Assets.
          Purchaser shall not be financially responsible for any amounts owed
          under any maintenance agreement.

     (d)  Allegiance shall assume and assign to Level 3 that certain Primary
          Rate Interface Services Agreement dated as of February 11, 2002 (as
          amended, the "KMC AGREEMENT") between Allegiance and KMC Telecom XI,
          LLC. (including, without limitation, subsidiaries and affiliates
          thereof, "KMC"). Such assumption and assignment shall preserve in full
          all rights of Allegiance under the KMC Agreement against KMC as of the
          date of assumption and assignment thereof to Level 3, including,
          without limitation, rights, liabilities and claims respecting

                                        4
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

          KMC performance warranty breaches, if any, under the KMC Agreement
          (provided, however, that any claims respecting backhaul latency or
          non-delivery of ports relating to periods of time prior to the
          assumption and assignment of the KMC Agreement shall not be assigned
          to Level 3, and may be enforced by Allegiance in its sole discretion).
          Notwithstanding any other provision of this Agreement, nothing in this
          Agreement shall preclude Allegiance from rejecting the KMC Agreement
          pursuant to applicable bankruptcy laws, provided that Allegiance
          secures Level 3's prior written consent thereto (which consent may be
          given or withheld in Level 3's sole and absolute discretion); in the
          event of any such rejection, the cash consideration paid to Allegiance
          under Section 5 hereof shall be increased by an amount to be agreed
          upon by Allegiance and Level 3.

     (e)  If Allegiance assumes the KMC Agreement and assigns it to Level 3, as
          between Allegiance and Level 3, Allegiance shall have the obligation
          to make the cure payment, if any, to KMC in connection with the
          assumption and assignment of the KMC Agreement and Level 3 shall have
          no liability for any cure amount relating to the assumption and
          assignment of the KMC Agreement, to KMC, Purchaser, Allegiance or its
          estates. Level 3 shall have standing to participate in any contested
          matters between KMC and Allegiance as to the cure amount and related
          issues to the extent that Level 3 reasonably determines that its
          rights may be affected by such contested matter.

     (f)  Prior to and continuing after the Early Funding Date, each of Level 3,
          Purchaser and Allegiance shall reasonably cooperate with respect to
          transition services needed, if any, regarding the KMC Agreement, and
          Allegiance (and Purchaser, to the extent that migration is not
          completed by the Early Funding Date or the Closing Date) shall provide
          Termination Assistance Services (as described in Section 7 below) to
          Level 3 with respect to its efforts to migrate the Off-Net Ports under
          the KMC Agreement to the Level 3 network.

     (g)  Upon receipt of any business downturn notice delivered at any time
          after the Effective Date and through the soonest to occur of the Early
          Funding Date or Option Exercise Date, Allegiance shall immediately
          (and in no event later than seven (7) days after receipt thereof)
          deliver appropriate notice to KMC under the KMC Agreement of
          termination of the services provided by KMC which are affected by such
          business downturn notice.

     (h)  [**REDACTED]

     (i)  [**REDACTED]

4.   FAILURE TO ACHIEVE EARLY FUNDING DATE. In the event that the Early Funding
     Date has not occurred on or before April 15, 2004, Level 3 shall have the
     option (provided that it is not then in breach of the Agreement) to cause
     Allegiance to consummate the transactions described in Sections 3(d), (e),
     and (f) above, and (immediately upon such election): (a)

                                        5
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

     the INSPA shall be deemed immediately amended hereby so as to eliminate
     Allegiance's obligation to deliver, and Level 3's obligation to purchase,
     any ports in Off-Net Serviceable Rate Centers (either Level 3 or Allegiance
     may propose or require a formal amendment to the INSPA in respect thereof
     by written notice delivered on or before the date of exercise of the option
     granted hereunder); and (b) the INSPA shall thereafter continue to apply
     with respect to the approximately 260,232 ports installed in Serviceable
     On-Net Rate Centers as of the Execution Date (the "ON-NET PORTS"), and
     neither Party waives any rights under the INSPA with respect to such On-Net
     Ports except as expressly set forth in this Agreement. The date upon which
     Level 3 exercises such option shall be the "OPTION EXERCISE DATE." On the
     Option Exercise Date, Level 3 shall pay Allegiance the amount of $5,000,000
     (the "OPTION EXERCISE PRICE"). In such event, provided that the Bankruptcy
     Court Approval Order has been entered, Allegiance shall convey to Level 3,
     free and clear of all liens, interests, claims and encumbrances, the
     equipment owned and/or used by and as may be permitted by applicable law,
     all general intangibles, licenses, copyrights, trademarks, patents,
     intellectual property and other personal property owned and/or used by
     Allegiance in connection with the KMC Agreement (and the Parties shall work
     to create a "SCHEDULE 4" to this Agreement listing such assets), PROVIDED,
     HOWEVER, that such assets do not constitute Acquired Assets pursuant to the
     Asset Purchase Agreement (the "OFF-NET ASSETS"). Allegiance shall provide
     Level 3 with, or transfer to Level 3, all goods, intangible rights, and
     services which Allegiance is presently entitled to enjoy, or is in
     possession of, under and in respect of the KMC Agreement, PROVIDED,
     HOWEVER, that such assets do not constitute Acquired Assets pursuant to the
     Asset Purchase Agreement. With respect to the conveyance of the Off-Net
     Assets, any software licenses or rights of use relating exclusively thereto
     shall be conveyed to Level 3 if and only if such rights are transferable to
     Level 3 pursuant to applicable law (and Allegiance makes no representation
     to Level 3 with respect to the transferability of such rights). The costs
     of obtaining any licenses or consents from the suppliers of the Off-Net
     Assets, or the costs associated with asserting the transferability of
     software licenses or rights of use, shall be borne solely by Level 3. In
     addition, in such event, Allegiance shall supply Level 3 with Termination
     Assistance Services respecting the Off-Net Ports as set forth in this
     Agreement (notwithstanding the fact that the Early Funding Date has not
     occurred).

5.   CASH TERMINATION CONSIDERATION. On the Early Funding Date (provided that
     the Bankruptcy Court Approval Order shall have entered), provided further
     that Allegiance is not then in default under the Agreement, Level 3 shall
     pay Allegiance $54,000,000, which amount shall be paid by wire transfer.
     The Option Exercise Price is included in the $54,000,000 payable by Level 3
     hereunder; therefore, if the Option Exercise Price has been paid, the cash
     consideration due hereunder shall be reduced by the Option Exercise Price.

6.   MUTUAL RELEASE AND LITIGATION STANDSTILL. Upon the Early Funding Date
     (provided that the Bankruptcy Court Approval Order has been entered),
     provided that each Party has fully performed its obligations hereunder and
     under the INSPA and satisfied all related

                                        6
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

     requirements and conditions hereunder, then, except as otherwise
     specifically set forth herein, in the Bankruptcy Court Approval Order, in
     the Migration Plan, or in any documents, agreements, schedules, and
     instruments specifically agreed to by the Parties to effectuate the terms
     of this Agreement, the Bankruptcy Court Approval Order or the Migration
     Plan, the Parties agree as follows:

     (a)  Allegiance and Purchaser hereby fully and forever waive, release,
          acquit, discharge and hold harmless Level 3 and its owners,
          stockholders, successors, assigns, partners, parents, insurance
          carriers, bonding companies, affiliates and subsidiaries, and each of
          their respective directors, officers, agents, employees and
          representatives from any and all claims, actions, debts, demands,
          damages, judgments, liabilities, duties, indemnities, covenants,
          liens, and obligations of any kind whatsoever, whether known or
          unknown, whether in law or in equity, whether fixed and liquidated or
          contingent and unliquidated, whether billed or unbilled, which
          Allegiance and Purchaser has, had, may have or claim to have had
          against Level 3 arising prior to the Early Funding Date in respect of
          the INSPA (including but not limited to claims arising out of Level
          3's assertion of remedies or claims under, in respect of or at all
          relating to, the INSPA), occurring at any time up to and including the
          Early Funding Date.

     (b)  Level 3 hereby fully and forever waives, releases, acquits, discharges
          and holds harmless Allegiance and Purchaser and their respective
          owners, stockholders, successors, assigns, partners, parents,
          insurance carriers, bonding companies, attorneys, affiliates and
          subsidiaries, and each of their respective directors, officers,
          agents, employees and representatives, from any and all claims,
          actions, debts, demands, damages, judgments, liabilities, duties,
          indemnities, covenants, liens, and obligations of any kind whatsoever,
          whether known or unknown, whether in law or in equity, whether fixed
          and liquidated or contingent and unliquidated, whether billed or
          unbilled, which Level 3 has, had, may have or claim to have had
          against Allegiance arising prior to the Early Funding Date in respect
          of the INSPA, occurring at any time up to and including the Early
          Funding Date.

     (c)  Notwithstanding anything herein to the contrary, no Party releases or
          otherwise waives any claims relating to performance of this Agreement.

     (d)  Upon the Execution Date, each of Allegiance and Level 3 shall stand
          still respecting the contested matters joined by the Credit Motion,
          the adversary proceeding initiated by the Complaint and all related
          threatened or pending litigation or claims respecting the INSPA, and
          such matters shall be deemed administratively stayed upon entry, as
          more fully set forth herein, of the Bankruptcy Court Approval Order.
          Without limitation, neither Party shall conduct discovery with respect
          to, or otherwise prosecute, any such litigation or claim, and all
          rights of the Parties in respect thereto shall be preserved in full
          until the releases provided for

                                        7
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

          above are effective. When the releases provided for above are
          effective, the Credit Motion and the Complaint shall be dismissed with
          prejudice, and Level 3 shall, within three (3) business days following
          the Early Funding Date, amend its proof of claim filed in connection
          with the Bankruptcy Case so as to eliminate any claims associated with
          or related to the INSPA.

     (e)  Nothing in the "BANKRUPTCY PLAN" or the "DISCLOSURE STATEMENT" (as
          each is defined in the Asset Purchase Agreement) to be filed by
          Allegiance shall in any way be inconsistent with the provisions of
          this Agreement. To the extent that the Bankruptcy Plan and the
          Disclosure Statement, as the case may be, are consistent with the
          provisions of this Agreement, and so long as Allegiance and Purchaser
          each are in compliance with this Agreement, Level 3 shall not (nor
          will it encourage any other person to): (i) object to the Bankruptcy
          Plan or propose, file or support any restructuring, workout, or plan
          of reorganization for Allegiance other than the Bankruptcy Plan; (ii)
          object to the Disclosure Statement; (iii) delay, impede, or take any
          other action to interfere, directly, or indirectly, in any respect
          with the approval of the Disclosure Statement, or the acceptance,
          confirmation, or implementation of the Bankruptcy Plan.

7.   TERMINATION ASSISTANCE SERVICES. Commencing on the Early Funding Date (or
     the Option Exercise Date, with respect to the Off-Net Ports), and
     continuing during the Migration Period (as defined in Section 8 below),
     Allegiance and Purchaser shall provide Termination Assistance Services to
     Level 3 so as to assure the orderly transition of services provided under
     the INSPA from the Allegiance network to the Level 3 network. The
     Termination Assistance Services shall include the continued provision by
     Allegiance and (if applicable) Purchaser of network connectivity, space,
     power and other services such that the delivery of the Integrated Network
     Solution shall continue notwithstanding the occurrence of the Early Funding
     Date or the Closing Date. With respect to the Termination Assistance
     Services during the Migration Period:

     (a)  [**REDACTED]

     (b)  [**REDACTED]

     (c)  [**REDACTED]

     (d)  [**REDACTED]

     (e)  [**REDACTED]

8.   MIGRATION PLAN. Commencing on the Execution Date, the Parties shall work
     cooperatively to establish an agreed "MIGRATION PLAN" specifying the steps
     to be taken by the Parties in order to effectuate an orderly migration of
     services; the Migration Plan, once completed, shall become "SCHEDULE 8" to
     this Agreement. Each Party shall, commencing on the Early Funding Date (or
     the Option Exercise Date, with respect to the Off-Net Ports), work
     cooperatively and in good faith to migrate services delivered under

                                        8
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

     the INSPA to the Level 3 network pursuant to the Migration Plan. Each Party
     shall take such actions as are reasonably required in order to effectuate
     the Migration Plan. The Migration Plan shall contemplate the completion of
     all migration of ports to the Level 3 network within six (6) months after
     the Closing Date (such period of time shall be the "MIGRATION PERIOD").
     Upon the conclusion of the six (6) month period following the Closing Date,
     unless all of the Parties otherwise agree in writing, the obligation to
     deliver Termination Assistance Services shall cease. All termination
     liability (if any) with respect to the cancellation of underlying third
     party circuits after migration of service to the Level 3 network will be
     borne equally by Allegiance and (if applicable) Purchaser; provided,
     however, that Purchaser's cumulative liability for the payment of such
     termination liability shall be capped at $100,000.00 and Allegiance shall
     pay all termination liability charges in excess of such cap. In no event
     shall Level 3 have any liability for such termination liability.

9.   FILING UNDER SEAL. Allegiance agrees to file this Agreement with the
     Bankruptcy Court under seal. Notwithstanding the foregoing, subject to the
     requirements of Section 11 hereof, Allegiance shall be permitted to
     disclose the terms of the Agreement in the Compromise Motion (as defined in
     Section 11 hereof), if necessary, to obtain Bankruptcy Court approval
     therefor. Notwithstanding anything herein to the contrary, Allegiance shall
     be permitted to disclose the terms of the Agreement and provide copies
     thereof, without the need for a confidentiality agreement, to the
     attorneys, advisors and principals of (i) the official committee of
     unsecured creditors of Allegiance (the "COMMITTEE"), and (ii) the agent for
     the senior secured lenders of Allegiance.

10.  CONFIDENTIALITY. The terms and conditions of this Agreement are
     confidential and each Party warrants and represents that it will not
     (except as permitted in Section 9) reveal or engage in any action which it
     knows or has reason to believe will result in the disclosure of any
     information concerning the terms of this Agreement to anyone; provided,
     however, that each Party may reveal the terms of this Agreement (a) to its
     successors, assigns and its or their officers, directors, employees,
     agents, counsel, financial advisors and accountants in the normal course of
     business provided that the recipients are instructed that the terms of this
     Agreement are confidential and are to be maintained as such, and (b) upon
     order of or direction by a court or government unit of competent
     jurisdiction. Notwithstanding the foregoing, a Party may disclose such
     information as is required to be disclosed by applicable law or in order to
     obtain the Bankruptcy Court Approval Order. Each Party shall notify the
     other of any process, order or direction of a court or government unit of
     competent jurisdiction requiring the disclosure of the terms of this
     Agreement in a writing delivered as soon as possible upon receipt of any
     subpoena or other similar process or order and in any event no later than
     three (3) days prior to any required disclosure. The Parties agree that
     money damages are an insufficient measure of the harm disclosure of the
     terms of this Agreement, the Migration Plan, or any related documents,
     agreements, schedules, and instruments, may cause to either Party and each
     agree that either is entitled to injunctive relief to quash any disclosure
     of the terms of this

                                        9
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

     Agreement, the Migration Plan, or any related documents, agreements,
     schedules, and instruments.

11.  FILING FOR APPROVAL. Within five (5) business days after the Execution
     Date, Allegiance shall file with the Bankruptcy Court and serve upon
     parties in interest pursuant to applicable administrative Orders of the
     Bankruptcy Court, and as otherwise required by applicable bankruptcy law
     and procedures, a motion seeking approval of this Agreement, the
     transactions described herein, the compromises evidenced hereby under and
     pursuant to Bankruptcy Code Sections363, 365, Fed. R. Bankr. P. 9019, and
     otherwise applicable bankruptcy or non-bankruptcy law (the "COMPROMISE
     MOTION"). With respect to the Compromise Motion and for all purposes
     related hereto, the Parties agree that this Agreement represents a
     settlement and compromise of disputed matters under the INSPA and shall not
     be subject to any solicitation or auction initiated by or on behalf of
     Allegiance, the Committee, or any employees, agents, members or
     professionals thereof. The Compromise Motion must be in form and substance
     acceptable to the Parties prior to its filing with the Bankruptcy Court.
     For all purposes under this Agreement, a "BANKRUPTCY COURT APPROVAL ORDER"
     shall mean an order, in form and content reasonably satisfactory to the
     Parties, approving this Agreement, the Migration Plan and the transactions
     described herein entered on the docket of the Bankruptcy Court, upon due
     and proper notice to parties in interest, which Order shall be final,
     non-appealable and unstayed and shall: (i) survive confirmation of a plan
     of reorganization or liquidation in the Bankruptcy Case, the sale,
     assignment, transfer or other disposition of any Allegiance assets,
     compromises with other parties in interest, and conversion or dismissal of
     the Bankruptcy Case and (ii) govern (and as appropriate, be incorporated
     into) any plan, related Orders of the Bankruptcy Court under applicable
     bankruptcy or non-bankruptcy law, including, without limitation, an Order
     in respect of plan confirmation, a Bankruptcy Code Sections363 or 365
     Order, or a Bankruptcy Court Order under Fed. R. Bankr. P. 9019. The
     Bankruptcy Court Approval Order shall expressly state that the assumption
     and assignment to Level 3 of the KMC Agreement shall not release or waive
     any claims that Allegiance may have against KMC respecting performance of
     the KMC Agreement, and that (except with respect to claims respecting
     backhaul latency or non-delivery of ports relating to periods of time prior
     to the assumption and assignment of the KMC Agreement, as set forth in
     Section 3(d) hereof) Level 3 shall be free to enforce all such rights
     against KMC (even if such rights relate to periods of time prior to the
     assignment of the KMC Agreement to Level 3). All Parties shall in good
     faith endeavor to obtain the Bankruptcy Court Approval Order. Each Party
     shall bear its own fees and costs associated with such efforts.

12.  BANKRUPTCY COURT APPROVAL DATE. Except with respect to Sections 10 and 11,
     this Agreement shall have no binding effect upon any Party until the
     Bankruptcy Court Approval Date. Subject to the Bankruptcy Court's calendar
     and availability, the Bankruptcy Approval Order must be approved by the
     Court and so ordered thereby no later than March 25, 2004. The "BANKRUPTCY
     COURT APPROVAL DATE" is the first date upon which the Bankruptcy Court
     Approval Order is unstayed, and has become final and non-

                                       10
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

     appealable, without an appeal having been filed with respect thereto.
     Notwithstanding the foregoing, the Parties may begin taking steps to
     perform the terms of this Agreement prior to the Bankruptcy Court Approval
     Date. If the Bankruptcy Court does not grant the Compromise Motion, approve
     the terms of this Agreement, and authorize the compromise and transactions
     evidenced hereby within the times set forth above, this Agreement (except
     with respect to Section 10 hereof) will be deemed null and void AB INITIO.
     In such event, the claims, rights and remedies of the Parties under and in
     respect of the INSPA and otherwise shall remain in full force and effect
     and shall be immediately enforceable without impairment or modification.

13.  TERMINATION AND EARLY FUNDING DATE.

     (a)  In the event that the Early Funding Date has not occurred on or before
          August 30, 2004, any Party may terminate this Agreement upon delivery
          of written notice to the other Party (the effective date of such
          termination to be the "TERMINATION DATE"). On the Termination Date,
          Level 3 shall be obligated (if it has not already done so) to exercise
          the option and pay the Option Purchase Price as contemplated by
          Section 4 hereof, and termination of this Agreement shall not affect
          the effectiveness of the transactions described in Section 4 hereof.

     (b)  In the event this Agreement is terminated pursuant to paragraph (a)
          above, the Interim Services Payment shall cease and thereafter Level 3
          shall be obligated to commence payment of the Purchase Price as set
          forth in the INSPA (but not with respect to the Off-Net Ports, if
          Level 3 has paid the Option Purchase Price). In such event, the
          Parties agree that any outstanding issues or disputes under the INSPA
          (including, but not limited to, disputes respecting the application of
          any Business Downturn under Section 4.3 of the INSPA, disputes
          regarding pricing for the ports as a result of any Competitive Offer,
          disputes regarding the application of Performance Warranty Remedies
          (even if such Performance Warranty Remedies related to periods of time
          before the Execution Date), or any disputes arising out of Level 3's
          assertion of remedies or claims under, in respect of or at all
          relating to, the INSPA) shall be immediately submitted to binding
          arbitration pursuant to this Section. Any Party may initiate such
          binding arbitration action in accordance with the Commercial
          Arbitration Rules (the "Rules") of the American Arbitration
          Association ("AAA"). The confidentiality provisions of this Agreement
          shall govern all AAA arbitration proceedings. The Parties shall
          attempt to select a single neutral arbitrator to hear the matters in
          dispute. Such arbitrator need not be affiliated with the AAA. If the
          Parties fail to agree on a single neutral arbitrator within ten (10)
          days of the filing of the demand for arbitration, then three neutral
          arbitrators shall be appointed in accordance with the Rules. The
          arbitration award shall be in writing and shall specify the factual
          and legal basis for the award. The arbitration shall be conducted in
          New York, NY, and judgment upon the award rendered by the
          arbitrator(s) may be entered in any court having jurisdiction thereof.
          Unless otherwise ordered by the

                                       11
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

          arbitrator(s), the costs of the arbitration, including the AAA
          administration fee, the arbitrator's fee, and costs for the use of
          facilities during the hearings, shall be borne equally by the Parties.
          Attorneys' fees and costs may be awarded to the prevailing or most
          prevailing party at the discretion of the arbitrator(s).

     (c)  In the event of termination of this Agreement pursuant to paragraph
          (a) above, Level 3 shall be obligated to pay the difference between
          the Purchase Price which would have otherwise been due under the INSPA
          (as may be modified as a result of the arbitration referenced in
          paragraph (b) above) and the Interim Services Payments made hereunder
          for the period of time from and after February 1, 2004 through the
          Termination Date. With respect to any payment obligations arising
          under the INSPA between February 1, 2004 and the Termination Date in
          the event of a termination of this Agreement pursuant to paragraph (a)
          above, the Parties agree that the decision of the arbitrator(s) with
          respect to market pricing shall be applied retroactively as though
          Level 3 had delivered each alleged Competitive Offer introduced by
          Level 3 during such proceedings on the Execution Date, and the
          decision of the arbitrator(s) with respect to such issue shall have
          retroactive application to February 1, 2004 (such that, as an example,
          if the arbitrator(s) find that the market price should be lower than
          the present pricing, such price would be applied from and after
          February 1, 2004).

14.  MATERIAL BREACH. If there is a material breach of any material provision of
     this Agreement or the Migration Plan, upon written notice to the allegedly
     breaching Party, the Party asserting the breach may (in addition to any
     other remedies it may have under applicable law) terminate this Agreement
     within ten (10) business days' written notice. In such event, the claims,
     rights and remedies of the Parties under and in respect of the INSPA and
     otherwise shall remain in full force and effect and shall be immediately
     enforceable without impairment or modification. In the event of a breach in
     connection with the delivery of Termination Assistance Services or the
     Migration Plan by Allegiance or Purchaser, each of Allegiance and Purchaser
     agree that money damages are an insufficient measure of the harm any such
     breach may cause and, as a result, Level 3 is entitled to injunctive relief
     to compel specific performance of the obligations imposed on Allegiance and
     Purchaser before the Bankruptcy Court or (in the case of claims against
     Purchaser) before any court of competent jurisdiction. Each Party consents
     to the jurisdiction of the Bankruptcy Court with respect to any actions to
     enforce this Agreement.

15.  WAIVER OF RIGHTS TO OBJECT; SATISFACTION OF CERTAIN OBLIGATIONS UNDER ASSET
     PURCHASE AGREEMENT. . Allegiance hereby acknowledges and agrees that the
     Purchaser's obligations under Sections 6.26 and 7.3(h) and Schedule 6.26 of
     the Asset Purchase Agreement are satisfied in all respects. Notwithstanding
     anything to the contrary contained herein, no provision of this Agreement
     constitutes or effects, or shall be deemed to constitute or effect, an
     amendment, modification or waiver of any provision of the Asset Purchase
     Agreement, except solely in respect of the satisfaction of the

                                       12
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

     Purchaser's obligations under Sections 6.26 and 7.3(h) and Schedule 6.26
     thereof. For the avoidance of doubt, the Purchaser's obligations hereunder
     are limited to those specified in Sections 3(f), 6(a), 7, 8, 10 and 14
     hereof. Level 3 shall not in any way seek to object to or otherwise oppose
     the transactions contemplated by the Asset Purchase Agreement so long as
     Purchaser and Allegiance are in compliance with this Agreement.

16.  NOTICES. Any notice to a Party required or permitted under this Agreement
     must be in writing and delivered by certified mail, by a nationally
     recognized overnight delivery service (with signature required for
     delivery), or by a courier service to the applicable address indicated
     below or such address as the Party to be notified has designated by giving
     notice in compliance with this Section:

                                       13
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

     If to Allegiance:      Allegiance Telecom Company Worldwide
                            9201 North Central Expressway
                            Dallas, Texas 75231
                            Attn: General Counsel

     With a copy to:        Kirkland & Ellis, LLP
                            153 East 53rd
                            New York, New York 10022
                            Attn:  Jonathan Henes, Esq.
                                   Kimberly Taylor, Esq.

     With a further copy to the Committee, care of:

                            Akin Gump Strauss Hauer & Feld, LLP
                            590 Madison Avenue
                            New York, New York 10022
                            Attn: Ira Dizengoff, Esq.

     If to Level 3:         Level 3 Communications, LLC
                            1025 Eldorado Blvd.
                            Broomfield, Colorado 80021
                            Attn: Assistant General Counsel

     If to Purchaser:       XO Communications, Inc.
                            11111 Sunset Hills Road
                            Reston, Virginia 20190
                            Attn: General Counsel

17.  VALIDITY. This Agreement is for the benefit of and is binding upon the
     respective past and present parents, subsidiaries, and divisions, and
     predecessors and successors of the Parties, and each of their respective
     directors, officers, shareholders, employees and representatives. Nothing
     in this Agreement may be construed to create any rights in, or grant any
     cause of action to, any person not a Party to this Agreement.

18.  SURVIVABILITY. This Agreement inures to the benefit of the Parties, and
     their respective successors and assigns, and is binding upon any trustee,
     party, entity or other fiduciary that may be appointed in connection with
     the Bankruptcy Case whether under Chapter 7 or Chapter 11 of the Bankruptcy
     Code.

19.  CHOICE OF LAW. This Agreement is governed by and construed in accordance
     with the domestic laws of the State of New York without giving effect to
     any choice or conflict of law provision or rule that would cause the
     application of the laws of any jurisdiction other than the State of New
     York.

                                       14
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

20.  RETENTION OF JURISDICTION. Except as otherwise expressly set forth herein,
     the Parties to this Agreement consent to the jurisdiction of the Bankruptcy
     Court. The Parties submit to the jurisdiction of the Bankruptcy Court in
     connection with the interpretation and enforcement of this Agreement.

21.  ATTORNEYS FEES. In the event that any of the Parties must resort to legal
     action in order to enforce any provision or right under this Agreement or
     to defend such suit, the prevailing Party is entitled to receive
     reimbursement from the non-prevailing Party or Parties for all reasonable
     attorneys' fees and costs incurred in the litigation of such suit.

22.  NO ADMISSION; NO THIRD PARTY BENEFICIARY. This Agreement effects the
     settlement of potential and existing claims and disputes and nothing
     contained herein is construed as an admission by any Party hereto of any
     wrongdoing of any kind. Each Party's consent to the terms of this
     Agreement, including, without limitation, the consent to any assignment and
     assumption of any other agreement or the assignment of any rights or
     obligations thereunder, may be used against it as an admission or
     declaration against interest in construing any of the agreements enumerated
     herein nor any similar or other agreements. There shall be no third party
     beneficiaries to the terms and conditions of this Agreement.

23.  ENTIRE AGREEMENT. This Agreement and the Exhibits attached hereto
     constitute the entire agreement and understanding between the Parties with
     respect to the subject matter hereof and all prior negotiations,
     agreements, understandings, written or oral, between the Parties are deemed
     superseded and are replaced hereby. No provision may be changed, waived or
     modified, except in writing, signed by the Parties hereto.

24.  NON-INTEGRATION. The Parties agree that the Termination Assistance Services
     and the other provisions of this Agreement are not intended to be
     integrated and that upon the payment by Level 3 to Allegiance of the
     amounts contemplated by Section 4 or Section 13(a) hereof, as applicable,
     only the provisions regarding the Termination Assistance Services shall be
     deemed to be executory.

25.  COUNTERPARTS. This Agreement may be executed by facsimile and in multiple
     counterparts, each of which is deemed an original, but all of which
     together constitutes one and the same document.

                         [Signatures on following page]

                                       15
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

     IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year written below.

Dated: February 27, 2004              LEVEL 3 COMMUNICATIONS, LLC, on behalf of
                                      itself and other affiliated entities
                                      governed hereby.

                                      By:
                                         ---------------------------------------

                                      Its:
                                          --------------------------------------

Dated: February 27, 2004              ALLEGIANCE TELECOM COMPANY WORLDWIDE, on
                                      behalf of itself and other affiliated
                                      entities governed hereby.

                                      By:
                                         ---------------------------------------

                                      Its:
                                          --------------------------------------

Dated: March 12, 2004                 XO COMMUNICATIONS, INC., on behalf of
                                      itself and other affiliated entities
                                      governed hereby.

                                      By:
                                         ---------------------------------------

                                      Its:
                                          --------------------------------------

                                       16
<Page>

** NOTE: CERTAIN MATERIAL HAS BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND SUCH MATERIAL HAS BEEN FILED SEPARATELY WITH THE SEC.

                                   SCHEDULE 8

                                 MIGRATION PLAN

                                  [**REDACTED]

                                       17QuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 10.6.1    
    

 
 

REFOCUS GROUP, INC.
  
    SECOND AMENDMENT TO COX EMPLOYMENT AGREEMENT    
    

        This Second Amendment to that certain Employment Agreement between Refocus Ocular, Inc. and Mark A. Cox dated April 24, 1998 (the "Employment
Agreement"), as previously amended as of December 1, 2002, is made and entered into as of March 18, 2004, by and between Refocus Group, Inc., a Delaware corporation (the
"Company"), and MARK A. COX (the "Executive") (this "Second Amendment"). 

RECITALS

        The
Company is conducting a Securities Offering whereby the Executive's continued services are of key importance to the Company. 

        NOW,
THEREFORE, The Company and the Executive hereby agree to amend the Employment Agreement on the terms and conditions hereinafter set forth. 

	1.
	PROVISIONS: 

        (a)   A
new Section 3 (f) is hereby inserted immediately following Section 3 (e) as follows: 

"For
the purposes of this subsection 3(f), "Closing" shall mean a transaction or transactions whereby the Company closes the sale of Securities (as
herein defined) in an offering or offerings subsequent to the date of this Second Amendment, and "Securities" shall mean common stock and the number of shares of common stock issuable under warrants
and convertible securities sold. The Executive shall be entitled to be awarded, immediately subsequent to each Closing, options to purchase shares of the common stock of the Company ("Options") in an
aggregate amount equal to 1.5% (one and one-half percent) of the number of Securities sold in each Closing until and to the extent that such Closings result in the receipt of gross
proceeds to the Company in the aggregate amount of six million fifty thousand dollars ($6,050,000). The exercise price of such Options shall be at the higher of $0.60 per share or the actual price per
share of common stock sold in each Closing. The Options shall vest one-third on the date of each Closing and an additional one-third on the next two anniversary dates of each
Closing. The term of the Option shall be five years and the vested portion of the Option shall remain exercisable for one year after the termination of the Executive's employment for other than cause,
death or disability. All other terms of the Option shall be as specified in the Refocus Group, Inc. Amended and Restated 1997 Stock Option Plan" 

	2.
	MISCELLANEOUS: 

        (a)   This
Second Amendment shall be governed by and construed and interpreted in accordance with the laws of the State of Texas. 

        (b)   This
Second Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and
the same Amendment. 

        (c)   Except
as expressly provided in this Second Amendment, all other terms and conditions of the Agreement shall remain in full force and effect. In the event of any
conflict between the terms of the Agreement and this Second Amendment, the terms of this Second Amendment shall control. 

 

        IN
WITNESS WHEREOF, the parties have executed this Second Amendment effective on the date and year first above written. 

	EXECUTIVE	 	REFOCUS GROUP, INC.
	

By:	

/s/  MARK A. COX      
 Mark A. Cox	
 	

/s/  TERRY A. WALTS      
 Terry A. Walts

President & Chief Executive Officer

2

QuickLinks

Exhibit 10.6.1

REFOCUS GROUP, INC. SECOND AMENDMENT TO COX EMPLOYMENT AGREEMENT

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00064-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00064-of-00352.parquet"}]]