Document:

exv10w2

Exhibit 10.2

				
	 
	 	EFiled: Jan 14 2008 3:39PM EST 

Transaction ID 18027784

Case No. Multi-case
	 	

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

	 	 	 	 	 	 	 
	R2 INVESTMENTS, LDC,

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	Plaintiff,

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	v.

	 	 	)	 	 	Case No. 1862-VCS
	 

	 	 	)	 	 	 
	CARL C. ICAHN, CARL J. GRIVNER, VINCENT

	 	 	)	 	 	 
	J. INTRIERI, JON F. WEBER, KEITH MEISTER,

	 	 	)	 	 	 
	ROBERT KNAUSS, FREDRIK GRADIN, ADAM

	 	 	)	 	 	 
	DELL, CARDIFF HOLDING LLC, ELK

	 	 	)	 	 	 
	ASSOCIATES LLC, and XO COMMUNICATIONS,

	 	 	)	 	 	 
	INC., a Delaware corporation,

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	Defendants.

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	ALLEGIANCE TELECOM LIQUIDATING

	 	 	)	 	 	 
	TRUST, as successor in interest to the rights of

	 	 	)	 	 	 
	ALLEGIANCE TELECOM, INC., and its direct and

	 	 	)	 	 	 
	indirect subsidiaries,

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	Plaintiff,

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	v.

	 	 	)	 	 	 
	 

	 	 	)	 	 	Case No. 1877-VCS
	CARL C. ICAHN, CARL J. GRIVNER, VINCENT

	 	 	)	 	 	 
	J. INTRIERI, JON F. WEBER, KEITH MEISTER,

	 	 	)	 	 	 
	ROBERT KNAUSS, FREDRIK GRADIN, ADAM

	 	 	)	 	 	 
	DELL, CARDIFF HOLDING LLC, ELK

	 	 	)	 	 	 
	ASSOCIATES LLC, and XO COMMUNICATIONS,

	 	 	)	 	 	 
	INC., a Delaware corporation,

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	Defendants.

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	 

	 	 	)	 	 	 

 

	 	 	 	 	 	 	 
	DONALD J. HILLENMEYER, JR.,

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	Plaintiff,

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	v.

	 	 	)	 	 	Case No. 1880-VCS
	 

	 	 	)	 	 	 
	CARL C. ICAHN, CARL J. GRIVNER, VINCENT

	 	 	)	 	 	 
	J. INTRIERI, JON F. WEBER, KEITH MEISTER,

	 	 	)	 	 	 
	ROBERT KNAUSS, FREDRIK GRADIN, ADAM

	 	 	)	 	 	 
	DELL, CARDIFF HOLDING LLC, ELK

	 	 	)	 	 	 
	ASSOCIATES LLC, and XO COMMUNICATIONS,

	 	 	)	 	 	 
	INC., a Delaware corporation,

	 	 	)	 	 	 
	 
	 	 	)	 	 	 
	Defendants.

	 	 	)	 	 	 

STIPULATION AND AGREEMENT OF

COMPROMISE, SETTLEMENT AND RELEASE

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

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“Company”)1, have entered into the following Stipulation and Agreement of Compromise,
Settlement and Release (the “Stipulation” or “Settlement Agreement”), subject to the approval of
the Court of Chancery of the State of Delaware:

RECITALS

     WHEREAS:

     A. On April 22, 2005, the Board of Directors (the “Board”) of XO formed a
special committee (the “Special Committee”) to consider, review, negotiate and make
recommendations to the full Board concerning the terms and conditions of a potential
financing or sale of the Company’s competitive local exchange carrier (“CLEC” or
“Wireline”) assets or other potential strategic alternatives for the Company. The Special
Committee was composed of XO directors Robert Knauss, Fredrik Gradin and Adam
Dell. The Board authorized the Special Committee to retain independent counsel, an
independent financial advisor, and other independent advisors as the Special Committee
deemed necessary. The Special Committee engaged Greenberg Traurig, LLP as its
independent legal advisor, and relied on the advice of financial advisor Jefferies & Co.,
Inc. (“Jefferies”), which also advised the Company.

     B. The Special Committee reviewed financing proposals and bids for the
wireline assets over a period of several months, and ultimately recommended to the full
Board the sale of XO’s national wireline telecommunications business to Elk Associates
LLC (“Elk”), an entity owned by Carl Icahn, the Chairman of XO’s Board and XO’s

 

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

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controlling stockholder. On November 4, 2005, the Company and Elk entered into an Equity Purchase
Agreement (the “EPA”) that provided for the sale of the Company’s wireline business through the
sale of all of the outstanding LLC interests in XO Communications, LLC, a newly-formed wholly owned
subsidiary of the Company, to Elk for an aggregate price of $700 million (the “Wireline Sale”).

     C. Following the closing of the Wireline Sale, which was expected to occur in
the second quarter of 2006, the Company was to retain its fixed broadband wireless
spectrum assets. The Company was to use the proceeds from the proposed Wireline
Sale to repay its outstanding long-term debt, under which an Icahn-related entity is
the primary lender, to offer to redeem upon the closing of the Wireline Sale the
Company’s outstanding preferred stock, 95% of which is held by an Icahn-related entity,
and to fund the growth and development of the wireless business. The Company
believed that upon consummation of the Wireline Sale, its wireless business, which had
previously generated virtually no revenue, would be debt-free and would have in
excess of $300 million in cash to fund its operations and for other corporate
purposes.

     D. On November 28, 2005, R2, which at the time was the beneficial owner of
more than 4.1 million shares of XO common stock, served a demand on the Company
pursuant to Section 220 of the Delaware General Corporation Law (“GCL”) seeking
copies of certain books and records relating to the Wireline Sale. Shortly thereafter,
similar demands were served by Allegiance, which then beneficially held approximately
24.9% of the Company’s outstanding common stock, and Hillenmeyer, an individual

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shareholder who held, and continues to hold, shares of the Company’s outstanding common stock
(R2’s, Allegiance’s and Hillenmeyer’s demands pursuant to Section 220 of the GCL are collectively
referred to as the “220 Demands”).

     E. R2 and Allegiance then filed complaints against the Company relating to
their demands for books and records on December 9, 2005 and December 21, 2005,
respectively (together with the 220 Demands, the “220 Actions”). The Company
responded to these lawsuits by agreeing to produce certain books and records relating to
the Wireline Sale, including minutes of the meetings of the Wireline Special Committee
and the Board and materials prepared by Jefferies. The Company produced the same
documents to Hillenmeyer in response to his request.

     F. On December 29, 2005, R2 filed a complaint captioned R2 Investments v.
Carl C. Icahn, et al. C.A. No. 1862-VCS in the Delaware Court of Chancery against the
Company, its directors and certain affiliates of Mr. Icahn, including Cardiff and Elk. A
substantially similar complaint, captioned Allegiance Telecom Liquidating Trust v. Carl
C. Icahn, et al., C.A. No. 1877-VCS, was filed by Allegiance on January 9, 2006.

     G. The R2 and Allegiance complaints sought to enjoin the Company’s sale of
its Wireline Business to Elk. The complaints alleged, among other things, that Icahn,
Cardiff, and the director defendants breached their fiduciary duties of care, good faith and
loyalty by permitting Icahn to engage in a self-dealing scheme that allowed him to
acquire all of the Company’s operating assets at an unfairly low price, and obtain
prepayment of his Company debt and redemption of his preferred stock. Both R2 and
Allegiance sought a preliminary injunction and expedited discovery.

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

     I. The
Court of Chancery scheduled a hearing for May 11, 2006 on Plaintiffs’ motion to
enjoin the Wireline Sale, and the three actions were coordinated for purposes of discovery in
connection with the hearing. After the production of hundreds of thousands of pages of documents by
Defendants and third parties in response

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to Plaintiffs’ requests, on March 22, 2006, Plaintiffs deposed Robert Knauss, the Chairman of the
Special Committee, and on March 23, 2006, Plaintiffs deposed Adam Dell of the Special Committee.

     J. On March 29, 2006, counsel to the Special Committee notified the Court that the
parties to the EPA authorized and directed the Company to terminate the EPA. Following a
teleconference with the Court on March 29, 2006 and additional communications with Plaintiffs’
counsel, XO and Elk mutually terminated the EPA on March 30, 2006, thus mooting certain of
Plaintiffs’ Wireline claims then pending in the Actions.

     K. Plaintiffs assert that XO and Elk terminated the EPA as a result of (i) information
revealed through document discovery and depositions of two of the three members of the Special
Committee, which Plaintiffs believe indicated, among other things, that the Special Committee
played only a limited role in the sales process, and that the process was in fact dominated by
Icahn, and (ii) the prospect of additional expedited document and deposition discovery that was
then pending.

     L. Defendants dispute those assertions, including Plaintiffs’ contentions regarding the
roles played by the Special Committee and Icahn in the sales process. Defendants assert that the
EPA was terminated as a result of communications between XO and Elk in which Elk notified XO that
(i) Elk believed that the litigation challenging the Wireline Sale would not end by July 3, 2006,
the date on which Elk would have the right to terminate the Equity Purchase Agreement, (ii) Elk
would exercise its termination right on that date, and (iii) Elk was willing to mutually terminate
the EPA without

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seeking any damages or a break-up fee in order to avoid further distractions to the Company.

     M. On March 31, 2006, the Company’s stock rose from $2.72 per share to $3.95 per share,
increasing the Company’s market capitalization by approximately $224 million. Plaintiffs assert
that this price change and increase in market capitalization was caused by termination of the EPA.
Defendants dispute this assertion and the relevance of the increase in stock price and market
capitalization to the termination of the EPA.

     N. On May 24, 2006, the Company filed its proxy statement for its 2006 annual meeting
with the Securities and Exchange Commission. The proxy statement asked that, in addition to the
election of directors, XO’s stockholders vote to approve a proposal to amend XO, LLC’s limited
liability company agreement.

     O. On June 1, 2006, Plaintiffs filed a motion for leave to file a consolidated amended
complaint and sought to enjoin the vote on the proposed LLC agreement amendment. In their proposed
consolidated amended complaint, Plaintiffs alleged, among other things, that the proposed
amendments of the XO, LLC agreement would permit, and were designed to permit, Mr. Icahn to
complete the Wireline Sale or an equivalent transaction without advance notice to — and a vote of —
the minority shareholders of XO.

     P. On June 5, 2006, counsel for the Company informed the Court that the Company
considered the proposed amendment to the XO, LLC Agreement to be administrative in nature and
denied that the amendment would have the effect asserted by Plaintiffs given existing restrictions
under Delaware law. Nevertheless, counsel

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for the Company advised the Court that the proposed amendment had been withdrawn and removed from
any consideration at XO’s June 21, 2006 annual meeting. The Company asserted that the amendment’s
withdrawal was based not on any substantive concern about Plaintiffs’ challenge to it, but rather
to avoid the costs and distraction of an expedited preliminary injunction proceeding.

     Q. On June 29, 2006, Plaintiffs filed under seal a consolidated amended complaint (the
“Consolidated Amended Complaint”), derivatively on behalf of the Company, in the Delaware Court of
Chancery. A public version of the Consolidated Amended Complaint was filed on July 28, 2006. The
Consolidated Amended Complaint realleges breaches of fiduciary duty and corporate waste in
connection with the proposed Wireline Sale and seeks, on behalf of the Company, (1) damages in the
amount of professional fees and expenses incurred in connection with the proposed Wireline Sale and
allegedly resultant lost business and business opportunities, and (2) rescission of a voluntary
prepayment of $100 million of amounts outstanding under the Company’s senior secured credit
agreement, under which an Icahn-related entity is the primary lender.

     R. On February 27, 2007, Allegiance filed a Stipulation and Order voluntarily dismissing
its action with prejudice as a result of Allegiance’s sale of all of its XO common stock. The
Stipulation and Order allows Allegiance to seek an award of attorneys’ fees, subject to Defendants’
right to oppose any such application for attorneys’ fees. The remaining parties began discovery and
the process of negotiating a scheduling stipulation and order.

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     S. On June 1, 2007, to facilitate settlement discussions, the Court of Chancery entered a
stay of the pending Actions, including a stay of the deadline to file fee applications for any
mooted causes of action. On September 24, 2007, the Court of Chancery extended the stay until
October 29, 2007.

     T. On October 9, 2007, Allegiance filed a motion with the Court of Chancery requesting
its attorneys’ fees and expenses in connection with the mooted Wireline claims (the “Fee
Application”). Allegiance’s Fee Application asserted, among other things, that an aggregate benefit
of at least $224 million was conferred upon the Company as a result of Plaintiffs’ actions.

     U. On October 29, 2007, the Parties reached an agreement in principle to settle the
litigation, including Allegiance’s Fee Application, subject to entering into this Settlement
Agreement and its approval by the Court of Chancery.

     V. Plaintiffs believe that the claims asserted in the Actions have merit, and that their
attorneys are entitled to reasonable attorneys’ fees and litigation expenses in connection with the
mooted claims asserted therein, on the ground that their litigation efforts benefited XO and its
shareholders and caused the termination of the EPA, which mooted certain of Plaintiffs’ Wireline
claims then pending in the Actions. Plaintiffs and Plaintiffs’ Counsel, however, recognize the
burden and expense of continued prosecution of the Actions, the inherent uncertainty and risk of
litigation, and the benefit of resolving the Actions with mutual releases as provided below.

     W. Defendants deny all allegations of wrongdoing or liability with respect to all claims,
events and transactions complained of in the Actions, and also deny that they

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are liable to Plaintiffs for attorneys’ fees and expenses. Defendants and Defendants’ counsel,
however, recognize the burden and expense of continued defense of the Actions, the inherent
uncertainty and risk of litigation, and the benefit of resolving the Actions with mutual releases
as provided below.

     X. Plaintiffs and Defendants have agreed to the compromise and settlement of the Actions
as provided for herein (the “Settlement”) to avoid the burden and expense of continued litigation
of the Actions, and to compromise and settle those claims that have been asserted, or that could
have been asserted, in the Actions.

     Y. Plaintiffs and Defendants believe that the terms and conditions of the Stipulation are
fair, reasonable, adequate and proper and acknowledge that the Settlement is a result of
arm’s-length negotiations. The XO Board has determined that the Settlement is in the best interests
of the Company and its shareholders.

          NOW,
THEREFORE, in consideration of the full settlement, satisfaction and compromise of the
Actions as against the Defendant Released Parties (as defined herein), it is hereby stipulated and
agreed that the Actions and all Settled Claims (as defined herein) are settled and compromised for
the consideration described herein as against the Defendant Released Parties, and that the Actions
shall be dismissed with prejudice and without costs (except as provided herein and as the Court may
award) as against the Defendant Released Parties, subject to the approval of the Court pursuant to
Rule 23.1, on the following terms and conditions:

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SETTLEMENT TERMS

     As consideration for this Settlement Agreement, the Parties agree to the following:

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

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

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

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     3. Upon the Court’s approval of the Settlement, including any modification made with the
consent of the Parties, the Parties shall jointly request the Court to enter a Final Judgment and
Order, substantially in the form attached hereto as Exhibit B (the “Final Judgment and Order”).

     4. The effective date (the “Effective Date”) of the Settlement proposed by this Stipulation
shall be the day upon which the Final Judgment and Order dismissing all claims against Defendants
becomes final and is no longer subject to appeal or reargument, by lapse of time or otherwise.

     5. The Company shall mail the Notice in the form attached hereto as Exhibit C in accordance
with the Scheduling Order and pay the costs and expenses incurred in providing such Notice to its
stockholders. Plaintiffs shall not be responsible for any such costs, regardless of whether the
Settlement is approved. At or prior to the hearing on the proposed Settlement, the Company will
file with the Court an appropriate affidavit attesting to the mailing of the notice.

     6. Except as provided in this Stipulation with respect to the Company, Defendants shall bear
no other expenses, costs, damages, or fees incurred by Plaintiffs or any present or former
stockholder of XO, or by any attorney, expert, advisor agent or representative of any of the
foregoing persons in the 220 Actions or the Actions.

     7. Upon the Court’s approval of the Settlement, any and all past, present or future claims,
actions, rights, damages, losses, equities, obligations, duties, causes of action, suits, demands,
costs, expenses, matters and issues, whether known or unknown, contingent or absolute, accrued or
unaccrued, apparent or unapparent (“Claims”), that

13

 

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

14

 

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

     8. Upon the Court’s approval of the Settlement, any and all Claims, that have been, or
could have been asserted by Defendants, Defendants’ trustees, beneficiaries, agents,
representatives, or any other person acting or purporting to act on behalf of any Defendant
individually (collectively, the “Defendant Releasing Parties”), against Plaintiffs (or any one of
them) and/or any of their respective families, parent entities,

15

 

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

16

 

(collectively, “Debtors”) pending before the United States Bankruptcy Court for the
Southern District of New York (the “Bankruptcy Court”), Case No. 03-13057 (RDD)
(jointly administered), or (3) based upon, arising out of, or in any way relating to
Debtors’ plan of reorganization, the liquidating trust agreement of the Allegiance
Telecom Liquidating Trust, and related agreements, orders, and other documents.

     9. As set forth in paragraphs 7 and 8 above, it is the intention of the Parties to
extinguish the Settled Claims. Consistent with such intention, the Plaintiff Releasing
Parties and the Defendant Releasing Parties agree that in the event that a court might
deem laws that are applicable to general releases to be applicable to the releases set forth
in paragraphs 7 and 8 above (the “Releases”), including Section 1542 of the California
Civil Code, or any other similar state law, federal law or principle of common law, the
Parties waive any and all rights, to the extent permitted by law, under Section 1542 of the
California Civil Code, or such other similar state law, federal law or principle of common
law which may have the effect of limiting the Releases. Section 1542 of the California
Code provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER
MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

The Parties, however, do not concede that any law, other than the law of the State of
Delaware, is applicable to the Settlement or the Settled Claims, nor do the Parties
maintain that general releases are being given pursuant to this Agreement. The Plaintiff
Releasing Parties and the Defendant Releasing Parties acknowledge that they may

17

 

discover facts in addition to or different from those that they now know or believe to be true with
respect to the subject matter of the Actions, but that it is their intention to fully, finally, and
forever settle and release any and all Settled Claims without regard to any such additional or
different facts.

     10. Neither this Stipulation nor any of the negotiations, statements, transactions or
proceedings in connection with this Settlement shall constitute or be construed as an admission or
concession by any of the Defendants of any fault, wrongdoing or liability whatsoever, or as an
admission that Plaintiffs, the Company or any shareholder of the Company has suffered any damages,
or as an admission by Plaintiffs of any lack of merit of their claims. Neither this Stipulation nor
any of the negotiations, statements, transactions, or proceedings in connection with this
Settlement shall be deemed, offered or received in evidence in any civil, criminal, administrative
or other proceeding, or used in any manner whatsoever, including as a presumption, a concession, or
an admission of any fault, wrongdoing, or liability whatsoever on the part of any Defendant;
provided, however, that nothing contained in this Stipulation shall prevent this Stipulation (or
any agreement or order relating thereto) from being used, offered, or received in evidence in any
proceeding to approve, enforce, or otherwise effectuate the Settlement (or any agreement or order
relating thereto) and, provided further, that the Plaintiff Released Parties, the Defendant
Released Parties, and any of their respective predecessors or successors-in-interest, may file and
use this Stipulation and the Final Judgment and Order and all documents relating thereto in any
action to support a defense of res judicata,

18

 

collateral estoppel, release, good faith settlement, judgment bar, reduction or any other theory of
claim preclusion, issue preclusion or similar defense.

     11. By signing this Stipulation, Plaintiffs’ Counsel represent and warrant that Plaintiffs
(other than Allegiance) currently hold shares of the Company stock and have held such shares
continuously since prior to the filing of the original complaints in the Actions and none of their
claims or causes of action have been assigned, encumbered or in any manner transferred in whole or
in part.

     12. If the Court does not approve the Settlement or the order approving the Settlement is
reversed, vacated or modified on appeal, then: (a) this Stipulation shall become null and void for
all purposes, and all negotiations, transactions and proceedings connected with it (i) shall be
without prejudice to the rights of any party to assert any claim or defense in the Actions, (ii)
shall not be deemed or construed as evidence or an admission by any party of any fact, matter or
thing and (iii) shall not be admissible in evidence or used in any subsequent proceedings in the
Actions or any other action or proceeding; and (b) no party shall be entitled to reimbursement from
any other party for notification costs.

     13. Subject to the approval of the Settlement, Plaintiffs’ Counsel will apply to the Court for
an award of attorneys’ fees and reimbursement of expenses not to exceed, in the aggregate, $8
million. Plaintiffs’ application shall allocate their respective fees and expenses such that
neither Allegiance’s nor R2’s portion of the fee award will exceed the amount of professional fees
and expenses actually incurred in connection with the mooted Claims relating to the Wireline Sale,
EPA and any other mooted matters.

19

 

Defendants will not oppose the amount of such fees and expenses, and the Company shall pay such
attorneys’ fees and expenses within that limit as are approved and ordered by the Court, within ten
(10) business days after the Effective Date, as directed by Plaintiffs’ counsel, unless the Court
orders otherwise. None of Defendants shall bear any expenses, costs, fees or payments of any kind
whatsoever except as expressly set forth in this Stipulation with respect to the Company.

     14. The obligations of Defendants under this Stipulation, other than the
Company’s obligation to pay costs incurred with providing notice to the Company’s
shareholders of the proposed Settlement, are conditioned upon the entry of the Final
Judgment and Order and all transactions preparatory or incident thereto.

     15. Within thirty (30) days after payment of any attorneys’ fees awarded by the Court,
Plaintiffs’ Counsel shall destroy or return to Defendants’ counsel all confidential material
produced or otherwise transmitted to Plaintiffs or their counsel by any defendant in the Actions
and all documents containing information or material derived from those confidential materials,
excluding any pleadings filed with the Court of Chancery in the Actions, which may be maintained by
the Parties in accordance with the Stipulation and Order governing the production and exchange of
confidential information in the Actions.

     16. Disallowance by the Court of any application by Plaintiffs for the payment of attorneys’
fees and/or expenses, any appeal from any order relating thereto and any modification or reversal
on appeal of any such order shall not operate to terminate or

20

 

cancel this Stipulation or affect its terms, including the releases, or affect or delay the
finality of the judgment approving this Stipulation.

     17. This Stipulation and its Exhibits shall be deemed to have been mutually prepared by the
Parties hereto and shall not be construed against any of them by reason of authorship.

     18. This Stipulation constitutes the entire agreement among the Parties with respect to the
settlement of the Actions.

     19. This Stipulation may be amended or any of its provisions waived only by a writing executed
by all Parties hereto.

     20. Any failure by any Party to insist upon the strict performance by any other party of any
of the provisions of this Stipulation shall not be deemed a waiver of any of the provisions hereof,
and such Party, notwithstanding such failure, shall have the right thereafter to insist upon the
strict performance of any and all of the provisions of this Stipulation.

     21. This Stipulation shall be construed and enforced in accordance with the laws of the State
of Delaware, without regard to the conflicts of law provisions thereof. This Court will retain
exclusive jurisdiction to enforce, construe or challenge any provision of this Stipulation.

     22. The Parties and their attorneys agree to cooperate fully in seeking this Court’s approval
of this Stipulation and Settlement, and to use their best efforts to effect, as promptly as
practicable, the consummation of the Settlement and the dismissal of the Actions.

21

 

     23. This Stipulation may be executed in counterparts and all counterparts so executed shall
together be deemed to constitute one complete agreement, and each such counterpart shall be deemed
to be an original. Facsimile copies of this Stipulation and the signatures of the Parties hereto
shall be deemed to be originals.

     24. The Exhibits to this Stipulation constitute an integral part of this
Stipulation.

     25. This Stipulation shall be binding upon and inure to the benefit of the Parties hereto,
the Plaintiff Released Parties and Defendant Released Parties, and their respective successors and
assigns.

     26. Each of the attorneys executing this Stipulation on behalf of any party hereto warrants
and represents that he or she has been duly authorized and empowered to execute this Stipulation on
behalf of each such respective party.

          IN WITNESS WHEREOF, the Parties hereto have caused the Stipulation to be executed, by their
duly authorized attorneys dated as of January 14, 2008.

	 	 	 	 	 
	POTTER ANDERSON & CORROON LLP

 	 	 
	/s/ Matthew E. Fischer (#3092)
 	 	 
	Donald J. Wolfe, Jr. (#285) 	 	 
	Matthew E. Fischer (#3092)

Brian C. Ralston (#3770)

Hercules Plaza

1313 N. Market Street

Wilmington, DE 19801

(302) 984-6015

Attorneys for Plaintiff R2 Investments, LDC 	 	 
	 

22

 

	 	 	 	 	 
	ROSENTHAL MONHAIT & GODDESS, P.A. 

 	 	 
	/s/ Jessica Zeldin (#3558)
 	 	 
	Jessica Zeldin (#3558) 	 	 
	919 Market Street, Suite 1401

Wilmington, DE 19801

Attorneys for Plaintiff

Donald J. Hillenmeyer, Jr. 	 	 
	 
	RICHARDS LAYTON & FINGER, P.A.

 	 	 
	/s/ Thomas A. Beck (#2086)
 	 	 
	Thomas A. Beck (#2086)  	 	 
	Meredith Stewart (#4960) 

One Rodney Square

920 N. King Street

Wilmington, Delaware 19801

(302) 651-7700

Attorneys for AllegianceTelecom Liquidating

Trust (Plaintiffs in former C.A. No. 1877-VCS) 	 	 
	 
	BOUCHARD MARGULES & FRIEDLANDER, P.A.

 	 	 
	/s/
Andre G. Bouchard (#2504)
 	 	 
	Andre G. Bouchard (#2504) 	 	 
	Joel Friedlander (#3163)

222 Delaware Avenue

Suite 1400

Wilmington, DE 19801

(302) 573-3510

Attorneys for Defendants Adam Dell,

Robert Knauss, and Fredrik Gradin 	 	 

23

 

	 	 	 	 	 
	MORRIS JAMES LLP

 	 	 
	/s/ Patricia R. Uhlenbrock (#4011)
 	 	 
	Patricia R. Uhlenbrock (#4011) 	 	 
	500 Delaware Avenue, Suite 1500

P.O. Box 2306

Wilmington, DE 19899-2306

(302) 575-7232

Attorneys for Nominal Defendant XO Holdings, Inc. 	 	 
	 
	ASHBY & GEDDES

 	 	 
	/s/ Lawrence C. Ashby (#468)
 	 	 
	Lawrence C. Ashby (#468) 	 	 
	Philip Trainer, Jr. (#2788)

Richard D. Heins (#3000)

Richard L. Renck (#3893)

500 Delaware Avenue, 8th Floor

P.O. Box 1150

Wilmington, Delaware 19899

(302) 654-1888

Attorneys for Defendant Carl C. Icahn

Vincent J. Intrieri, Jon F. Weber, Keith Meister,

Cardiff Holding LLC and Elk Associates, LLC 	 	 
	 
	MORRIS, NICHOLS, ARSHT & TUNNELL LLP

 	 	 
	/s/ William M. Lafferty (#2755)
 	 	 
	William M. Lafferty (#2755)  	 	 
	R. Judson Scaggs, Jr. (#2676) 

Susan W. Waesco (#4476) 

Samuel T. Hirzel (#4415) 

1201 North Market Street 

Wilmington, DE 19801

(302) 658-9200 

Attorneys for Defendant Carl J. Grivner 	 	 
	 

24exv10w3

Exhibit 10.3

AMENDMENT NO. 2 AND WAIVER TO

AMENDED AND RESTATED

CREDIT AND GUARANTY AGREEMENT

dated as of May 9, 2008

among

XO COMMUNICATIONS, LLC

and

the GUARANTORS listed on the signature pages hereof

and

ARNOS CORP., as a Lender

and

BARBERRY CORP., as a Lender

and

HIGH RIVER LIMITED PARTNERSHIP, as a Lender

 

 

 

AMENDMENT NO. 2 AND WAIVER TO AMENDED AND RESTATED

CREDIT AND GUARANTY AGREEMENT

     This AMENDMENT NO. 2 AND WAIVER TO AMENDED AND RESTATED CREDIT AND GUARANTY AGREEMENT (this
“Amendment No. 2 and Waiver”), dated as of May 9, 2008, is made by and among XO Communications, LLC
(the “Company”), certain guarantors signatory hereto (the “Guarantors”) and Arnos Corp., Barberry
Corp. and High River Limited Partnership, each as a Lender.

WITNESSETH:

     WHEREAS, the Company (as successor-by-merger to XO Communications, Inc.), the Guarantors,
certain lenders party thereto and the administrative agent named therein (the “Administrative
Agent”) entered into an Amended and Restated Credit and Guaranty Agreement, dated as of January 16,
2003 (as amended, supplemented or otherwise modified as of the date hereof, the “Original Credit
Agreement”, as further amended by this Amendment No. 2 and Waiver and as the same may be further
amended, supplemented or otherwise modified from time to time in accordance with its terms, the
“Credit Agreement”);

     WHEREAS, pursuant to that certain Final Judgment and Order entered by the Court of Chancery of
the State of Delaware on March 31, 2008 approving the Stipulation and Agreement of Compromise,
Settlement and Release, dated as of January 14, 2008 (the “Stipulation”), providing for a global
settlement of litigation initiated by certain of the Company’s minority stockholders against the
Company and certain of its current and former directors, the parties thereto have agreed that (i)
as of the effective date of the Stipulation, the financial covenants set forth in Section 6.6 of
the Credit Agreement shall be waived through July 15, 2009, and any existing default of any
financial covenant set forth in such section shall be deemed waived and (ii) effective as of
January 1, 2008, the interest accruing on each of the Tranche A Lender’s (as such term is defined
below) Term Loan shall be reduced by one hundred fifty (150) basis points;

     WHEREAS, pursuant to Section 10.5 of the Credit Agreement, the Requisite Lenders have the
right to waive any provision of the Credit Documents or consent to any departure of any Credit
Party therefrom or may take any action contemplated in the Credit Documents and such waiver shall
be effective upon the written concurrence of the Requisite Lenders;

     WHEREAS, under Section 1.1 of the Credit Agreement, “Requisite Lenders” means one or more
Lenders having or holding Term Loan Exposure representing more than 50% of the aggregate Term Loan
Exposure of all Lenders.

     WHEREAS, the undersigned desires to waive compliance by the Company with the requirements of
Section 6.6 of the Credit Agreement on the terms and for the periods set forth herein.

     WHEREAS, the parties hereto desire to amend the Original Credit Agreement in certain respects
in accordance with Section 10.5 thereof;

 

 

     NOW, THEREFORE, in consideration of the mutual agreements herein contained and of other good
and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties
hereto agree as follows:

ARTICLE I

DEFINITIONS

     SECTION 1.1. Definitions. Except as otherwise defined in this Amendment No. 2 and
Waiver, terms defined in Section 1.1 of the Original Credit Agreement are used herein as defined
therein, with such definitions applying to terms that are used without definition in the recitals
to this Amendment No. 2 and Waiver.

ARTICLE II

WAIVER OF SECTION 6.6 OF THE CREDIT AGREEMENT

     SECTION
2.1. Effective as of April 30, 2008, the undersigned hereby waives compliance by the
Company and the Guarantors with the requirements of Section 6.6 (Financial Covenants) of the Credit
Agreement from the date hereof through July 15, 2009, and any existing default of any financial
covenant set forth in such section is hereby waived.

ARTICLE III

AMENDMENT OF THE CREDIT AGREEMENT

     SECTION 3.1. (a) Section 1.1. Section 1.1 of the Original Credit Agreement is hereby
amended by adding each of the following definitions, to be inserted in Section 1.1 in the
appropriate alphabetical order:

     “Second Amendment Effective Date” means January 1, 2008.

     “Tranche A Lenders” means each of Arnos Corp., a Nevada corporation, High River Limited
Partnership, a Delaware limited partnership and a direct assignee of Arnos Corp., and Barberry
Corp., a Delaware corporation and an indirect assignee of Arnos Corp., together with each such
Tranche A Lender’s successors and permitted assigns.

     “Tranche B Lenders” means each Lender that is not a Tranche A Lender, together with each such
Tranche B Lender’s successors and permitted assigns.

     (b) Section 2.6(a). Section 2.6(a) is hereby amended and restated in its entirety
as follows:

 

 

               “(a) Except as otherwise set forth herein, each Term Loan made or held by a Tranche A Lender
shall bear interest on the unpaid principal amount thereof from the date made through repayment
(whether by acceleration or otherwise) thereof as follows:

               (A) during the period beginning on the Closing Date and ending on the Second
Amendment Effective Date:

                    (1) if a Base Rate Loan, at the Base Rate plus 5.00%; or

                    (2) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus 6.00%; and

               (B) during the period beginning on the Second Amendment Effective Date and
ending on the Cash Pay Conversion Date:

                    (1) if a Base Rate Loan, at the Base Rate plus 3.50%; or

                    (2) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus 4.50%; and

               (C) at all times after the Cash Pay Conversion Date:

                    (1) if a Base Rate Loan, at the Base Rate plus 1.50%; or

                    (2) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus 2.50%.”

          (ii) Except as otherwise set forth herein, each Term Loan made or held by a Tranche B Lender
shall bear interest on the unpaid principal amount thereof from the date made through repayment
(whether by acceleration or otherwise) thereof as follows:

               (A) during
the period beginning on the Closing Date and ending on the Cash Pay Conversion Date:

                    (1) if a Base Rate Loan, at the Base Rate plus 5.00%; or

                    (2) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus 6.00%; and

               (B) at all times after the Cash Pay Conversion Date:

                    (1) if a Base Rate Loan, at the Base Rate plus 3.00%; or

                    (2) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus 4.00%.”

 

 

ARTICLE IV

MISCELLANEOUS

     SECTION 4.1. Miscellaneous.

          (a) From and after the date hereof, each reference in the Credit Agreement to “this
Agreement”, or any like expression referring to the Credit Agreement, shall be deemed to refer
to the Original Credit Agreement as amended by this Amendment No. 2 and Waiver. Each of
the Company and the Guarantors, by its execution and delivery of this
Amendment No. 2 and
Waiver, confirm that all of its obligations under the Original Credit Agreement, other than as
modified hereby, remain unchanged and in full force and effect.

          (b) Except as expressly provided herein, (a) the execution, delivery and performance
of this Amendment No. 2 and Waiver shall not constitute a waiver of any provision of, or
operate as a waiver of any right, power or remedy of the Administrative Agent or any Lender under the
Credit Agreement or any other Credit Document and (b) the Credit Agreement as modified and
the other Credit Documents shall remain in full force and effect and are hereby ratified and
confirmed.

          (c) The terms and provisions hereof shall inure to the benefit of and be binding on the
parties hereto and their respective successors and assigns.

          (e) This Amendment No. 2 and Waiver and the rights and obligations of the parties
hereunder shall be governed by, and shall be construed and enforced in accordance with,
the internal laws of the State of New York.

          (f) This Amendment No. 2 and Waiver may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.

     IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 2 and Waiver to
be duly executed and delivered as of the day and year first above written.

	 	 	 	 	 
	 	XO COMMUNICATIONS, LLC

 	 
	 	By:  	/s/ Gregory W. Freiberg
 	 
	 	 	Name : Gregory W. Freiberg 	 
	 	 	Title:  	  Chief Financial Officer 	 

 

 

	 	 	 	 	 
	 	ARNOS CORP., as a Lender

 	 
	 	By:  	/s/ Edward Muthner
 	 
	 	 	Name:  	Edward Muthner 	 
	 	 	Title:  	Vice President 	 

	 	 	 	 	 
	 	BARBERRY CORP., as a Lender

 	 
	 	By:  	/s/ Edward Muthner
 	 
	 	 	Name:  	Edward Muthner 	 
	 	 	Title:  	Authorized Signatory 	 
	 

	 	 	 	 	 
	 	HIGH RIVER LIMITED PARTNERSHIP, as a Lender

 	 
	 	By:  	Hopper
Investment LLC, its general partner 	 
	 
	 	 	 
	 	By:  	/s/ Edward Muthner
 	 
	 	 	Name:  	Edward Muthner 	 
	 	 	Title:  	Authorized Signatory 	 
	 

GUARANTORS:

XO Holdings, Inc.

Nextlink Wireless, Inc.

V & K Holdings, Inc.

XO Communications Services, Inc.

XO Virginia, LLC

XO Interactive, Inc.

XO International Holdings, Inc.

XO International, Inc.

XO Nevada Merger Sub, Inc.

Telecommunications of Nevada, LLC

XO Services, Inc.

XO NS Inc.

XO Asia Limited

	 	 	 	 	 
	 	 	 
	 	By:  	/s/
Gregory W. Freiberg
 	 
	 	 	Name : Gregory W. Freiberg 	 
	 	 	Title:  	Chief Financial Officer

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