Document:

exv10w8

Exhibit
10.8

XO Holdings, Inc.

2008 Annual Executive Bonus Plan

	I. 	Overview

This document describes the terms of the 2008 Annual Executive Bonus Plan for XO Holdings, Inc
and its subsidiaries (“XOH” or the “Company”). The 2008 Annual Executive Bonus Plan (the “Plan”)
rewards eligible executive officers for their contributions to the Company’s success in meeting
Corporate Goals, Functional Unit Goals and Individual Goals. This document sets forth how the
Plan works and how it is administered.

	II. 	Plan Administration

The Plan is provided by XOH at its sole discretion. The XOH Human Resources Department is
principally responsible for the Plan design, ongoing Plan administration, and support to
management in Plan communications. The Compensation Committee of the XOH Board of Directors
(“Compensation Committee”), is responsible for establishing performance metrics and determining
whether a bonus will be paid pursuant to the Plan. The Compensation Committee may, at its sole
discretion, and without prior notice, modify, change, alter or terminate the Plan or determine
whether or not a Plan bonus will be paid. No bonus payment is payable without the authorization
and final approval by the Compensation Committee.

	III. 	Bonus Period

The period over which bonuses may be earned under the Plan is XOH’s 2008 fiscal year, beginning
on January 1, 2008 and ending on December 31, 2008 (the “Bonus Period”). The performance goals
applicable to the Bonus Period will be as specified by the Compensation Committee and may vary
from year to year.

	IV. 	Eligibility Requirements

An executive officer is eligible to participate in the Plan only if all of the following criteria
are met:

	 	•	 	Designated as eligible to participate by the Compensation Committee.
	 
	 	•	 	Occupies an eligible position for a minimum of three consecutive months during the
applicable Bonus Period.
	 
	 	•	 	Renders overall satisfactory work performance.
	 
	 	•	 	On XOH’s payroll and actively employed on the date of the Plan bonus payment,
which, if applicable, will occur during the subsequent fiscal year.

An executive officer who is selected to participate in the Plan is referred to as a “participant”.

The following individuals are ineligible to participate in the Plan, except as otherwise specified

 

 

			
	 	 	 
	 
	 	 

by the Compensation Committee:

	 	•	 	Executive officers hired, rehired or moved into a bonus-eligible
position on or after October 1 of the Bonus Period.
	 
	 	•	 	Otherwise-eligible executive officers who either voluntarily or
involuntarily discontinue employment at XOH prior to the date of any
bonus payment.
	 
	 	•	 	Any person, regardless of his or her position or title, to the
extent not designated as eligible to participate by the Compensation
Committee.

	V. 	Plan Funding Level and Corporate Goals

XOH’s corporate performance will be evaluated using the following financial
metrics: EBITDA and Revenue. Other and/or additional financial metrics may be
applicable from time to time, as specified by the Compensation Committee.
Subject to Compensation Committee approval, achievement of the applicable
financial metrics will determine whether the Plan is funded and bonuses are
paid for the Bonus Period. The combination of achievement of all metrics
results in the Plan Funding Level percentage (“PFL”) specified by the
Compensation Committee. XOH reserves the right to set one or more minimum
thresholds for the Plan’s corporate financial metrics; if XOH’s actual
performance relative to these metrics does not exceed the applicable minimum
threshold(s), there will be no bonus payout with respect to the Bonus Period.
Subject to Compensation Committee approval, XOH also reserves the right to
increase the size of the bonus pool available for the Bonus Period to account
for financial performance materially exceeding the applicable target
performance levels.

	VI. 	Individual Performance Goals

(i) Unless the Compensation Committee determines otherwise, for all eligible
participants (other than the CEO) individual performance objectives will be
jointly established by each of the Plan’s participants and the CEO. Individual
goals will include various specific and measurable objectives set at the
beginning of the Bonus Period and intended to support the overall corporate
goals. The individual goals may be weighted based upon the relative
importance. Periodic assessment of each participant’s performance relative to
his or her individual performance objectives will be conducted by the CEO.

Unless the Compensation Committee determines otherwise, at the end of the Bonus
Period, the evaluation of each participant’s performance (other than the CEO)
against the pre-established performance objectives will be conducted by the
CEO. Individual performance objectives are subject to revision during a Bonus
Period to address changes in corporate priorities or objectives, as determined
by the CEO and the Compensation Committee.

(ii) For the CEO, individual performance objectives will be jointly established
by the CEO and the Compensation Committee. Individual goals will include
various specific and measurable objectives set at the beginning of the Bonus
Period and intended to support the overall corporate goals.

 

 

			
	 	 	 
	 
	 	 

Individual goals may be weighted based upon their relative importance.
Periodic assessment of the CEO’s performance relative to his or her individual
performance objectives will be conducted by the Compensation Committee.

At the end of the Bonus Period, the evaluation of the CEO’s performance against
the pre-established performance objectives will be conducted by the
Compensation Committee. Individual performance objectives are subject to
revision during a Bonus Period to address changes in corporate priorities or
objectives, as determined by the Compensation Committee.

	VII. 	Annual Bonus Target and Determination of Individual Awards

The Annual Bonus Target (“ABT”) will be a percentage of a participant’s
eligible base salary for the applicable Bonus Period. Eligible Base Salary is
defined in Section IX. Bonus targets are as specified by the Compensation
Committee; however, individual payouts may be greater than or less than the
ABT.

The bonus pool will be determined by the plan funding level linked to corporate
performance goals discussed in Section V for the Bonus Period, subject to
authorization and approval by the Compensation Committee. The Individual Award
is earned through the achievement of Individual Goals discussed in Section VI.
The Compensation Committee will determine individual bonus payouts based upon
the level of individual achievement compared to the established individual
performance objectives. Individual payouts can range from zero to more than
the ABT level after evaluating and factoring in the level of individual
performance contribution. XOH’s achievement of the specified performance
objectives for the Bonus Period does not guarantee an individual payout. Final
bonus awards require approval by XOH’s Compensation Committee. If XOH’s
financial performance does not meet or exceed any minimum thresholds
established by the Compensation Committee for the Bonus Period, the Plan will
not be funded and, unless otherwise authorized by the Compensation Committee,
no bonus will be payable to any Plan participant, irrespective of the level of
individual contribution.

	VIII. 	Computation and Disbursement of Funds

As soon as practicable after the close of the 2008 fiscal year, the Corporate
Controller shall calculate the financial performance and the proposed payout
under the Plan based upon the achievement of the financial performance
measures. The proposed payout shall be presented to the Compensation Committee
for final approval. Once approved, payment of the Financial Awards shall be
made within 30 days after completion of such approval but not later than
December 31, 2009.

	IX. 	Administration Rules and Definitions

Eligible Base Salary

Bonus award calculations will be based upon the participant’s base salary in
effect as of the end of the Bonus Period.

 

 

			
	 	 	 
	 
	 	 

A participant’s base salary shall determine before both (a) deductions for
taxes or employee benefits, and (b) deferrals of compensation pursuant to any
XOH-sponsored benefit plans. The following are exceptions:

	 	•	 	In cases of grade/target change that occur during the Bonus
Period, the base salary in effect at the end of each time period will be
used to compute the target bonus award for each respective portion of the
Bonus Period.
	 
	 	•	 	In cases of changes in work schedule, (i.e., 35 to 40 hours or
vice versa), the base salary in effect at the end of each time period
will be used to compute the annual target bonus award.

Prorated Bonus Awards

In order to be eligible to receive a bonus award for the Bonus Period, a
participant must be employed in a bonus-eligible position for a minimum of
three months during that Bonus Period, except as otherwise provided by the
Compensation Committee. A bonus payout will be based on the amount of time the
eligible participant is actively and continuously employed in a bonus eligible
position during the Bonus Period.

	 	•	 	New Hires and Rehires — Bonus award will be prorated based upon
the number of months employed during the Bonus Period. For example, a
participant initially hired on July 1st would be eligible for
50% of the annual bonus award. In the case of rehires, there is no
credit for prior service and the rehire date must occur prior to October
1st in order for the participant to be eligible under the Plan
for the Bonus Period.
	 
	 	•	 	Leaves of Absence — Time taken during a leave of absence is not
credited toward eligibility for a bonus award; therefore, awards will be
prorated for the length of time on leave of absence. Furthermore, bonus
payments are not considered earned and payable unless and until the
participant returns to work, with the exception of Military Leave. If
the leave of absence lasts nine months or more during the Bonus Period,
the participant will not have met the three-month eligibility required to
earn a bonus for that Bonus Period.
	 
	 	•	 	Promotions and Demotions — If the action results in a movement
from one bonus-eligible position to another bonus-eligible position (with
either a higher or lower bonus target) a pro-rated bonus award will be
calculated. The bonus award will be calculated separately by factoring
the time in each bonus eligible position by the corresponding bonus
target and base pay during the participant’s tenure in each position.
However, if a participant is both promoted and later demoted during the
Bonus Period, the participant’s entire bonus eligibility and bonus target
percent will be determined by the lower grade.
	 
	 	•	 	Status Change

	 	o	 	Change in employment status — The bonus award is not
payable unless the participant has occupied a bonus-eligible
position for at least three months during the Bonus Period
and meets all eligibility criteria during the last full
quarter of the
Bonus Period, i.e., from Oct 1st
through December 31st. The bonus award will be
based upon the base salary in effect at the end of the
applicable time period and the annual bonus target while in
the bonus-eligible position.

 

 

			
	 	 	 
	 
	 	 

	 	o	 	Bonus-eligible position to a non-bonus eligible position
 — The bonus award is prorated based upon the time in a
bonus-eligible position as long as the participant was in
the position for a minimum of three months during the Bonus
Period. A participant must occupy a bonus-eligible position
prior to October 1st in order to be eligible to
receive a bonus payment for the Bonus Period.
	 
	 	o	 	Non-bonus-eligible position to a bonus-eligible position
 — The bonus award will be prorated based on the time
worked, the corresponding bonus target, and the salary in
effect at the end of the period while in the bonus-eligible
position as long as the participant was in the eligible
position for a minimum of three months during the Bonus
Period. A participant must move into the bonus-eligible
position prior to October 1st in order to be
eligible to receive a bonus payment for the Bonus Period.

If pro-rated awards are granted, the awards shall be paid within 30 days
following the final approval of bonus awards for the Bonus Period, but not
later than December 31, 2009.

Termination

If a participant’s termination of employment occurs prior to the date the bonus
awards are actually paid, the participant will not be entitled to any bonus
payment for the Bonus Period during which the termination occurs, except as
otherwise provided by the Plan or directed by the Compensation Committee.
Bonuses are not considered earned until they are approved by the Compensation
Committee and are actually paid by XOH. Consequently, a participant whose
employment with the Company is voluntarily or involuntarily terminated prior to
the actual bonus payment date will be deemed ineligible for a bonus payment,
except as otherwise provided by the Plan and the Compensation Committee.

Other

In the event of a situation not covered or clarified by the Plan guidelines,
the Compensation Committee will make the final determination regarding
eligibility and bonus calculations. No bonus payments will be made under the
Plan without prior approval by the Compensation Committee. Bonus awards are
subject to any applicable FICA, federal, state and local withholding
requirements as well as pretax employee contributions to the Company’s 401(k)
plan in effect at the time of bonus payment. Employment at XOH is terminable
at will by either the Company or its employees and is for no definite period of
time. Nothing in this Plan constitutes, nor should it be construed as, a
commitment to employment for a specific duration or at all. The existence of
this Plan does not provide any employee the right to continued employment with
XOH or continued participation in any compensation or bonus plan.

No right under the Plan shall be assignable, either voluntarily or
involuntarily by the way of encumbrance, pledge, attachment, level or change of
any nature (except as may be required by state or federal law).

 

 

			
	 	 	 
	 
	 	 

Nothing in the Plan shall require the Company to segregate or set aside any
funds or other property for the purpose of paying any portion of an award. No
Participant, beneficiary or other person shall have any right, title or
interest in any amount awarded under the Plan prior to the payment of such
award to him or her.

XOH determines, at its sole discretion, whether bonuses will be paid. XOH
reserves the right to amend and/or terminate this or any other bonus, reward,
and recognition plan at any time without notice. This Plan is not a promise,
guarantee, announcement, contract or agreement that a bonus will be paid, nor
is it a contract of employment.exv10w9

Exhibit 10.9

	 	 	 	 	 
	UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF NEW YORK
	 	 	 	 
	
 

	X	 	 	 
	In re

	:	 	 	 
	 

	:	 	 	Chapter 11 Case No.
	Allegiance Telecom, Inc., et al.,

	:	 	 	03-13057 (RDD)
	 

	:	 	 	 
	Debtors.

	:	 	 	Jointly Administered
	 

	X	 	 	 

SETTLEMENT AGREEMENT AND MUTUAL RELEASE

          THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (this “Agreement”) is made this 21st day
of October 2008, among XO Holdings, Inc., V&K Holdings, Inc. (“V&K”) and their affiliates
(collectively, “XO” or “Plaintiff”), on the one hand, and Allegiance Telecom
Liquidating Trust (the “ATLT”) and Eugene I. Davis, solely in his capacity as Plan
Administrator for the ATLT (“Davis,” together with the ATLT, the “Defendants”), on
the other hand (collectively, the “Parties”).

WHEREAS:

     A. On May 14, 2003, Allegiance Telecom, Inc. (“ATI”), together with its direct and indirect
subsidiaries (collectively, the “Debtors”) filed with this Court, voluntary petitions for
relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in
the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy
Court”), styled In re Allegiance Telecom, Inc. et al., Case No. 03-13057 (RDD) (the
“Chapter 11 Cases”).

     B. On February 18, 2004, XO and the Debtors entered into a certain Asset Purchase Agreement
(the “APA”) providing for the sale of assets to XO, which APA was approved by an Order of
the Bankruptcy Court, dated February 20, 2004.

 

 

     C. On June 10, 2004, the Bankruptcy Court entered its Findings of Fact, Conclusions of Law,
and Order (the “Confirmation Order”) Confirming Debtors’ Third Amended Joint Plan of
Reorganization (the “Plan”), which became effective on June 23, 2004 (the “Plan
Effective Date”).

     D. In accordance with the terms of the Plan and the Confirmation Order, on the Plan Effective
Date, the ATLT was created. Pursuant to the Plan, Eugene I. Davis was appointed as the plan
administrator (the “Plan Administrator”) for the ATLT.

     E. The ATLT is the successor to the rights of the Debtors, and the ATLT and the Plan
Administrator have the authority to, among other things, perform the duties, exercise the powers
and assert the rights of a trustee under sections 704 and 1106 of the Bankruptcy Code.

     F. Pursuant to the Plan and a certain Liquidating Trust Agreement between the Debtors and XO,
the Plan Administrator is to be directed and overseen by a three member board of directors
(collectively, the “ATLT Board”) and pursuant to a Stipulation and Order signed on June 23,
2004 Settling Certain Disputes between Allegiance Telecom, Inc., Allegiance Telecom Company
Worldwide, the Creditors Committee1 and XO Communications, Inc. (the “ATLT/XO Plan
Stipulation”), one of the members of the ATLT Board, Mr. Robert Fischer, was designated by XO
(the “XO Designee”).

 

			
	1	 	Terms used but not defined herein shall have the meanings ascribed to them in the Plan.

2

 

     Plan Distributions

     G. The Plan provided that each Holder of an ATI Unsecured Claim could make a Cash Recovery
Election “to receive [a certain] Cash Recovery in lieu of receiving its pro rata share of the ATLT
“A” Trust Interests or ATLT “B” Trust Interests, as applicable, that would otherwise be distributed
to such Holder in accordance with ... the Plan, as applicable.”

     H. ATLT “A” Trust Interests represent the proceeds of the XO Common Stock, which the ATLT
represents and warrants were completely liquidated by the ATLT; ATLT “B” Trust Interests represent
the ATLT’s ownership of certain New STFI Common Stock, which the ATLT represents and warrants has
been fully distributed to the Holders of Allowed Claims associated with an ATLT “B” Trust Interest
recovery election, net of required reserves; and the ATLT “C” Trust Interests represent the ATLT’s
ownership of the ATLT Assets, other than the XO Common Stock and the New STFI Common Stock.

     I. The Plan provides that each Holder of an Allowed ATI Note Claim, who neither made nor was
deemed to have made the Cash Recovery Election, is to receive a pro rata distribution of, among
other things, ATLT “A” and “B” Trust Interests. In addition, each Holder of an Allowed ATI Note
Claim will receive its pro rata share of ATLT “C” Trust Interests.

     The ATLT “A” Trust Interest Distributions

     J. The initial ATLT “A” Trust Distribution payable to XO and/or V&K in respect of their ATI
Note Claims (the “XO/V&K Note Claims”) is $27,570,645.54 (the “Initial XO/V&K
Distribution”). The ATLT represents and warrants that $274,300.79 of interest accrued on the
Initial XO/V&K Distribution through September 30, 2008 (the “Initial XO/V&K Interest”) and
that the Initial XO/V&K Distribution will be held in a separate

3

 

interest bearing escrow account through the Effective Date (as defined below). Any interest accruing after September 30, 2008 will
be paid to XO on the Effective Date (the “Stub Interest”).

     K. Pursuant to authority granted to it by section 7.7 of the Plan and applicable law, the ATLT
has offset its claims against XO as well as interest thereon against the Initial XO/V&K
Distribution (the “ATLT Setoff”).

     L. As a result of the ATLT Setoff, XO has not received the Initial XO/V&K Distribution.

     The ATLT “B” Trust Interest Distributions

     M. Consistent with provisions of the Plan, on or about April 25, 2007, the ATLT made
Distributions in respect of the ATLT “B” Trust Interests to Holders of Allowed Unsecured Claims
(the “April 2007 ATLT Distribution”).

     N. On August 30, 2007, XO filed its motion to, among other things, compel the ATLT to make
required Plan Distributions, on the grounds, among others, that the April 2007 ATLT Distribution to
XO’s broker was a Cash Recovery Distribution, not a Distribution of ATLT “B” Trust Interests
representing New STFI Common Stock, contrary to the terms of the ATLT/XO Plan Stipulation, which
confirmed the Plan Distribution elections made by XO’s broker (the “XO Motion to Compel”).

     O. On February 7. 2008, the Court (a) entered an Order, overruling an objection filed by
Reorganized STFI and granting XO’s Motion for entry of a negotiated Stipulation and Order granting
the XO Motion to Compel [Docket No. 2573] (the “Motion to Approve B Trust Stipulation”) and
(b) entered a stipulation and order negotiated between XO and the

4

 

ATLT, granting the XO Motion to Compel [Docket No. 25741 (the “B Trust Stipulation”, and collectively with the Motion to
Approve B Trust Stipulation, the “February 2008 Orders”).

     P. The B Trust Stipulation, among other things, (a) held that XO and/or V&K elected to receive
ATLT Trust Interests, not a Cash Recovery, on account of their ATI Note Claims holdings and (h)
required Shared Technologies Inc. (“Reorganized STFI”) to distribute New STFI Common Stock
to XO in lieu of the Cash. Recovery previously distributed for XO’s broker.

     Q. On February 19, 2008, Reorganized STFI appealed the February 7, 2008 Orders (the “STFI
Appeal”) and filed a motion seeking a stay of the February 7, 2008 Orders pending the STFI
Appeal (the “STFI Stay Motion”). The STFI Appeal, styled Shared Technologies Inc.,
Appellant, v. Allegiance Telecom Liquidating Trust, XO Holdings, Inc. and Merrill Lynch, Pierce,
Fenner & Smith, Appellees, Case Nos. 08-CV-3050, 08-CV-3051 (LAK), is pending before the United
States District Court for the Southern District of New York.

     R. On March 25, 2008, the Bankruptcy Court entered an Order (a) denying the STFI Stay Motion,
(b) directing STFI to issue the New STFI Common Stock to XO required by the February 7, 2008
Orders, and (c) directing STFI to include a legend in such stock stating that such stock would be
subject to cancellation in the event that Reorganized STFI prevailed in the STFI Appeal (the
“Denial of STFI Stay Order”). In accordance with the Denial of STFI Stay Order and the B
Trust Stipulation, Reorganized STFI issued to XO 188.22 shares of Reorganized STFI Common Stock
(the “XO STFI Stock”).

     S. The STFI Appeal, and thus a final determination as to XO’s ownership interest in the XO
STFI Stock, remains pending.

5

 

     XO and ATLT Litigations

     T. On or about August 6, 2004, XO filed the Request of XO Communications, Inc. for Payment of
Amounts Constituting Either (1) Administrative Expenses, or (2) XO’s Cash [Docket No. 1625] (the
“Administrative Expense Motion”).

     U. On November 24, 2004, the ATLT filed its (A) Amended Objection to Request of XO
Communications, Inc., for Payment of Amounts Constituting Either (1) Administrative Expenses, or
(2) XO’s Cash and (B) Motion for Payment of Amounts Owed Under Asset Purchase Agreement and Related
Transaction Documents [Docket No. 1936] (the “Objection to Administrative Expense Motion,”
together with the Administrative Expense Motion and the related trial and other litigation
proceedings, the “Chapter 11 Litigation”).

     V. This Court held a trial (the “Trial”) with respect to the Administrative Expense
Motion and the ATLT’s objection and counterclaim thereto, which Trial commenced on May 2, 2005 and
concluded on May 5, 2005.

     W. On February 2, 2007, the Bankruptcy Court entered its (i) Corrected Memorandum of Decision
on XO’s Motion for Payment of Administrative Expenses or XO’s Claimed Cash and Related Disputes
Pertaining to Asset Purchase Agreement [Docket No. 2419], In re Allegiance Telecom, Inc., 356 B.R.
93 (Bankr. S.D.N.Y. 2006) (the “Corrected Memorandum Decision”), and (ii) Corrected Order
Pursuant to Memorandum of Decision on XO’s Motion for Payment of Administrative Expenses or XO’s
Claimed Cash and Related Disputes Pertaining to Asset Purchase Agreement [Docket No. 2420] (the
“2007 Litigation Order”).

     X. Pursuant to the 2007 Litigation Order, the Court stayed the Chapter 11 Litigation with
respect to certain disputes, and the Parties commenced an accounting

6

 

proceeding (the “Accounting Proceeding”) before Alvarez & Marsal Dispute Analysis & Forensic Services, Inc.
(the “Accounting Referee”) to resolve such disputes on June 12, 2007, which proceeding
remains pending.

     Y. On or around August 31, 2007, XO also commenced an adversary proceeding against the
Defendants pending in the Bankruptcy Court captioned, as subsequently amended, XO Holdings, Inc. v.
Allegiance Telecom Liquidating Trust and Eugene I. Davis, solely in his capacity as trustee or
“Plan Administrator” for the Trust, Index No. 07-02002 (RDD) (the “Adversary Proceeding”)
with respect to certain other disputes.

     Z. The Parties, without acknowledging the existence of any liability in the Chapter 11
Litigation, Accounting Proceeding, Adversary Proceeding (collectively, the “Litigations”),
or the Chapter 11 Cases (collectively, with the Litigations, the “Allegiance Proceedings”),
desire to settle and compromise their differences and avoid the expense and inconvenience of
further litigation in the Allegiance Proceedings pursuant to the terms set forth herein.

          NOW, THEREFORE, in consideration of the promises and covenants contained herein, and other
good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged,
the Parties agree as follows:

7

 

ARTICLE I

PAYMENTS AND XO STFI STOCK REPURCHASE

     A. Payment Of ATLT “A” Trust Interest Distribution. The ATLT shall pay to XO
$27,844,946.33 in full satisfaction of the Initial XO/V&K Distribution and the Initial XO/V&K
Distribution Interest (the “A Trust Interest Distribution Payment”).

     B. Payment of Remaining Plan Distributions. The ATLT expects, concurrently with the
Effective Date, to make cash Distributions to the Debtors’ Allowed Unsecured Claim Holders. The
ATLT expects that XO will be entitled to a Distribution of $13,506,764.57, representing the
approximate Distribution payable to XO and/or V&K in respect of their Claims, (i) without any
reduction in such Distribution arising as a result of the ATLT “A” Trust Interest assets necessary
to fund the ATLT’s repurchase of the XO STFI Stock further described in Article I.C., and (ii) net
of required reserves (the “Remaining Trust Distribution Payments,” together with the A
Trust Interest Distribution Payment, the “ATLT Settlement Distribution Payments”). With
respect to XO’s and/or V&K’s Claims, XO and/or V&K shall continue to participate on a pro-rata
basis in any future distributions by the ATLT to Allowed Claim Holders of any kind or character in
respect of the ATLT “A” Trust Interest and ATLT “C” Trust Interests associated with XO’s Allowed
Claims, provided, however, that XO shall not receive any Distribution of any of the
Reorganized STFI Common Stock purchased by the ATLT from XO and/or V&K pursuant to Article I.C.,
below. The ATLT hereby represents and warrants that the ATLT Settlement Distribution Payments have
been calculated in the same fashion as all other Plan Distributions to Allowed Claim Holders. For
the avoidance of doubt, the ATLT shall no longer be required to maintain any reserves in respect of
XO’s and/or V&K’s Claims, whether in the Disputed Claims Reserve or otherwise.

8

 

     C. ATLT’s Repurchase of the XO STFI Stock. In order to facilitate the
repurchase of the XO STFI Stock and redistribution of such stock to Allowed Unsecured Claim Holders
that elected ATLT “A” Trust Interest recoveries: (a) the ATLT shall repurchase all of the XO STFI
Stock in exchange for a payment of $18,942,785.48 (the “ATLT Repurchase Payment”); (b) the
ATLT shall redistribute the XO STFI Stock, pro rata, to each beneficial Holder of an Allowed
Unsecured Claim, other than XO and/or V&K, that elected to receive ATLT “A” Trust Interests in lieu
of the Cash Recovery (“A Trust Electors”), as (x) determined in accordance with the (i)
Order Granting Motion of the Allegiance Telecom Liquidating Trust for an Order Setting Distribution
Record Date and Authorizing Procedures for Distributions to Certain Holders of Allowed ATI Note
Claims, entered October 16, 2007 [Docket No. 2536] and (ii) Final. Order Granting Motion of the
Allegiance Telecom Liquidating Trust for an Order Setting Distribution Record Date and Authorizing
Procedures for Distributions to Certain Holders of Allowed ATI Note Claims, entered November 16,
2007 [Docket No. 2547] and (y) updated by the ATLT in accordance with instructions received from
such A Trust Electors and reconciled by the ATLT, provided, however, that A Trust
Electors entitled to less than one full share of the XO STFI Stock will receive cash in lieu of
their pro rata XO STFI Stock at a value equivalent to the value paid to XO for the XO STFI Stock;
(c) XO shall interpose no objection to any of the foregoing and will use its reasonable efforts to
cooperate with the ATLT in effecting any and all actions necessary to effect the foregoing
repurchase, including, without limitation, upon delivery to XO of the ATLT Net Settlement Payment,
delivering to the ATLT stock certificates representing such XO STFI Stock, together with stock
powers endorsed in blank within four (4) business days of the Effective Date; and (d) Reorganized
STFI shall execute and file a

9

 

stipulation of dismissal of the STFI Appeal pursuant to the terms and
conditions in Article II.B, below.

     D. Litigation Settlement Payments.

          1. XO shall pay to the ATLT $2,897,591.77 (the “XO Litigation Settlement
Payment”), which amount includes pre-judgment interest, and also includes the amount of
certain tax refunds (the “Tax Refunds”), in full satisfaction of all of the Parties’
respective claims and counterclaims in any and all of the Litigations.

          2. Certain refund checks (“Tax Refund Checks”) from the United States Treasury and
various state taxing authorities were issued in the name of ATI and certain of its subsidiaries.
The ATLT shall use its reasonable efforts, and shall take all reasonably necessary actions and sign
all relevant documents, to request such taxing authorities to reissue the Tax Refund Checks in XO’s
name in the aggregate amount of $558,605, or if that cannot be accomplished, in the name of the
original payee (or its successor). If the ATLT receives any reissued Tax Refund Check, it will
promptly assign such check to XO.

     E. Timing of the Settlement Payments. Within four (4) business days after the Approval
Order entered by the Bankruptcy Court has become a Final Order, the ATLT shall make a payment to XO
in the amount of the Stub Interest, plus $57,396,904.61 (the “ATLT Net Settlement
Payment”), which amount represents the sum of the amount of the (a) ATLT Settlement
Distribution Payments and (b) ATLT Repurchase Payment, less (c) the amount of the XO Litigation
Settlement Payment.

10

 

ARTICLE II

RELEASES AND TERMINATION OF LITIGATION

     A. Stipulations of Discontinuance. Within four (4) business days of the Effective Date
(as defined below) of this Agreement:

          1. The Parties shall, through their attorneys, execute and file with the Clerk of the United
States Bankruptcy Court for the Southern District of New York a Stipulation of Dismissal with
Prejudice and Without Costs of the Adversary Proceeding, in the form attached as Exhibit
A, by which the Adversary Proceeding, including all the claims and counterclaims filed by the
Parties, shall be dismissed with prejudice and without cost.

          2. The Parties shall, through their attorneys, jointly notify in writing the Accounting
Referee that the Parties have discontinued the Accounting Proceeding.

     B. Dismissal of STFI Appeal. Within four (4) business days of the Effective Date of
this Agreement, the parties to the STFI Appeal, through their attorneys, execute and file with the
Clerk of the United States District Court for the Southern District of New York a Stipulation of
Dismissal of the Appeal with Prejudice and Without Costs, in the form attached as Exhibit
B, by which the STFI Appeal shall be dismissed with prejudice and without cost.

     C. Mutual Releases. Upon the Effective Date of this Agreement:

          1. Plaintiff, on behalf of itself and each and all of its past and present heirs, success
predecessors, assigns, affiliates, officers, directors, employees, shareholders, partners, members,
managers, proprietors, advisors, attorneys, representatives and agents, and Mr. Robert Fischer
(collectively, the “XO Entities”), hereby release, acquit and forever discharge Defendants
and Reorganized STFI and each and all of their respective past and present heirs, successors,
predecessors, assigns, affiliates, officers, directors, employees,

11

 

shareholders, partners, members, managers, proprietors, advisors, attorneys, representatives and
agents, whether in their official or individual capacities, or otherwise (collectively, the
“ATLT Releasees”) from any and all claims, including, without limitation, any Claims, as
defined under the Plan, counterclaims, demands, causes of actions, liabilities, contracts,
agreements, promises, obligations or defenses of any kind whatsoever, whether based on tort,
contract, or any other theory of recovery, and whether for general, special, compensatory, punitive
or any other damages, whether asserted or unasserted, direct or indirect, derivative, known or
unknown, now arising or which hereafter may arise, based in full or in part, on any matter, fact or
thing, occurring from the beginning of time to the date hereof, which any of the XO Entities have
or may have against any or all of the ATLT Releasees, for any reason whatsoever, arising from or in
any way related to the APA, the Plan, the Liquidating Trust Agreement or any of the Allegiance
Proceedings, and further agrees that this Agreement may be pleaded and shall serve as a full
defense to any action, suit or other proceeding covered by the terms of this Agreement which is or
may be initiated, prosecuted or maintained, provided, however, that the foregoing
releases shall not limit XO’s rights under this Agreement or to continuing Plan Distributions, if
any, set forth in Article I.B., above.

          2. Defendants and Reorganized STFI, on behalf of themselves and each and all of their
respective past and present heirs, successors, predecessors, assigns, affiliates, officers,
directors, employees, shareholders, partners, members, managers, proprietors, advisors, attorneys,
representatives and agents (collectively, the “ATLT Entities”) hereby release, acquit and
forever discharge each and all of the XO Entities, whether in their official or individual
capacities, or otherwise (the “XO Releasees”) from any and all claims, including, without
limitation, any Claims, as defined under the Plan, counterclaims, demands,

12

 

causes of actions, liabilities, contracts, agreements, promises, obligations or defenses of
any kind whatsoever, whether based on tort, contract, or any other theory of recovery, and whether
for general, special, compensatory, punitive or any other damages, whether asserted or unasserted,
direct or indirect, derivative, known or unknown, now arising or which hereafter may arise, based
in full or in part, on any matter, fact or thing, occurring from the beginning of time to the date
hereof, which any of the ATLT Entities have or may have against any or all of the XO Releasees for
any reason whatsoever, arising from or in any way related to the APA, the Plan, the Liquidating
Trust Agreement or any of the Allegiance Proceedings, and further agrees that this Agreement may be
pleaded and shall serve as a full defense to any action, suit or other proceeding covered by the
terms of this Agreement which is or may be initiated, prosecuted or maintained, provided,
however, that the foregoing releases shall not limit the ATLT’s or Reorganized STFI’s
rights under this Agreement.

          3 The XO Entities and the ATLT Entities expressly waive any right and/or benefit conferred
upon them by Section 1542 of the California Civil Code with respect to the claims being released by
this Agreement, and expressly consent that this Agreement shall be given full force and effect
according to all of its terms, including those terms relating to unknown and unsuspected claims, if
any, as well as those terms relating to any other claims. Section 1542 provides:

A GENERAL RELEASE DOES NOT EXTEND TO THE 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 SETTLEMENT WITH THE DEBTOR.

13

 

ARTICLE III

REMOVAL OF XO DESIGNEE FROM ATLT BOARD

          Removal of XO Designee from ATLT Board. Upon the Effective Date, and without any
further action by any of the Parties or Mr. Robert Fischer, (a) Mr. Robert Fischer shall be deemed
to vote to amend the requirement contained in section 2.02 of the Liquidating Trust Agreement that
three directors serve on the ATLT Board, such that the ATLT Board will be comprised of only two
directors for the remaining duration of the ATLT and (b) Mr. Robert Fischer shall be deemed to have
resigned from the ATLT Board, and XO shall no longer have any right to an XO Designee to the ATLT
Board, as previously provided by the ATLT/XO Plan Stipulation.

ARTICLE IV

APPROVAL

     A. Subject to the provisions of section (C) below, this Agreement is contingent upon (a) the
entry of a Final Order of the Bankruptcy Court approving this Agreement, in substantially the form
attached hereto as Exhibit C, with only such modifications as are approved by the Parties in their
sole discretion (the “Approval Order”), and (b) the occurrence of the Effective Date as
such term is defined immediately below in Section B. For purposes of this Agreement, the term
“Final Order” shall mean an order that has not been stayed, reversed, amended or vacated,
and as to which no appeal or petition for review, reconsideration, rehearing or certiorari has been
taken by the deadline therefor or, if taken, remains pending.

     B. The “Effective Date” of this Agreement shall be the date of the first business day
on which the following conditions have been and remain satisfied:

          1. the Approval Order has become a Final Order; and

14

 

          2. the ATLT Net Settlement Payment has been received by XO.

     C. Within ten (10) business days after the execution of this Agreement, the ATLT shall file in
the Bankruptcy Court a motion seeking approval of this Agreement, which motion shall be in form and
substance reasonably acceptable to XO, and which shall attach the proposed Approval Order. ATLT
shall serve a copy of the motion, and any exhibit or attachment thereto, on all parties entitled to
receive notice under the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, or any
applicable local rule, including without limitation on XO. ATLT and XO shall thereafter use their
best efforts to obtain entry of the Approval Order as a Final Order and any and all other approvals
and orders as may be necessary or appropriate for the consummation of this Agreement as soon as
practicable.

     D. In the event that the Bankruptcy Court declines to enter the Approval Order, this Agreement
shall be null and void and all of the rights, claims and defenses, obligations and liabilities of
each of the Parties immediately prior to the execution of this Agreement shall be restored to the
status quo ante.

ARTICLE V

MISCELLANEOUS

     A. No Admission of Liability. The Parties understand and agree that the Agreement is
only a compromise in settlement of disputed claims and shall not be construed as an admission of
liability.

     B. Representations and Warranties. Each of the Parties hereto represents and warrants
that, subject to the entry of the Approval Order as a Final Order, (a) it has taken all actions
necessary and otherwise has full authority to execute this Agreement and any other documents
incident thereto and to perform all of its obligations set forth herein; (b) the

15

 

performance of such obligations shall not conflict with any other agreements to which it is a party or by which it
is bound; and (c) it intends this Agreement to be legal, valid and binding upon it.

     C. Construction. The headings in this Agreement are inserted for convenience and
identification only and shall not be considered in the interpretation of this Agreement. This
Agreement represents the bargained-for agreement of the Parties resulting from negotiation among
them. Therefore, the Agreement shall he construed as if prepared by all Parties jointly, and not in
favor of any one Party and thus no rule of construction requiring interpretation against the
drafting Party hereof shall apply in the interpretation of this Agreement. If any provision of this
Agreement is held by a court or regulatory agency of competent jurisdiction to be unenforceable,
the balance of this Agreement shall remain in full force and effect and shall not be affected
unless removal of the unenforceable provision results in a material change to this Agreement, in
which case the Parties shall negotiate in good faith to reform this Agreement in a manner which
retains the respective economic benefits of the Parties.

     D. Legal Fees and Costs. The Parties shall pay their own respective costs and
attorneys’ fees incurred with respect to the Allegiance Proceedings and this Agreement.

     E. Entire Agreement. This Agreement constitutes the entire agreement with respect to
the subject matter addressed herein and supersedes any prior written and/or verbal agreement
between the Parties, and shall be binding upon, and inure to the benefit of each and all of the
Parties and their respective heirs, successors and assigns.

     F. Amendments. This Agreement may not be orally modified. This Agreement may only be
modified in a writing signed by all of the Parties.

16

 

     G. Waiver and Modification. The failure of a Party to insist, in any one or more
instances, upon the strict performance of any of the covenants of this Agreement, or to exercise
any option herein contained, shall not be construed as a waiver, or a relinquishment for the
future, of such covenant or option, but the same shall continue and remain in full force and
effect.

     H. Jurisdiction. The Bankruptcy Court shall retain exclusive jurisdiction to resolve
any disputes between the Parties arising with respect to the enforcement of this Agreement.

     I. New York Law. The Parties understand and agree that this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York without giving
effect to principles of conflicts of law.

     J. Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their respective successors and assigns.

     K. Good Faith Performance. The Parties shall act in good faith and consistent with the
intent of this Agreement in the performance of their obligations under this Agreement. Without
limiting the generality of any provisions of this Agreement, the Parties agree to perform all
further acts and execute and deliver all documents as may be reasonably necessary to give effect to
or confirm the effectiveness of the provisions of this Agreement. Nothing contained herein shall
limit or abridge XO’s obligation to provide the ATLT with access to certain records pursuant to
section 6.5(b) of the APA.

17

 

     L. Counterparts and Facsimile Signature. This Agreement may he executed in one
or more counterparts, all of which shall he considered one and the same document as if all Parties
had executed a single original document. This Agreement may he executed by facsimile copy and each
signature thereto shall be and constitute an original signature, again as if all Parties had
executed a single original document.

Dated: New York, New York

October 21, 2008

  	 	 	 	 	 	 	 	 	 
	XO HOLDINGS, INC.	 	ALLEGIANCE TELECOM LIQUIDATING
        TRUST	 	 
	
         

      	 	 	 	 	 	 	 	 
	
        By: 

      	 	/s/
        Simone Wu 	 	By: 	 	/s/ 	 	 
	
          

      	 	Title:  SVP, General Counsel 	 	 	 	Title:  Plan
Administrator	 	 
	
         

      	 	 	 	 	 	 	 	 
	V&K HOLDINGS, INC.	 		 	 
	
         

      	 	 	 	 	 	 	 	 
	By:	 	/s/
        Simone Wu	 	EUGENE I. DAVIS, SOLELY
        IN HIS CAPACITY AS TRUSTEE OR “PLAN ADMINISTRATOR” FOR THE ALLEGIANCE
        TELECOM LIQUIDATING TRUST	 	 
	 	 	Title:  SVP, General Counsel
	
         

      
	
         

      	 	 	 	 	 	 	 	 
	SHARED TECHNOLOGIES,
        INC., JOINS IN THIS AGREEMENT SOLELY TO AGREE TO DISMISS ITS APPEAL, AS
        PROVIDED IN ARTICLE II.B AND FOR PURPOSES OF THE RELEASES PROVIDED FOR
        IN ARTICLE II.C.
         

      	 	/s/	 	 
	

ROBERT FISCHER, JOINS IN THIS
        AGREEMENT SOLELY TO AGREE TO THE PROVISIONS OF ARTICLE III.B.
	
         

      	 	 	 	 	 	 	 	 
	
        By: 

      	 	/s/
      	 	By: 	 	/s/	 	 
	
          

      	 	Title:  General Counsel 	 	 	 	Title:	 	 
	
         

      	 	 	 	 	 	 	 	 
	MERRILL LYNCH, PIERCE, FENNER
        & SMITH, JOINS IN THIS AGREEMENT SOLELY TO CONSENT TO THE DISMISSAL
        OF THE APPEAL, AS PROVIDED IN ARTICLE II.B	 	 	 	 	 	 
	
         

      	 	 	 	 	 	 	 	 
	
        By: 

      	 	/s/	 	 	 	 	 	 
	
          

      	 	Title:  Counsel	 	 	 	 	 	 

18

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