Dear Valued XO Customer:
Since we at XO Communications value our relationship with you as our
customer, we wanted to let you know about some important actions we are
initiating to ensure that XO remains a strong broadband communications
company into the future.
As you may already know, in recent months our parent corporation, XO
Communications, Inc., has been exploring a number of alternatives that would
result in a restructuring of its balance sheet. Today, XO Communications,
Inc. has taken a key step to facilitate that process by filing a voluntary
petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. The
bankruptcy filing was made following lengthy negotiations with various XO
creditor constituencies in which a number of alternative investment and
restructuring transactions were proposed and considered.
Concurrent with the Chapter 11 filing, XO submitted a two-pronged plan
of reorganization that includes two alternative restructuring scenarios,
both of which are designed to result in a successful reorganization and
restructuring of our parent company's balance sheet. One is the previously
announced transaction with Forstmann Little & Co. and Telefonos de Mexico
S.A. de C.V. The other is a stand-alone restructuring plan. By proceeding
with a filing that includes both alternatives in the plan of reorganization,
we believe our restructuring can proceed in the most expeditious manner.
Because the Chapter 11 filing affects only XO Communications, Inc.,
and not its operating subsidiaries, the company will conduct business as
usual with regard to its customers and will continue to provide its
customers with innovative broadband communications solutions and services
throughout the United States. XO currently has over $500 million of cash
and marketable securities on hand and we do not expect the filing to
result in any reductions in workforce or facility closings.
On behalf of all of us at XO, we want to express our appreciation for
your continued confidence and support. We are confident the actions we are
taking will secure the future of XO. Below is a copy of the company's press
release detailing this announcement and further information can be found at
www.xo.com. Should you have additional questions, please call our
information hotline at 877-732-5208.
Sincerely,
Dan Akerson Nate Davis
Chairman and CEO President and COO
_______________________________________
FOR IMMEDIATE RELEASE:
XO COMMUNICATIONS INITIATES DUAL TRACK CHAPTER 11 FILING TO IMPLEMENT
RECAPITALIZATION
Parent Company to Reorganize Under Chapter 11^WAlternate Tracks
Contemplated, Either Would Result in Successful Reorganization
Operating Subsidiaries Not Included in Filing; Company Has More Than
$500 Million Available to Fund Operations Through Financial Restructuring
Reston, Va. (June 17, 2002) ^V XO Communications, Inc. (OTCBB: XOXO)
announced today that it has taken an important step necessary to implement a
balance sheet restructuring and has filed a voluntary petition to reorganize
under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court
for the Southern District of New York.
The Chapter 11 filing is limited to the parent corporation, XO
Communications, Inc. No operating subsidiaries of XO are part of the filing.
Accordingly, the filing is not expected to affect the subsidiary operating
companies' relationships with customers and vendors. XO does not expect any
reductions in workforce or facility closings as a result of the filing and
will continue to pay employees and provide employee benefits without
interruption during the reorganization. The filing was made following
lengthy negotiations with various potential investors and XO creditor
constituencies in which a number of alternative investment and restructuring
transactions were proposed and considered.
Concurrent with the Chapter 11 filing, XO submitted a two-pronged plan
of reorganization that includes two alternative restructuring scenarios,
both of which are intended to result in a successful reorganization and
restructuring of XO's balance sheet. The first would implement the
transactions described in the previously announced investment agreement with
Forstmann Little & Co. (Forstmann) and Telefonos de Mexico S.A. de C.V.
("TELMEX") (the "Investment Agreement") if it is completed. This action to
proceed with the Investment Agreement is also taken with the support of
lenders representing more than a majority of the loans outstanding under
XO's $1 billion secured credit facility. To complete the transaction certain
conditions must be met. Forstmann Little and Telmex have recently said that
they believe that these conditions will not be met and have asked XO to
consider terminating the agreement. XO currently has no plans to terminate
the Investment Agreement and, as previously announced, does not believe that
Forstmann and Telmex are entitled to terminate the agreement unilaterally.
However, because the Company cannot be certain whether all of the
conditions to closing the Investment Agreement will be satisfied, the plan
of reorganization also includes a stand-alone restructuring plan that XO
plans to implement if the Investment Agreement is not consummated and if a
superior alternative is not presented to the Company. This stand-alone plan
provides for the conversion of the $1 billion in loans under the secured
credit facility into common equity and $500 million of pay-in-kind junior
secured debt. The informal steering committee of lenders under the secured
credit facility has indicated that it is prepared to support, and recommend
that the lenders under the secured credit facility approve, the stand-alone
restructuring subject to the preparation of definitive documentation and the
completion of customary internal bank approval processes.
The stand-alone plan permits the Company to seek to obtain additional
funding needed for its business plan by issuing common equity through a $250
million rights offering to be made to the Company's senior unsecured
creditors and, to the extent that the offer is not fully subscribed by the
senior unsecured creditors, to the holders of the Company's subordinated
debt and preferred and common stock. Additionally, it permits any shortfall
to be covered by up to $200 million in new senior secured loans ranking
senior to the new junior-secured debt, although no agreements for this
financing have been reached.
"We are gratified that our secured lenders have the vision and
confidence to see beyond today's troubled times and to recognize the
potential long-term value of our company," said Dan Akerson, XO's Chairman
and Chief Executive Officer. "We believe that our Investment Agreement
with Forstmann Little and Telmex continues in full force and effect and
provides for better overall economic recoveries for our creditors. While
we have every intention of enforcing our rights under this Agreement we
are also prepared to move forward with a standalone plan that provides
clarity and assures our customers, vendors and employees that the company
is moving forward with a plan that will achieve our goal of restructuring
our balance sheet and provide the necessary financial stability for the
company to emerge as a strong and viable competitor in the
telecommunications industry."
Because the Chapter 11 filing directly affects only XO Communications,
Inc., and not its operating subsidiaries, XO will conduct business as usual
with regard to its customers and will continue to provide its customers with
innovative broadband communications solutions and services throughout the
United States. During the reorganization process, vendors, agents and others
who conduct business with XO's operating subsidiaries are expected to be
unaffected. The smaller group of XO vendors dealing directly with the parent
corporation will be subject to the Chapter 11 process and will receive
additional information as part of the process.
"This financial restructuring and the related Chapter 11 filing are
not a result of operational issues, but are driven by a need to deleverage
the Company and resolve our balance sheet issues," commented Akerson.
"Simply stated, the Company has too much debt, given the current and
projected level of business operations."
Since XO announced its initial restructuring plans in November 2001, XO
has continued to effectively add new customers and serve its existing
customers, and has reported consistent operational results despite a
difficult business environment. During the fourth quarter of 2001 and
continuing in 2002, XO implemented a series of expense reduction and cash
conservation initiatives. Late last year, XO also disclosed that it would
not make cash interest and dividend payments on its unsecured notes and
preferred stock beginning on December 1, 2001. XO noted that its improving
trend in EBITDA loss and its recent completion of several significant
non-repeating capital projects are expected to result in a further decrease
in the rate at which it is using its available cash for the remainder of
2002.
Accordingly, assuming revenues remain generally consistent with current
levels in the near term, continued reductions in uses of cash consistent
with recent trends and continued nonpayment of cash interest and dividend
amounts during the proposed recapitalization process, XO currently estimates
that the approximately $555.0 million of cash and marketable securities on
hand as of April 30, 2002 will be sufficient to fund its operations while
the bankruptcy case is pending.
As noted in the Company's prior disclosures, because the company's
senior unsecured creditors are not receiving full value for their claims
under either of the restructuring alternatives contemplated by the plan of
reorganization, the proposed plan of reorganization does not provide for any
recovery by the holders of convertible subordinated notes or existing XO
equity and equity related securities, including XO common and preferred
stock, and outstanding stock options. The stand-alone plan, however,
contemplates that rights to purchase common stock of reorganized XO will be
granted to holders of senior unsecured notes and, to the extent these rights
are not exercised fully, to holders of subordinated notes and outstanding
preferred and common stock.
The proposed plan of reorganization and the related disclosure
statement are subject to the approval of the bankruptcy court and to the
approval of the Company's principal creditor groups. Taken as a whole,
the Investment Agreement, the alternative stand-alone plan, the agreements
evidencing the support of the Company's senior secured lenders and the
other terms of the proposed plan of reorganization establish a framework
for the Company's anticipated Chapter 11 plan with the proposed or
additional alternative ultimately selected being determined in the Chapter
11 process.
About XO Communications
XO Communications is one of the nation's fastest growing providers of
broadband communications services offering a complete set of communications
services, including: local and long distance voice, Internet access, Virtual
Private Networking (VPN), Ethernet, Wavelength, Web Hosting and Integrated
voice and data services.
XO has assembled an unrivaled set of facilities-based broadband
networks and Tier One Internet peering relationships in the United States.
XO currently offers facilities-based broadband communications services in
65 markets throughout the United States.
###
The statements contained in this release that are not historical facts
are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995). These statements include those
describing the expected future operations of XO and the expectations
regarding the outcome of the investment and restructuring transactions
described in this release. Management wishes to caution the reader that
these forward-looking statements are only predictions and are subject to
risks and uncertainties and actual results may differ materially from those
indicated in the forward-looking statements as a result of a number of
factors. These factors include, but are not limited to, risks associated
with the company's ability to complete the transactions described in this
release and those risks and uncertainties described from time to time in the
reports filed by XO Communications with the Securities and Exchange
Commission, including its Annual Report on Form 10-K for the year ended
December 31, 2001 and in its Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002. Other important factors that could cause actual events
or results to be materially different from the forward-looking statements
include the ability of the Company to satisfy significant conditions under
the Forstmann Little / TELMEX investment agreement, including conditions
regarding regulatory approvals and the resolution of pending litigation;
obtaining formal support for the proposed plan of reorganization, regardless
of whether confirmation for the Forstmann/TELMEX plan or the stand-alone
plan is sought from applicable creditor groups; risks associated with
pending litigation; court approval of the Company's "first day" papers and
other motions prosecuted by it from time to time in the chapter 11 cases;
the ability of the Company to develop, prosecute, confirm and consummate its
proposed plan of reorganization (or any significant delay with respect
thereto); risks associated with third parties seeking and obtaining court
approval to terminate or shorten the exclusivity period for the Company to
propose and confirm one or more plans of reorganization, for the appointment
of a chapter 11 trustee or to convert the cases into a chapter 7 cases.
XO, XO Not Just Talk and the XO design logo are trademarks of XO
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