================================================================= XO BANKRUPTCY NEWS Issue Number 1 ----------------------------------------------------------------- Copyright 2002 (ISSN XXXX-XXXX) June 18, 2002 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 609-392-0900 FAX 609-392-0040 ----------------------------------------------------------------- XO BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtor's cases. New issues are prepared by R. Vince Brandt and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of XO BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00000] HOW TO SUBSCRIBE TO XO BANKRUPTCY NEWS [00001] BACKGROUND & DESCRIPTION OF XO COMMUNICATIONS [00002] CONSOLIDATED BALANCE SHEET AT MARCH 31, 2002 [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING [00004] XO COMMUNICATIONS CHAPTER 11 DATABASE [00005] SUMMARY OF THE DEBTOR'S DUAL-TRACK CHAPTER 11 PLAN [00006] LIST OF THE DEBTOR'S 30-LARGEST UNSECURED CREDITORS KEY DATE CALENDAR ----------------- 06/17/02 Voluntary Petition Date 06/17/02 Debtors' Dual-Track Chapter 11 Plan Filed 07/02/02 Deadline for filing Schedules of Assets and Liabilities 07/02/02 Deadline for filing Statement of Financial Affairs 07/02/02 Deadline for filing Lists of Leases and Contracts 07/07/02 Deadline to provide Utilities with adequate assurance 08/16/02 Deadline to make decisions about lease dispositions 09/15/02 Deadline to remove actions pursuant to F.R.B.P. 9027 10/15/02 Expiration of Debtor's Exclusive Plan Proposal Period 12/14/02 Expiration of Debtor's Exclusive Solicitation Period 16/16/04 Deadline for Debtor's Commencement of Avoidance Actions Organizational Meeting with UST to form Committees Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 USC Sec. 341 ----------------------------------------------------------------- [00000] HOW TO SUBSCRIBE TO XO BANKRUPTCY NEWS ----------------------------------------------------------------- XO BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtors' cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of XO BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. To continue receiving XO BANKRUPTCY NEWS, please complete the form below and return it by fax or e-mail to: Bankruptcy Creditors' Service, Inc. 24 Perdicaris Place Trenton, NJ 08618 Telephone (609) 392-0900 Fax (609) 392-0040 E-mail: peter@bankrupt.com We have published similar newsletters tracking billion-dollar insolvency proceedings since 1990, starting with Federated Department Stores. Currently, we provide similar coverage about the restructuring proceedings involving Global Crossing, Williams Communications, FLAG Telecom, Adelphia Business Solutions (including coverage of Century Communications and, if and when it files, Adlephia Communications), Winstar, 360networks, ICG Communications, PSINet, Exodus Communications, Lernout & Hauspie and Dictaphone, Federal-Mogul, Hayes Lemmerz, Exide Technologies, W.R. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- (Distribution to multiple professionals at the same firm is provided at no additional cost.) XO BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. New issues are published on an ad hoc basis as significant activity occurs (generally every 10 to 20 days) in the Debtor's cases. The subscription rate is US$45 per issue. Newsletters are delivered via e-mail; invoices, transmitted following publication of each newsletter issue, arrive by fax. Re-mailing of XO BANKRUPTCY NEWS is prohibited. Distribution to multiple individuals at the same firm is provided at no additional charge; folks outside of your firm should set-up and pay for their own subscriptions. Subscriptions may be canceled at any time without further obligation. ----------------------------------------------------------------- [00001] BACKGROUND & DESCRIPTION OF XO COMMUNICATIONS ----------------------------------------------------------------- XO Communications, Inc. 11111 Sunset Hills Rd. Reston, VA 20190 Telephone (703) 547-2000 Fax (425) 519-8910 http://www.xo.com XO Communications, Inc. (OTC: XOXO) is the largest holder of fixed wireless spectrum licenses in North America, covering 95% of the population in the top 30 United States markets. XO's wireless capabilities complement and extend the reach of its local fiber optic networks. Additionally, XO has acquired exclusive rights to use certain fibers and a conduit throughout a 16,000-route mile high-speed, IP-centric fiber optic backbone network that can connect over 60 cities in the United States. Through this unrivaled collection of facilities, XO provides a comprehensive array of data and voice communications services to business customers, including: * Internet access, including: * Dedicated Internet access for customers with large, high-speed Internet access requirements; and * Digital subscriber line, or DSL, services for businesses that require high-speed Internet access over existing copper wire telephone lines; * Private data networking, including: * Dedicated transmission capacity on our networks, including dedicated circuits and the lease of one or more dedicated wavelengths on a fiber optic cable, to customers that desire high-bandwidth links between locations; * Virtual private network, or VPN, services, which provide customers with a managed, private service over the public Internet, designed for medium and large businesses that want to create secure, wide- area networks for users at various and remote locations; and * Ethernet services, which are designed to connect the local area networks, or LANs, of medium and large customers within and between metropolitan areas at speeds of up to one gigabit per second; and * Hosting services, including: * Hosting and web site traffic management tools, for Internet-centric businesses, and web hosting, e-commerce, and streamed media services designed for small and medium-sized businesses; and * Server collocation and management and customer support to manage a customer's hosting needs. * Voice services, including: * Bundled local and long distance, and stand-alone long distance services, prepaid calling card services and related services such as conferencing, domestic and international toll free, voicemail and calling cards; * Interactive voice response, or IVR, systems that we develop, host and manage that enable our customers' end-users to order products and services, collect and receive information, seek assistance, facilitate bill payment and a host of other capabilities over the telephone using natural language speech recognition and web-to-phone capabilities; and * Shared tenant services, consisting of tecommunications management services provided to groups of small and medium-sized businesses located in the same office building. XO employs 6,700 workers to maintain its next-generation facilities-based network infrastructure to ensure high-speed connectivity from customer premise to customer premise. The XO Network consists of: More than 1,141,084 metro and intercity fiber miles in operation, providing services in 63 U.S. cities. The core of the North American XO backbone is a mesh of OC-192 circuits, providing Dedicated Internet Access (DIA) in 36 Metro POPs in 31 markets and Digital Subscriber Line (DSL) in 45 markets and five XO data centers located in: * San Jose, California; * Fremont, California; * Irvine, California; * Chicago, Illinois; and * Secaucus, New Jersey. Network route maps and expanded descriptions of XO's network and other services are available at: http://www.xo.com/news/mediakit/factsheet.html A Business Built on Debt From 1996, when Federal legislation first was enacted to promote competition in local telecommunications markets, until 2001, most emerging competitive telecommunications companies, including XO and its predecessors, were able to access funding required by their businesses in the capital markets. XO tapped the markets and raised: $840,000,000 through sales of common stock; $1,700,000,000 through sales of preferred stock in 8 classes carrying a $2.1 billion liquidation preference; $1,000,000,000 from borrowings under the secured Senior Credit Facility; $4,200,000,000 borrowed under ten issues of Senior Notes, (of which $557 million is held by a subsidiary); and $517,500,000 borrowed through a Subordinated Note issue. Eagle River Investments, LLC, Wendy P. McCaw, Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership- VII, L.P. and Forstmann Little & Co. Equity Partnership-VI, L.P. are the largest common shareholders. Three partnerships sponsored by Forstmann Little & Co. -- Forstmann Little & Co. Equity Partnership - VI, L.P. Forstmann Little & Co. Subordinated Debt and Equity Management Buyout Partnership-VII, L.P. and FL Fund, L.P. -- each hold preferred stock that is convertible into, and votes on an "as converted" basis with, the common stock on all matters in which holders of common stock are entitled to vote other than the election of directors. The Road to Bankruptcy In the third and fourth quarters of 2001, XO explains, market valuations of the debt and equity securities of telecommunications companies, especially emerging providers such as the Company, experienced very significant declines, leading to a wave of bankruptcies throughout the industry. Although the Company implemented stringent measures designed to conserve cash and reduce operating expenses and capital expenditures in response to these conditions, the Company remains in need of a significant cash infusion to fund the operating expenses, capital expenditures and debt service necessary to bring its operations to profitability on a company-wide basis. In light of these circumstances, the Company engaged in discussions with Forstmann Little, Eagle River and several other prospective investors regarding possible investment and restructuring opportunities. Houlihan, Help! After these discussions failed to result in any significant financing proposals, in October 2001, XO retained Houlihan Lokey Howard & Zukin Capital as its outside financial advisor to assist it in exploring a variety of investment and deleveraging alternatives, including stand-alone restructuring and third-party investment scenarios. As the market conditions in the telecommunications sector continued to decline during the fourth quarter of 2001, the alternatives under consideration were expanded to include restructuring and investment scenarios that could be implemented in bankruptcy. At the Company's request, Houlihan Lokey prepared solicitation materials and, beginning in November 2001, contacted over fifty additional potential investors, both strategic and financial, in an effort to raise new capital. To assure proper focus, Houlihan Lokey approached potential third-party investors that had previously made investments in the telecommunications industry and/or had the financial wherewithal to make at least a $500 million investment in the Company on their own or in connection with one or more financial partners. In addition, Houlihan Lokey and the Company continued to engage in discussions with the other previously identified prospective investors who conducted due diligence reviews in which the Company provided information relating to the Company and its operations. Forstmann Little Starts the Bidding On November 21, 2001, Forstmann Little submitted a draft term sheet contemplating a $700 million equity investment in the Company by the Forstmann Little Investors and a then-unnamed third-party investor (later to be identified as Telefonos de Mexico, S.A. de C.V.), conditioned, among other things, on a substantially deleveraged balance sheet. Because of the Forstmann Little Partnership's board representation, and the possibility that Eagle River might participate in or submit an alternative financing proposal with respect to this financing proposal, the Board of Directors established a subcommittee of non-management directors unaffiliated with either Forstmann Little or Eagle River to evaluate the merits of this proposal in consultation with Houlihan Lokey and the Company's legal advisors. Houlihan Lokey continued its search for potential alternate investors. At the same time, XO and its financial and legal advisors, under the supervision of the Board's subcommittee, engaged in extensive discussions and negotiations with the Forstmann Little Investors with respect to the terms of its proposed investment, and, through this process, were able to obtain terms more favorable to XO and its creditors. On November 28, 2001, XO entered into a non-binding term sheet with the Investors, with respect to an $800 million investment in XO and the following morning announced publicly the material terms and conditions of the proposed investment. Meanwhile, Houlihan Lokey continued its search for potential alternative investors, including other third parties who became aware of the Investors' proposed investment through publicly available information. Following the execution of the Term Sheet, and in anticipation of the related restructuring transactions, XO ceased making all cash interest and dividend payments on its unsecured debt obligations and preferred stock that were due on or after December 1, 2001. On January 15, 2002, after extensive discussion and negotiation with the Investors, and having received no investment proposals from any other prospective investor despite intensive solicitations, XO entered into a Stock Purchase Agreement, dated January 15, 2002, by and among XO, the Forstmann Little Investors and Telmex, which was subject to, among other things, obtaining certain concessions from the Senior Secured Lenders. In January and February of 2002, Forstmann Little and Telmex engaged in extensive negotiations with the Senior Lenders Committee relating to a detailed term sheet, specifying substantial concessions from the Senior Lenders Committee as requested by the Investors in connection with the transactions contemplated by the Investment Agreement. Subsequently, at the request of the Investors, counsel for the Senior Lenders Committee distributed a lock-up agreement supporting the transactions contemplated by the Investment Agreement to the Holders of Senior Secured Lenders Claims with the Bank Amendment Term Sheet, in the form approved by the Investors, attached together with requests that those Holders execute the lock-up agreement. As of March 2002, Holders of more than 2/3rds of the Senior Secured Lender Claims had executed this lock-up agreement. However, these lock-up agreements were never executed by the Investors or the Company and have been superceded by the Bank Plan Support Agreement. The Senior Noteholders Show Up Concurrently with the negotiation of the terms of the Investment Agreement, certain Holders of Senior Notes formed an informal committee to discuss the terms of the proposed restructuring with XO and the Investors and retained Akin, Gump, Strauss, Hauer & Feld as its legal counsel, and Jefferies & Company, Inc. as its financial advisor. From January 2002 through March 2002, XO and the Investors held discussions with representatives of the Senior Note Committee, its legal counsel and financial advisors in an effort to develop the terms of a restructuring proposal that would be acceptable to the Investors and members of the Senior Note Committee. After extensive negotiations, the Investors and the Senior Note Committee were not able to reach agreement on terms that the Senior Noteholders would support. On March 8, 2002, in connection with the rejection by the Senior Note Committee of the Investors' most recent proposal, certain Senior Noteholders made a preliminary investment and restructuring proposal contemplating a $500 million investment in exchange for secured and unsecured debt of XO in lieu of the transactions contemplated by the Investment Agreement. After careful review and analysis, the Board of Directors concluded that this preliminary proposal was not a feasible alternative and rejected the proposal, but the parties continued further discussions concerning alternative investment and capital restructuring proposals. Carl Ichan Kicks the Tires On March 22, 2002, XO received a preliminary term sheet from Chelonian Corp., an affiliate of Mr. Carl Icahn and the Senior Noteholder Committee contemplating a $500 million equity investment in the Company for an indirect 50% equity ownership interest in the Company as an alternative to the transactions contemplated by the Investment Agreement. XO's Board of Directors, with the assistance of its financial and legal advisors, carefully reviewed this proposal and concluded that it represented an inferior proposal to the Investment Agreement. On March 27, 2002, XO delivered a letter to the Icahn Group and the Senior Note Committee containing the terms and conditions necessary before a proposal could be viewed as superior to the investment contemplated by the Investment Agreement. After further discussions among XO, its advisors, the Icahn Group and the Senior Note Committee, on April 1, 2002 the Icahn Group submitted a revised draft term sheet, which the Icahn Group represented to XO had the support of the Senior Note Committee, contemplating an investment of $550 million in cash equity and a plan of reorganization that would provide for, among other things, an equity distribution to the holders of Senior Notes, as such, and holders of rejection damage claims of approximately 45% of the post-transaction equity interest in Reorganized XO, as well as certain board representation and other rights. No other third party proposals were received during this period, although Houlihan Lokey and XO continued to respond to inquiries and due diligence requests. The investment and corporate reorganization transactions contemplated by the Icahn Proposal would have been contingent upon the approval of the Senior Secured Lenders, including their consent to longer maturities and extension of prepayment dates, as well as significant modifications to their rights, including changes in a number of financial and operational covenants. Throughout April and into May 2002, XO, the Icahn Group and the Senior Note Committee engaged in the negotiations and prepared the documentation necessary for the investment and corporate reorganization transactions contemplated by the Icahn Proposal. Concurrently with these negotiations, XO and the Icahn Group also engaged in negotiations with the certain Senior Secured Lenders to amend the Senior Credit Facility in a manner that would permit and facilitate the investment proposed by the Icahn Group. In early May 2002, these negotiations ended without an agreement. Subsequently, the Senior Lenders Committee asked XO to prepare a modified business plan contemplating a stand-alone investment that assumed no receipt of additional third-party equity capital. A Stand-Alone Plan Might Work While XO management revised its business plan to reflect a stand- alone restructuring with no third-party equity capital, representatives for the Senior Lenders Committee conducted due diligence and Houlihan Lokey continued to search for other potential investors. In late May 2002, XO and the Senior Lenders Committee held discussions on a standalone restructuring plan under which $500 million principal amount of senior secured loans would be converted into all of the equity of Reorganized XO, subject to dilution by certain "gifts" from the Senior Secured Lenders including a $250 million rights offering to junior security holders, warrants to be distributed to senior noteholders in certain events and stock options to be granted to management and other employees with the remaining $500 million of senior secured loans (plus accrued interests) converted into $500 million in principal amount of Junior Secured Loans with cash interest payable only subject to certain conditions. To the extent the rights offering raised less than $200 million, a senior secured exit facility of up to $200 million was also contemplated. Recognizing both the superior financial recovery offered by the transactions contemplated by the Investment Agreement and the uncertainty engendered by conditions thereto, the Company concluded that the most appropriate course of action would be to advance a plan of reorganization contemplating the consummation of the transactions contemplated by the Investment Agreement, and also contemplating the restructuring contemplated by the Stand- Alone Term Sheet if the Investment Agreement were to be terminated, or if XO were to conclude that the Investors will not comply with their obligation to close under the Investment Agreement upon satisfaction of the applicable conditions thereunder. In furtherance of this plan, on May 24, 2002, the Senior Lenders Committee circulated bank plan support agreements to the senior secured lenders providing for them to support the transactions contemplated by the Investment Agreement, with a view to delivering them to the Company on May 31st. Senior Lenders Apply Pressure On May 31, 2002, however, the Senior Lenders Committee informed XO that the Bank Plan Support Agreement had not been executed due to a request by Forstmann Little that XO delay its anticipated chapter 11 bankruptcy filing for a seven to ten day period to permit another round of due diligence on the part of Forstmann Little and discussions between the Senior Lenders Committee and Forstmann Little with respect to a less conditional investment transaction at a lower valuation. Forstmann Little Wants to Walk On June 6, 2002, Forstmann Little informed XO and the Senior Lenders Committee that it would not submit a revised proposal, and late that evening counsel for the Investors delivered a letter addressed to counsel for XO stating that they considered it "virtually impossible" that the conditions to the Investment Agreement would ever be satisfied and asking the Company to release the Investors from their obligations under the Investment Agreement. On June 7, 2002, XO replied that it had made substantial progress in satisfying the conditions to the Investment Agreement. XO advised the Investors that, under the circumstances, XO saw no reason to believe that the closing conditions could not be satisfied, did not believe the Investors had any right to terminate their obligations unilaterally, and was not in a position to releases the Investors from their obligations under the Investment Agreement without substantial consideration. Subsequently, the Investors have reiterated their belief that the conditions to closing the Investment Agreement would be "virtually impossible" to satisfy. Banks Will Back a Stand-Alone Plan On June 13, 2002, holders of a majority of outstanding loans under the Senior Credit Facility delivered Bank Plan Support Agreements to XO binding them to vote to accept a plan that provides them with the treatment agreed to in the amendments to the Senior Credit Facility. Also on June 13, 2002, XO received a letter from Toronto Dominion (USA), Inc. on behalf of Toronto Dominion (Texas), Inc., the administrative agent under the Senior Credit Facility confirming the Senior Lenders Committee's willingness to support the transactions contemplated by Stand- Alone Term Sheet if the Investment Agreement does not close for any reason. The Debtor has developed a proposed plan of reorganization with the input and support of the Senior Lenders Committee. The Plan implements the terms of the Investment Agreement and also includes the transactions contemplated by the stand-alone term sheet as a contingency plan. Under the Plan, the Debtor will be reorganized through the consummation of the Investment Agreement with the Investors. In the event (a) the Investment Agreement is terminated by the Investors or XO or (b) XO, after discussions with the Administrative Agent, concludes that the Investors will not consummate the transactions contemplated by the Investment Agreement and delivers the Stand-Alone Notice to the Administrative Agent, with a copy of such notice to be delivered to each of the Investors, XO will file a notice with the Bankruptcy Court, after discussions with the Administrative Agent, expressing (x) either (i) that the Investment Agreement has been terminated by the Investors or XO or (ii) that XO has concluded that the Investors will not consummate the transactions contemplated by the Investment Agreement, and (y) XO's intention to proceed with the transactions contemplated by the Stand-Alone Term Sheet, unless a superior alternative emerges. Although the Investment Agreement remains in full force and effect at this time, completion of the transactions contemplated by the Investment Agreement remains subject to the satisfaction of a number of conditions, and could be terminated if certain conditions are not met. The Investors have advised XO that they intend to avail themselves of any available conditions to their obligations under the Investment Agreement applicable at the time of the closing. At present, they have not asserted or purported to exercise any right of termination. If the Investment Agreement is terminated, or XO concludes that the Investors will not comply with their obligations to close. XO says it presently intends to file the Stand-Alone Notice with the Bankruptcy Court, unless a superior alternative emerges. ----------------------------------------------------------------- [00002] CONSOLIDATED BALANCE SHEET AT MARCH 31, 2002 ----------------------------------------------------------------- XO Communications, Inc. Condensed Consolidated Balance Sheets At March 31, 2002 (Unaudited) ASSETS Current assets: Cash and cash equivalents $352,591,000 Marketable securities 236,381,000 Accounts receivable, net of allowance for doubtful accounts of $36,789,000 174,088,000 Other current assets 96,474,000 Pledged securities 14,656,000 -------------- Total current assets 874,190,000 Property and equipment, net 3,633,380,000 Fixed wireless licenses, net 939,603,000 Goodwill, net -- Other intangibles, net 125,512,000 Other assets, net 131,812,000 -------------- Total assets $5,704,497,000 ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $72,884,000 Accrued liabilities 287,765,000 Accrued interest payable 180,019,000 Long-term debt in default 5,144,851,000 Current portion of capital lease obligations 11,125,000 -------------- Total current liabilities 5,696,644,000 Other long-term liabilities 122,792,000 -------------- Total liabilities 5,819,436,000 Redeemable preferred stock, par value $0.01 per share, 25,000,000 shares authorized: 7,857,612 shares issued and outstanding; aggregate liquidation preference of $1,693,328,000 1,785,960,000 Commitments and contingencies Stockholders' (deficit) equity: Common Stock, par value $0.02 per share, stated at amounts paid in Class A, 1,000,000,000 shares authorized: 337,791,856 shares issued and outstanding; Class B, 120,000,000 shares authorized: 104,423,158 shares issued and outstanding 4,628,099,000 Deferred compensation (28,333,000) Accumulated other comprehensive income 1,884,000 Accumulated deficit (6,502,549,000) -------------- Total stockholders' (deficit) equity (1,900,899,000) -------------- Total liabilities and stockholders' (deficit) equity $5,704,497,000 ============== ----------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE ANNOUNCING CHAPTER 11 FILING ----------------------------------------------------------------- XO Communications Initiates Dual Track Chapter 11 Filing to Implement Recapitalization Parent Company to Reorganize Under Chapter 11 Alternate 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, Virginia -- June 17, 2002 -- 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. ----------------------------------------------------------------- [00004] XO COMMUNICATIONS CHAPTER 11 DATABASE ----------------------------------------------------------------- Debtor: XO Communications, Inc. Bankruptcy Case No.: 02-12947 Petition Date: June 17, 2002 U.S. Bankruptcy Court: United States Bankruptcy Court Southern District of New York Alexander Hamilton Custom House One Bowling Green, 5th Floor New York, New York 10004-1408 Telephone (212) 668-2870 Bankruptcy Judge: The Honorable ____________ Debtors' Counsel: Tonny K. Ho, Esq. Bruce R. Kraus, Esq. Matthew A. Feldman, Esq. Carollynn H. G. Callari, Esq. WILLKIE FARR & GALLAGHER 787 Seventh Avenue New York, NY 10019-6099 Telephone (212) 782-8000 Debtors' Financial Advisor: Houlihan, Lokey, Howard & Zukin Debtors' Auditors and Accountants: Ernst & Young Counsel to the Forstmann Little Investors: Brad Eric Scheler, Esq. Stephen Fraidin, Esq. Thomas W. Christopher, Esq. George B. South, Esq. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON One New York Plaza New York, NY 10004 Telephone (212) 859-8000 Fax (212) 859-4000 Counsel to Telmex: Robert Ticktin, Esq. James Hanna, Esq. Shari Siegel, Esq. LATHAM & WATKINS 885 Third Avenue New York, N.Y. 10022 Telephone (212) 906-1200 Fax (212) 751-4864 Counsel to the Senior Secured Lenders: Jay M. Goffman, Esq. Alan J. Carr, Esq. SKADDEN, ARPS, SLATE, MEAGHER, & FLOM LLP Four Times Square New York NY 10036 Telephone (212) 735-2120 Fax (917) 777-2120 U.S. Trustee: Carolyn S. Schwartz United States Trustee for Region 2 33 Whitehall Street, Suite 2100 New York, NY 10004 Telephone (212) 510-0500 ----------------------------------------------------------------- [00005] SUMMARY OF THE DEBTOR'S DUAL-TRACK CHAPTER 11 PLAN --------------------------------------------------------------- XO Communications, Inc., with a lot of blanks to be filled in, filed a chapter 11 plan of reorganization and a disclosure statement in support of that plan contemporaneously with its Voluntary Petition. XO's Plan is designed to implement whichever of three options can close and will deliver the greatest value to XO's creditors. The three options are: (1) the Forstmann Little and Telmex Transaction; (2) completing any competitive transaction with another third-party that tops the Forstmann Little deal; and (3) a Stand-Alone Plan of Reorganization under which XO will deleverage its balance sheet and emerge as a reorganized stand-alone company. Creditors don't get to vote on which option they want. Rather, creditors will vote for or against a plan saying that XO will do the best deal it can with a third-party or restructure on a stand-alone basis. For any chapter 11 plan to achieve confirmation, it must deliver greater value to creditors then they would realize in a chapter 7 liquidation. This is the so-called best interests of creditors test articulated at 11 U.S.C. Sec. 1129(a)(7). If creditors will recover more in a liquidation scenario the bankruptcy court must reject the chapter 11 plan. Thus, for XO to confirm a chapter 11 plan, whatever deal is finally done under that plan must deliver more to creditors than what they'd get if XO were liquidated. To estimate potential returns to creditors in a Chapter 7 liquidation, XO management has determined, as might a Bankruptcy Court conducting such an analysis, the amount of cash liquidation proceeds that might be available for distribution and the allocation of such proceeds among stakeholders based on their relative priorities. XO management says it considered many factors and data, including (i) the operating and financial performance of XO, (ii) the attractiveness of the assets of XO, respectively, to potential buyers, (iii) the potential universe of buyers, (iv) the potential impact of the Chapter 7 cases upon the businesses of the Debtor, as well as on the realizable value from the liquidation of the non-cash assets of XO, (v) the relative timing of the potential sale of the Debtor's assets, and (vi) an analysis of the liabilities and obligations of XO. For the purposes of this analysis, the Debtor has assumed that the liquidation of all assets would be conducted in an orderly, yet expedited, manner over a six-month period commencing on September 30, 2002. XO concludes that in a liquidation scenario, its estate would be reduced to a pile of cash totaling, in millions: Estimated Book Value at Liquidation Value Asset or be Liquidated April 30, 2002 Low High ---------------------- -------------- ----- ------ Cash & Securities $0.0 $0.0 $0.0 Accounts Receivable 0.0 0.0 0.0 Pledged Securities 13.4 0.0 0.0 Other Current Assets 69.4 1.9 2.1 Plant, Property & Equipment 76.4 2.6 7.2 Wireless Licenses 936.6 9.4 46.8 Other Assets 156.1 1.4 2.9 Intercompany Receivables 676.3 942.7 ------ -------- Total Liquidation Proceeds $691.6 $1,001.7 Less: Costs of Liquidation Operating Expenses to 9/30/02 134.9 134.9 Wind-Down Costs 232.9 232.9 Employee Severance Costs 52.9 52.9 Transaction Costs 13.8 20.0 ------ -------- Net Liquidation Proceeds $257.0 $560.9 ====== ======== XO's capital lease obligations would take the first dip into that pile of cash, consuming $24.7 million. The $232.3 to $536.2 million balance would be delivered to XO's Senior Secured Lenders to compromise their $1,028,000,000 claim at 22% to 52%. Unsecured creditors would take nothing from the estate and, of course, no value would flow to preferred or common shareholders. The Forstmann Little and Telmex Investment Agreement proposes to exchange an 80% ownership stake in Reorganized XO in exchange for an $800 million cash investment. That investment implies that the Forstmann Little Telmex Transaction delivers value equal, in millions, to: Cash Purchase Price $800.0 Post-Transaction Equity Ownership 80% Implied Total Company Equity Value 1,000.0 Plus: Restructured Bank Debt 1,000.0 Plus: Capital Lease Obligations 24.7 Aggregate Implied Post-Money Purchase Price 2,024.7 Less: Net Cash Invested in XO (net of $200 million allocation to Senior Notes) (600.0) Aggregate Implied Pre-Money Purchase Price 1,424.7 Creditors line-up in XO's restructuring and fall into these classes under the Debtor's Plan: Class Description Aggregate Claims ----- ----------- ---------------- 1 Senior Secured Lenders $1,008,535,928 2 Other Secured Claims 16,086,068 3 Non-Tax Priority Claims Undetermined 4 Convenience Claims 473,388 5 General Unsecured Claims 27,245,628 6 Senior Note Claims 3,871,499,724 7 Subordinated Note Claims 545,272,500 8 Securities Claims Undetermined 9 Old Preferred Stock Interests 1,754,006,844 10 Old Class A Common Stock Interests 18,763,031 11 Other Old Equity Interests Undetermined The Forstmann Little and Telmex Transaction delivers creditor recoveries equal to: 100.0% to holders of Capital Lease Obligation Claims; 100.0% to the Senior Secured Lenders; 9.8% to holders of XO Senior Notes (in the form of $200 million in cash plus 17.9% of the New Equity); 8.5% to holders of General Unsecured Claims (in the form of $1 million in cash plus 0.1% of the New Equity); and 0.0% to Old Equity. Any offer that competes with the Forstmann Little and Telmex Transaction that follows the same structure will boost recoveries to holders of the Senior Notes and General Unsecured Claims. If XO can't do a deal with a third-party, the Stand-Alone Plan will be premised on a Total Enterprise Value, in millions, equal to: Stated Pre-Rights Equity Value $475.0 Plus: Estimated Revolver Drawdown 0.0 Plus: New Junior Secured Loans 500.0 Plus: Capital Lease Obligations 24.7 -------- Aggregate Implied Pre-Rights Enterprise Value $999.7 Plus: Rights Offering Proceeds 250.0 -------- Aggregate Implied Post-Rights Enterprise Value $1,249.7 ======== Under an agreement with 58% of the Senior Secured Lenders, the Stand-Alone Plan Option provides for enterprise value "gifts" from the Senior Secured Lenders to junior creditors to provide recoveries estimated at: Without the Rights Offering --------------------------- 100.0% to holders of Capital Lease Obligation Claims; 92.6% to the Senior Secured Lenders (in the form of $458 million for 100% of the New Equity and $476 million of New Junior Secured Loans); 0.5% to holders of XO Senior Notes (in the form of $17 million in New Warrants); 0.4% to holders of General Unsecured Claims; and 0.0% to Old Equity. With the Rights Offering ------------------------ 100.0% to holders of Capital Lease Obligation Claims; 96.1% to the Senior Secured Lenders (in the form of $492 million for a 65.5% cut of the New Equity and $476 million of New Junior Secured Loans); 0.9% to holders of XO Senior Notes (in the form of a 34.5% share of the New Equity, having an implied value of $259 million, plus $27 million in New Warrants less the $250 million paid to participate in the Rights Offering); 0.6% to holders of General Unsecured Claims; and 0.0% to Old Equity. ----------------------------------------------------------------- [00006] LIST OF THE DEBTOR'S 30-LARGEST UNSECURED CREDITORS ----------------------------------------------------------------- Creditor Name and Address Amount of Claim (US$) Type of Claim HSBC BANK USA Indenture $665,767,488 ISSUER SERVICES Trustee for ATTN: MR. RUSS PALADINO, the 10-3/4% VICE PRESIDENT Senior Notes 452 FIFTH AVE. due 2009 NEW YORK, NY 10018 TEL: 212-525-1324 FAX: 212-525-1366 HSBC BANK USAB Indenture $587,634,766 ISSUER SERVICES Trustee for ATTN: MR. RUSS PALADINO, the 9.45% VICE PRESIDENT Senior Discount 452 FIFTH AVE. Notes due 2008 NEW YORK, NY 10018 TEL: 212-525-1324 FAX: 212-525-1366 WELLS FARGO BANK MINNESOTA, N.A. Indendure $543,860,907 ATTN: CRAIG LITSEY, Trustee for the VICE PRESIDENT 5-3/4% SIXTH STREET AND MARQUETTE AVE. Convertible (MAC # N9303-120) Subordinated MINNEAPOLIS, MN 55479 Notes due 2009 TEL: 612-667-4160 FAX: 612-667-9825 HSBC BANK USAB Indenture $464,290,612 ISSUER SERVICES Trustee for ATTN: MR. RUSS PALADINO, the 12-1/4% VICE PRESIDENT Senior Discount 452 FIFTH AVE. Notes due 2009 NEW YORK, NY 10018 TEL: 212-525-1324 FAX: 212-525-1366 HSBC BANK USAB Indenture $413,725,114 ISSUER SERVICES Trustee for ATTN: MR. RUSS PALADINO, the 10-3/4% VICE PRESIDENT Senior Notes 452 FIFTH AVE. due 2008 NEW YORK, NY 10018 TEL: 212-525-1324 FAX: 212-525-1366 HSBC BANK USAB Indenture $351,970,777 ISSUER SERVICES Trustee for ATTN: MR. RUSS PALADINO, the 12-1/2% VICE PRESIDENT Senior Notes 452 FIFTH AVE. due 2006 NEW YORK, NY 10018 TEL: 212-525-1324 FAX: 212-525-1366 HSBC BANK USAB Indenture $339,002,300 ISSUER SERVICES Trustee for ATTN: MR. RUSS PALADINO, the 12-1/8% VICE PRESIDENT Senior Discount 452 FIFTH AVE. Notes due 2009 NEW YORK, NY 10018 TEL: 212-525-1324 FAX: 212-525-1366 HSBC BANK USAB Indenture $331,015,530 ISSUER SERVICES Trustee for ATTN: MR. RUSS PALADINO, the 10-1/2% VICE PRESIDENT Senior Notes 452 FIFTH AVE. due 2009 NEW YORK, NY 10018 TEL: 212-525-1324 FAX: 212-525-1366 HSBC BANK USAB Indenture $327,344,971 ISSUER SERVICES Trustee for ATTN: MR. RUSS PALADINO, the 9-5/8% VICE PRESIDENT Senior Notes 452 FIFTH AVE. due 2007 NEW YORK, NY 10018 TEL: 212-525-1324 FAX: 212-525-1366 HSBC BANK USAB Indenture $238,021,203 ISSUER SERVICES Trustee for ATTN: MR. RUSS PALADINO, the 9% Senior VICE PRESIDENT Notes due 2008 452 FIFTH AVE. NEW YORK, NY 10018 TEL: 212-525-1324 FAX: 212-525-1366 HSBC BANK USAB Indenture $119,226,093 ISSUER SERVICES Trustee for the ATTN: MR. RUSS PALADINO, 12-3/4% Senior VICE PRESIDENT Notes due 2007 452 FIFTH AVE. NEW YORK, NY 10018 TEL: 212-525-1324 FAX: 212-525-1366 NORTEL NETWORKS INC Trade Debt $4,830,007 4000 VETERANS MEMORIAL HWY ATTN: ACCTS RECEIVABLE BOHEMIA, NY 11716 TEL: 631-285-2000 FAX 631-737-8505 QWEST Trade Debt $3,137,361 120 LENORA STREET 7TH FLOOR REMITTANCE PMT CTR (BOX 2348) SEATTLE, WA 98121 TEL: 515-471-0677 FAX: 515-286-6859 LUCENT TECNOLOGIES INC Trade Debt $2,500,000 6701 ROSWELL RD NE MS D3/G2E ATLANTA, GA 30328 TEL: 404-573-5226 FAX: 404-573-6562 COVAD COMMUNICATIONS COMPANY Trade Debt $2,411,656 ATTN: CONTRACTS DEPT. 2330 CENTRAL EXPRESSWAY SANTA CLARA, CA 95050 TEL: 408-844-7500 FAX: 408-616-6501 MCI WORLDCOM INC Trade Debt $1,700,000 ATTN: KIRK MASSEY 211 SHERRY ROAD LABADIE, MO 63055 TEL: 800-510-8649 x2124 FAX: 918-590-5600 AT&T Trade Debt $1,293,879 ATTN: ANGELA JONES 3301 NE 32ND AVE #604 FT. LAUDERDALE, FL 33308 TEL: 800-251-0103 x6159 FAX: 723-805-6084 WILLIAMS COMMUNICATIONS Trade Debt $1,103,651 SOLUTIONS LLC ATTN: CONTRACTS DEPT. 19111 DALLAS PKY DALLAS, TX 75287 TEL: 972-349-5242 FAX: 972-349-5290 TOUCH AMERICA Trade Debt $1,011,399 ATTN: CONTRACTS DEPT. 8450 E. CRESCENT PARKWAY GREENWOOD VILLAGE, CO 80111 TEL: 720-493-2727 FAX: 720-493-3055 BELL SOUTH TELECOMMUNICATIONS Trade Debt $963,872 ATTN: DEBBIE MINTER 250 WILLIAMS STREET NW SUITE 5020 ATLANTA, GA 30303 TEL: 877-542-0511 FAX: 404-829-1410 GENTNER COMMUNICATIONS Trade Debt $677,357 ATTN: AMANDA FREER 1825 RESEARCH WAY SALT LAKE, UT 84119 TEL: 801-974-3650 FAX: 801-977-0087 PACIFIC BELL Trade Debt $618,582 ATTN: CONTRACTS DEPT. 14709 VAN NUYS ROOM 218 VAN NUYS, CA 94070 TEL: 818-373-5947 FAX: 818-909-7708 GE CAPITAL Trade Debt $560,855 ATTN: CONTRACTS DEPT. 220 GIRARD STREET GAITHERSBURG, MD 20884-6004 TEL: 877-874-4390 FAX: 859-815-2938 REGULUS Trade Debt $447,155 ATTN: HEATHER LAIRD 6945 NORTH PARK BLVD CHARLOTTE, NC 28202 TEL: 704-921-7980 FAX: 704-921-7921 MICROSOFT CORPORATION Trade Debt $368,919 ATTN: LOUIE LAMOURE 6100 NEIL ROAD STE 210 RENO, NV 89511-1137 TEL: 775-823-1137 FAX: 775-826-7287 CISCO SYSTEMS INC Trade Debt $301,813 ATTN: ACCT RECEIVABLE 1450 NORTH MCDOWELL BLVD PETALUMA, CA 94965-6515 TEL: 707-793-9055 FAX: 707-793-9057 AVCOM TECHNOLOGIES INC Trade Debt $181,931 1245 4TH AVE S. SEATTLE, WA 98134 ATTN: LAURA GRIFFEN TEL: 206-762-4000 X105 FAX: 206-762-2400 BUSINESS EDGE SOLUTIONS Trade Debt $168,422 ATTN: CONTRACTS DEPT. 1600 SPRING HILL ROAD VIENNA, VA 22182 TEL: 703-217-4385 FAX: 703-733-0218 WAHLSTROM/PHILADELPHIA Trade Debt $167,260 ATTN: CONTRACTS DEPT. 111 SOUTH INDEPENDENCE MALL EAST PHILADELPHIA, PA 19106 TEL: 215-351-0470 FAX: 215-351-0478 NEXTEL COMMUNICATIONS Trade Debt $167,000 ATTN: MARK BEECY 2003 EDMUND HALLEY DR RESTON, VA 20191 TEL: 703-433-8305 FAX: 703-433-8312 *** End of Issue No. 1 *** ------------------------------------------------------------------------- Peter A. Chapman peter@bankrupt.com http://bankrupt.com ------------------------------------------------------------------------- Recommended Reading: Professor Stuart Gilson's newest title, "Creating Value Through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups." List Price: $79.95 -- Discounted to $55.96 at http://amazon.com/exec/obidos/ASIN/0471405590/internetbankrupt -------------------------------------------------------------------------