XO Communications 2009 Annual Report Download - page 65

The following table summarizes the activity in the ARO liability (in thousands):
Balance as of January 1, 2008 .............................................. $5,607
Additions ............................................................. 1,231
Estimate revisions ....................................................... 851
Accretion ............................................................. 503
Balance as of December 31, 2008 ........................................... 8,192
Additions ............................................................. 18
Estimate revisions ....................................................... (3,498)
Accretion ............................................................. 458
Balance as of December 31, 2009 ........................................... $5,170
11. LONG-TERM DEBT TO RELATED PARTIES
During 2008, all of the Company’s long-term debt and accrued interest was retired in connection with the
issuance and sale of shares from a new series of 7% Class B convertible preferred stock. The Class B
convertible preferred stock was acquired by Arnos Corp., Barberry Corp., High River Limited Partnership and
ACF Industries Holding Corp. (together, the “Purchasers”). The Purchasers are affiliates of the Chairman of
the Company’s Board of Directors and the Company’s majority stockholder (the “Chairman”). For additional
details regarding the issuance of the Class B convertible preferred stock, see Note 12.
A portion of the purchase price for the Company’s Class B convertible preferred stock was paid to the
Company for the retirement of the Company’s senior indebtedness, held by the Purchasers, in the principal
amount (together with accrued interest) of $450.8 million. This amount represents all indebtedness held by the
Purchasers and their affiliates of $372.5 million under the Company’s Credit Facility and $78.3 million for the
Promissory Note. The remainder of the purchase price for the Class B convertible preferred stock was paid in
cash. The Company used $22.3 million of the proceeds from the sale of the Class B convertible preferred
stock and the 9.5% Class C perpetual preferred stock to retire in full the remainder of the Company’s
indebtedness (together with accrued interest) under its Credit Facility, none of which was owed to the
Chairman or affiliates of the Chairman.
12. REDEEMABLE PREFERRED STOCK
Issuance of Class A Convertible Preferred Stock
On August 6, 2004, the Company completed a private placement of 4.0 million shares of its 6% Class A
convertible preferred stock (the “Preferred Stock Offering”) for net proceeds of $199.4 million. Affiliates of
the Chairman purchased 95% of the preferred shares sold in the Preferred Stock Offering, and an affiliate of
Amalgamated Gadget, L.P., holder of approximately 8% of the Company’s outstanding common stock,
purchased the remaining 5%.
The Preferred Stock Offering was reviewed and approved by a special committee of the Company’s Board of
Directors consisting of three independent directors. The special committee selected its own counsel and
financial advisor. The financial advisor advised the special committee that, subject to specified qualifications,
assumptions and limitations, the material terms of the Class A convertible preferred stock (“Class A preferred
stock”) were fair to the Company, from a financial point of view, at the time of issuance.
The Class A preferred stock ranks senior to the Company’s common stock and junior to the Class B
convertible preferred stock and Class C perpetual preferred stock. Holders of the Class A preferred stock are
not entitled to receive annual dividends; however, both the conversion ratio and the voting power of each share
of Class A preferred stock will be automatically increased as the liquidation preference increases at the rate of
1.5% each quarter through the maturity date. The terms of the Class A preferred stock provide that the
Company redeem for cash the then outstanding shares of Class A preferred stock on the maturity date at 100%
of their aggregate liquidation preference, including compounded accretion through that date, unless earlier
redeemed or converted into common stock. The shares of Class A preferred stock are convertible into common
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