XO Communications 2009 Annual Report Download - page 74

of the Chairman. The Tax Allocation Agreement generally governs Starfire’s and the Company’s rights and
obligations with respect to consolidated and combined federal and state income tax returns filed by Starfire
and its subsidiaries, should the election by Starfire be made to file such consolidated and combined returns.
The Tax Allocation Agreement replaces the previous tax allocation agreement by and between Starfire and
XOC dated January 16, 2003. Under the Tax Allocation Agreement, to the extent that Starfire and the
Company file consolidated or combined income tax returns, Starfire will make (i) current payments to the
Company equal to 30.0% of Starfire’s income tax savings from using the Company’s income tax benefits (up
to an aggregate of $900 million of benefits) and (ii) deferred payments to the Company equal to 100.0% of
Starfire’s income tax savings from using the Company’s benefits in excess of $900 million (other than benefits
which reduce the Company’s payment obligations as set forth below) at the time the Company would
otherwise have been able to use the benefits (and the Company no longer files income tax returns on a
consolidated or combined basis with Starfire). In addition, the Company’s obligation to make income tax
payments to Starfire as the common parent of a consolidated or combined income tax group may be reduced
by the Company’s available tax benefits. The Company’s rights to reimbursement from Starfire under the
previous tax allocation agreement are preserved under the Tax Allocation Agreement.
The Company does not anticipate that Starfire will, for its 2009 taxable year, utilize the Company’s current
year net operating loss or its net operating loss carryforwards and, accordingly, the Company has not reflected
a reimbursement for the utilization of such net operating losses or net operating loss carryforwards.
Reconsolidation
Effective January 17, 2009, XO Holdings, Inc. and subsidiaries rejoined the affiliated group which files a
consolidated federal income tax return with Starfire and, if any, combined groups which file state income tax
returns.
17. RELATED PARTY TRANSACTIONS
On July 25, 2008, as a result of the issuance and sale of two new series of preferred stock and the related
retirement of all of the Company’s long-term debt, which were transactions the Company conducted with
affiliates of the Chairman, there was an increase in the related party holdings in the preferred stock of the
Company. See Note 11 and Note 12 for additional details regarding the issuance of the preferred stock and the
related retirement of debt. In connection with the July 25, 2008 issuance and sale of the two new series of
preferred stock, the Company entered into a Tax Allocation Agreement, dated July 25, 2008. See Note 16 for
additional details. On August 28, 2008, Starfire executed an undertaking, dated August 28, 2008 (the
“Undertaking”), for the benefit of XO Holding, Inc., and its subsidiaries, effective from July 25, 2008 (the
“Effective Date”). Starfire is an affiliate of the Chairman. The Undertaking was negotiated on behalf of the
Company by a special committee of the Board of Directors, comprised of independent members and its legal
advisers. Pursuant to the Undertaking, Starfire agrees that from the Effective Date and through the Termination
Date (as defined in the Undertaking), at its sole cost and expense, it will indemnify and defend and hold
harmless, the Company and its subsidiaries, from certain liabilities that may be imposed on the Company or
its subsidiaries or assets, as set forth in the Undertaking.
Various entities controlled by the Chairman hold the following interests in the Company:
At December 31, 2009
1
At December 31, 2008
2
Outstanding Common Stock ..................... Greater than 50% Greater than 50%
Series A, B and C Warrants
3
..................... Greater than 40% Greater than 40%
Class A Convertible Preferred Stock
4
.............. Greater than 80% Greater than 70%
Class B Convertible Preferred Stock ............... 100% 100%
Class C Perpetual Preferred Stock ................. 100% 100%
1
As reported in the January 4, 2010 Form 4 for the Chairman and other parties to such joint filing, and the January 4, 2010, Amendment
No. 23 to Schedule 13D filed by the Chairman and other parties to such joint filing.
2
As reported in the January 5, 2009 Form 4 for the Chairman, and the January 5, 2009 Amendment No. 15 to Schedule 13D filed by
the Chairman and other parties to such joint filing.
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