XO Communications 2010 Annual Report Download - page 23

the application for listing of XOH common stock on Nasdaq would be accepted. If a listing application is not
accepted, the Company could still proceed with a rights offering (subject to any applicable state law
restrictions) with the intention that XOH common stock would continue to be quoted on the Over-the-Counter
Bulletin Board and on the Pink Sheets under the ticker symbol ‘‘XOHO.OB’’. No assurance can be given that
a market for rights or a new class of preferred stock would develop.
On January 19, 2011, XOH received an offer from ACF Industries Holding Corp. (‘‘ACF Holding’’),
which is an affiliate of the Chairman, to acquire, either directly or through an affiliate, ownership of 100% of
XO Holdings in a transaction in which holders of common stock, other than ACF Holding and its affiliates,
would receive consideration of $0.70 net per share in cash. On January 21, 2011, the Company announced the
formation of a Special Committee of the Company’s Board of Directors composed of independent directors to
consider, review, and evaluate the proposal. At that time, the Board of Directors delayed further action on the
pending financing activities (reverse split, Nasdaq listing and rights offering) so that the Special Committee
could begin its review process.
Based on our current level of operations, we believe that cash flow from operations, cash on hand,
marketable securities and cash available from the Revolving Promissory Note will enable us to meet our
working capital and other obligations for at least the next 12 months. However, we believe that additional
capital is necessary to continue to implement our transformation plan and also give us the resources to take
advantage of opportunities which may arise for strategic growth and to repay amounts, if any, outstanding
when due under the terms of the Revolving Promissory Note. Our ability to fund our capital needs depends on
our future operating performance and cash flow, which are subject to prevailing economic conditions and
other factors, many of which are beyond our control. Heretofore, we have not generated sufficient free cash
flows to allow us to continue to fully fund our transformation plan or to pursue other strategic opportunities.
Accordingly, we believe it will be necessary to raise additional capital. We continue to monitor the impact of
macro-economic conditions on our business. Potential negative aspects include a general slowdown in the
demand for telecommunications services, delayed IT and other projects that have telecommunications needs,
elongated sales cycles on the part of our customers, higher involuntary churn, and delayed payments from
customers.
If we are unable to raise additional capital, we may not generate sufficient funds from operations to
execute our transformation plan or to pursue other strategic opportunities. Consequently, we may be required
to delay or reduce the scope of our capital expenditure activities, eliminate certain expenditures on long-term
initiatives and/or implement cash preservation measures. In such a capital restricted situation, we may be
forced to sell assets or securities or raise capital on an untimely or unfavorable basis, including through the
issuance of securities that are senior to all current securities.
We may seek additional financing to acquire capital assets in support of our operations, to capitalize on
opportunities which may arise to enhance our competitive position, or for general corporate purposes.
Whether or not the rights offering occurs or whether or not it is fully subscribed, we may seek additional
financing (debt or equity) to operate and grow our business, including, without limitation, the possibility of an
additional rights offering, including for securities that are senior to all current securities. There can be no
assurance that such financing will be available on terms acceptable to us or at all. If available financing is
limited or we are forced to fund our operations at a higher cost, we may need to curtail our business activities
or increase our cost of financing, both of which could have an adverse effect on our operating results and
financial condition.
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