Xerox

Company Description

Xerox Corporation ("Xerox" or the "Company") is a leader in the global document market, developing, manufacturing, marketing, servicing, and financing a complete range of document equipment, software, solutions and services. Xerox operates in over 130 countries worldwide, and distributes its products in the Western Hemisphere through divisions, wholly-owned subsidiaries and third-party distributors.

Situation Overview

In October 2000, the Company was downgraded and it lost access to the commercial paper market. At the time, the Company had $5.4 billion of commercial paper outstanding, all of which was due within the following three months. As a result, Xerox fully drew down on its $7 billion backstop revolving credit facility due October 2002. Even with the drawing, the Company’s liquidity was in jeopardy.

Transaction Summary

Blackstone was retained in November 2000 to assist Xerox in addressing its liquidity issues and to effectuate a restructuring. Blackstone and management developed a short-term cash forecast and a long-term business plan and cash forecast to serve as a basis for both assessing the Company’s liquidity needs and developing the framework for a restructuring of its existing $7 billion revolver. In addition, Blackstone assisted the Company in:

• assessing long term viability and strategic direction
• managing its banking relationships
• navigating defaults on its various indentures and agreements
• designing a restructuring plan
• effectuating a debt/equity 3(a)(9) exchange
• providing guidance to the Board of Directors during two periods when its 10K report was not forthcoming

In June 2002, Xerox and Blackstone completed the first phase of its recapitalization through the out-of-court-restructuring of the Company’s $7 billion revolving credit facility, obtaining approvals from 100% of the creditors involved. Blackstone directly participated in all aspects of negotiations with Xerox’s lenders, including advising it on the terms of the new credit facility and on capital markets transactions the Company completed in 2001 and 2002 which were critical components to the restructuring effort. Blackstone served as the primary liaison between the Company and its lenders. The restructuring provided for a $3.5 billion repayment of the bank facility and an extension of the remaining $3.5 billion until March 2005 on terms and conditions consistent with Xerox’s projected financial needs.

The renegotiation of the revolving credit facility was a significant event in Xerox’s turnaround. It provided the Company with the breathing room it needed to effectively execute the remainder of its turnaround strategy and embark upon the final phase of its recapitalization.

Upon continued achievement of its operating turnaround, in February 2003 Xerox engaged Blackstone as financial advisor in the second phase of its recapitalization, the refinancing of the $3.5 billion remaining revolving credit facility. Blackstone advised and assisted Xerox management on the:

• development of strategic objectives
• consideration of available alternatives
• selection of underwriters and agents
• negotiation of terms and conditions of new securities and agreements, and
• implementation of an ultimately successful refinancing

Blackstone acted as a critical member of Xerox’s “internal team” throughout the process. As such, Blackstone participated side-by-side with Xerox’s legal, treasury, tax, accounting and financial planning professionals as well as Xerox’s outside counsel.

Xerox completed a $3.6 billion recapitalization that included a new $1 billion credit facility and public offerings of common stock, 3-year mandatory convertible preferred stock and 7-year and 10-year senior unsecured notes. Xerox used the net proceeds from the public offerings and the new credit facility as well as a portion of its current cash balance to prepay and terminate its original bank facility.

Xerox endured over two years of financial turbulence while dealing with a multitude of third-party investigations, all while in the midst of its operational turnaround. Blackstone worked with Xerox through this difficult time and was an important member of the Xerox team as the Company achieved what has been and continues to be a very successful turnaround.