Exodus Succumbs To Chapter 11

After several months of speculation that the company was on its last legs, Exodus Communications Wednesday made it official and filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

The Santa Clara, Calif.-based company that hosts, manages and services other companies’ Web sites will also get up to $200 million in debtor-in-possession (DIP) financing from GE Capital which Exodus says it will use to keep the lights on and their suppliers and employees paid.

Exodus chairman L. William Krause, who took over the company recently from ousted CEO Ellen Hancock, says the changes in the company’s status should not affect its customers.

“Our top priority is to serve our existing customers, better than ever, so they entrust us with more of their business,” says Krause.

The company’s troubles stem way back to earlier this year when the company cut its staff by up to one-third and started cutting back in other areas. Then there was the unexpected departure of three out of ten of the company’s board members. Back in August, Hancock suggested that Exodus would entertain a takeover bid.

The company reported 17 straight quarters of growth until the bubble burst. During its quarterly earnings reporting in July, Exodus reported a loss of $583.4 million, or $1.05 a share, compared with a loss of $51.8 million, or 13 cents a share, a year ago.

“We sacrificed profitability in exchange for growth and market share, over-expanding in some areas in advance of demand, not anticipating the decline as the dot.com bubble burst and the economy weakened,” says Krause. “But the investments made in IDCs, state-of-the-art operations, customer support, and enhanced products and service offerings are greatly valued by our customers. While we address our balance sheet issues, it is these assets that form the strong base from which we will restore Exodus to financial stability.”

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