FairPoint Communications 2004 Annual Report Download - page 32

the refinancing may occur on less favorable terms, which may materially adversely affect our ability to pay dividends. If we were unable to
refinance our credit facility, our failure to repay all amounts due on the maturity date would cause a default under our credit facility. We expect
our required principal repayments under the term loan facility of our credit facility to be approximately $588.5 million at its maturity in
February 2012. Our interest expense may increase significantly if we refinance our credit facility on terms that are less favorable to us than
the terms of our credit facility.
We generally have the ability to issue additional common stock, other equity securities or preferred stock for such consideration and on
such terms and conditions as are established by our board of directors in its sole discretion and without the approval of the holders of our
common stock. It is possible that we will fund acquisitions, if any, through the issuance of additional common stock, other equity securities
or preferred stock. Holders of any additional common stock or other equity securities issued by us may be entitled to share equally with the
existing holders of our common stock in dividend distributions. The certificate of designation of any preferred stock issued by us may provide
that the holders of preferred stock are senior to the holders of our common stock with respect to the payment of dividends. If we were to issue
additional common stock, other equity securities or preferred stock, it would be necessary for us to generate additional cash in order for us to
distribute dividends at the same rate per share as distributed prior to any such additional issuance.
Restrictions on Payment of Dividends
Under Delaware law, our board of directors may declare dividends only to the extent of our "surplus" (which is defined as total assets at
fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then current and/or
immediately preceding fiscal year. We do not anticipate that we will have (and in prior years we would not have had) sufficient earnings, for
purposes of Delaware law, to pay dividends at the levels described above and therefore expect that we will pay dividends out of surplus.
Although we believe we will have sufficient surplus to pay dividends at the anticipated levels during the four fiscal quarters ending March 31,
2006, our board of directors will seek periodically to assure itself of this before actually declaring any dividends.
Our credit facility restricts our ability to declare and pay dividends on our common stock as follows:
•For the period ending March 31, 2005, we will be permitted to pay dividends as long as no default or event of default under our credit
facility has occurred and is continuing and we have at least $10 million of cash on hand (including unutilized commitments under our
credit facility's revolving facility);
•After March 31, 2005, we may use all of our available cash accumulated after April 1, 2005 plus certain incremental funds to pay
dividends, but we may not in general pay dividends in excess of such amount. "Available cash" is defined in our credit facility as
Adjusted EBITDA minus interest expense, capital expenditures (unless funded by long-term debt, equity or the proceeds from asset
sales or insurance recovery events), cash taxes, repayments of our indebtedness, cash consideration paid for acquisitions (unless
funded by debt or equity) and cash paid to make certain investments. We may not pay dividends if a default or event of default under
our credit facility has occurred and is continuing or would occur as a consequence of such payment, if our leverage ratio is above 5.00
to 1.00 or if we do not have at least $10 million of cash on hand (including unutilized commitments under our credit facility's revolving
facility).
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Description of Certain
Indebtedness—Credit Facility."
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