FairPoint Communications 2007 Annual Report Download - page 27

Table of Contents
• the creation of liens;
• the ability of each of our subsidiaries to guarantee indebtedness;
• specified sales of assets;
• the creation of encumbrances or restrictions on the ability of our subsidiaries to distribute and advance funds or transfer assets to
us or any other subsidiary;
• specified transactions with affiliates;
• sale and leaseback transactions;
• our ability to enter lines of business outside the communications business; and
• certain consolidations and mergers and sales and/or transfers of assets by or involving us.
Our existing credit facility also requires us to maintain specified financial ratios and satisfy financial condition tests, including,
without limitation, a maximum total leverage ratio and a minimum interest coverage ratio.
We expect the new credit facility and the indenture governing the notes to contain similar restrictions in favor of the lenders and
holders, respectively.
Our ability to comply with these covenants, ratios or tests contained in the agreements governing our indebtedness may be affected
by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants,
ratios or tests could result in a default under the agreements governing our indebtedness. Under certain conditions, covenants prohibit us
from making dividend payments on our common stock. In addition, upon the occurrence of an event of default, the lenders under our
existing credit facility (or the new credit facility following the consummation of the transactions) could elect to declare all amounts
outstanding, together with accrued interest, to be immediately due and payable. If we were to be unable to repay those amounts, the lenders
under our existing credit facility (or the new credit facility following the consummation of the transactions) could proceed against the
security granted to them to secure that indebtedness or the lenders could commence collection or bankruptcy proceedings against us. If the
lenders accelerate the payment of any outstanding indebtedness, our assets may not be sufficient to repay all of our indebtedness.
As a result of general economic conditions, conditions in the lending markets, the results of our business or for any other reason, we
may elect or be required to amend or refinance our existing credit facility (or the new credit facility following the consummation of the
transactions), at or prior to maturity, or enter into additional agreements for indebtedness. Any such amendment, refinancing or additional
agreement may contain covenants which could limit in a significant manner our operations and our ability to pay dividends on our
common stock.
Pursuant to the fifth amendment to our existing credit facility, we agreed to significant restrictions on the operation of our business,
including with respect to the payment of dividends, capital expenditures and future acquisitions. See “Item 1. Business — Recent
Developments — Amendment to Our Existing Credit Facility.”
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Our initial public offering in February 2005 resulted in an “ownership change” within the meaning of the U.S. federal income tax
laws addressing net operating loss carryforwards, alternative minimum tax credits and other similar tax attributes. Moreover, the merger
will result in a further ownership change for these purposes. As a result of these ownership changes, there are specific limitations on our
ability to use our net operating loss carryforwards and other tax attributes from periods prior to the initial public offering and the merger.
Although it is not expected that these limitations will materially affect our U.S. federal and state income tax liability in the near-term, it is
possible in the future that if we were to generate taxable income in excess of the limitation on usage of net operating loss carryforwards that
these limitations could limit our ability to utilize the carryforwards and, therefore, result in an increase in our U.S. federal and state
income tax payments. In addition, in the future we will be required to pay cash to satisfy our tax liabilities when all of our net operating
loss carryforwards have been used or have expired. Limitations on our usage of net operating
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