FairPoint Communications 2007 Annual Report Download - page 37
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Table of Contents
Pursuant to the distribution agreement, we have certain rights to cause Verizon to transfer to us any assets required to be transferred
to Spinco or its subsidiaries under that agreement which were not transferred as required. If Verizon were unable or unwilling to transfer
those assets to us, or Verizon and we were to disagree about whether those assets were required to be transferred to Spinco under the
distribution agreement, we might not be able to obtain those assets or similar assets from others.
Completion of the spin-off and the merger is conditioned upon the receipt of certain government consents, approvals, orders and
authorizations. The parties have received the required approvals of the FCC and of state regulatory authorities.
However, the state regulatory authorities in Maine, New Hampshire and Vermont that approved the spin-off and the merger have
imposed conditions on us that could have a material adverse effect on our business, financial condition and results of operations. These
conditions include mandatory capital expenditures, minimum service quality standards, commitments to expand substantially the
availability of broadband service and restrictions on our payment of dividends. See “Item 1. Business — Regulatory Environment —
State Regulation — Regulatory Conditions to the Merger.”
Certain contracts, including supply contracts used in the Northern New England business, will not be assigned to Spinco by the
Verizon Group. Accordingly, we will have to obtain new agreements for the goods and services covered by these contracts in order to
operate the Spinco business following the merger. There can be no assurance that we will be able to replace these contracts on terms
favorable to us or at all. Our failure to enter into new agreements prior to the closing of the merger may have a material adverse impact on
our business, financial conditions and results of operations following the merger.
In addition, certain wholesale, large business, Internet service provider and other customer contracts which are required to be
assigned to Spinco by the Verizon Group require the consent of the customer party to the contract to effect this assignment. The Company
and the Verizon Group may be unable to obtain these consents on terms favorable to us or at all, which could have a material adverse
impact on our business, financial condition and results of operations following the merger.
We currently operate 30 different rural local exchange carriers in 18 states. No single state accounted for more than 22% of our
access line equivalents as of December 31, 2007, which limited our exposure to competition, local economic downturns and state
regulatory changes. Following the merger, we expect that 88% of our access line equivalents will be located in Maine, New Hampshire and
Vermont. As a result of this geographic concentration, our financial results will depend significantly upon economic conditions in these
markets. A deterioration or recession in any of these markets could result in a decrease in demand for our services and resulting loss of
access lines which could have a material adverse effect on our business, financial condition and results of operations.
In addition, if state regulators in Maine, New Hampshire or Vermont were to take action that was adverse to our operations in those
states, we could suffer greater harm from that action by state regulators than we would from action in other states because of the
concentration of our operations in those states following the merger.
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