FairPoint Communications 2007 Annual Report Download - page 6

Table of Contents
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In addition, we expect that in connection with the merger, FairPoint and Spinco will enter into a new $2,030 million senior secured
credit facility, referred to as the new credit facility, consisting of a non-amortizing revolving facility in an aggregate principal amount of
up to $200 million, referred to as the new revolver, a senior secured term loan A facility in an aggregate principal amount of up to
$500 million, referred to as the term loan A facility, a senior secured term loan B facility in an aggregate principal amount of at least
$1,130 million, referred to as the term loan B facility, and together with the term loan A facility, referred to as the new term loan, and a
delayed draw term loan facility in the amount of $200 million, referred to as the new delayed draw term loan. We expect that Spinco will
draw $1,160 million under the new term loan immediately prior to the spin-off and FairPoint will draw $470 million under the new term
loan concurrently with the closing of the merger.
We collectively refer to the merger, spin-off, the debt exchange, the issuance of the notes to the Verizon Group, FairPoint’s and
Spinco’s entry into the new credit facility and the borrowings thereunder as the transactions. We currently expect the transactions to close
on March 31, 2008, but we cannot assure you that the transactions will close on such date or that the transactions will be consummated.
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In connection with the merger, on January 15, 2007 we also entered into (i) a Transition Services Agreement, or the TSA, with
certain subsidiaries of Verizon, (ii) an Employee Matters Agreement, or the EMA, with Verizon and Spinco, (iii) a Tax Sharing
Agreement, or the tax sharing agreement, with Verizon and Spinco, and (iv) a Master Services Agreement, or the MSA, with Capgemini
U.S. LLC, or Capgemini, which was subsequently amended by the First Amendment to the Master Services Agreement, dated as of
July 6, 2007 and the Second Amendment to the Master Services Agreement, dated February 25, 2008. The TSA allows for the provision
of certain services on an interim basis following the merger. The EMA will allow for the uninterrupted continuity of employment,
compensation and benefits of Spinco employees. Through the MSA, we intend to replicate and/or replace certain existing Verizon systems
during a phased period through the fourth quarter of 2008.
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The parties to the merger have received orders, dated February 1, 2008, February 15, 2008 and February 25, 2008 of applicable
state regulatory authorities in Maine, Vermont and New Hampshire, respectively, in each case approving the transactions subject to
certain conditions.
The orders issued by the state regulatory authorities in Maine, New Hampshire and Vermont provide for, among other things:
• a 35% reduction in the rate of dividends to be paid by us following the merger (as compared to the dividend rate paid by us since
our initial public offering in 2005), which could be effective for up to ten years following the merger unless we meet certain
financial conditions set forth in the orders, and our repayment of debt related to the merger until the date these requirements and
other requirements terminate as set forth in the orders, referred to as the termination of conditions date, with funds that would
otherwise be available to pay dividends;
• restrictions on our ability to pay dividends beginning with the third full fiscal quarter following the closing of the merger, if we
are unable to satisfy specified financial ratio tests set forth in the orders;
• a requirement that we limit the cumulative amount of our dividend to not more than the cumulative adjusted free cash flow
generated by us after the closing of the merger;
• a requirement that if on December 31, 2011, our ratio of total indebtedness to adjusted EBITDA is 3.6 or higher, then we will
reduce our debt by $150 million by December 31, 2012, and if our debt is not reduced by $150 million by December 31, 2012,
then we will suspend the payment of dividends until the debt under the new credit facility is refinanced;
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