Frontier Communications 2010 Annual Report Download - page 21

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•permit certain wholly owned subsidiaries owned by the Acquired Business at the time of the Merger to
cease the active conduct of the Acquired Business to the extent it was conducted immediately prior to
the Merger; or
•voluntarily dissolve, liquidate, merge or consolidate with any other person, unless we survive and the
transaction otherwise complies with the restrictions in the tax sharing agreement.
Nevertheless, we will be permitted to take any of the actions described above if we obtain Verizon’s
consent, or if we obtain a supplemental IRS private letter ruling (or an opinion of counsel that is reasonably
acceptable to Verizon) to the effect that the action will not affect the tax-free status of the Merger. However,
the receipt of any such consent, opinion or ruling does not relieve us of any obligation we have to indemnify
Verizon for an action we take that causes the Transaction to be taxable to Verizon.
Because of these restrictions, until July 2012, we may be limited in the amount of capital stock that we
can issue to make acquisitions or to raise additional capital. Also, our indemnity obligation to Verizon may
discourage, delay or prevent a third party from acquiring control of us during this period in a transaction that
the holders of our securities might consider favorable.
We may complete a future significant strategic transaction that may not achieve intended results or
could increase the number of our outstanding shares or amount of outstanding debt or result in a change of
control.
We continuously evaluate and may in the future enter into additional strategic transactions. Any such
transaction could happen at any time, could be material to our business and could take any number of forms,
including, for example, an acquisition, merger or a sale of all or substantially all of our assets.
Evaluating potential transactions and integrating completed ones may divert the attention of our
management from ordinary operating matters. The success of these potential transactions will depend, in part,
on our ability to realize the anticipated growth opportunities and cost synergies through the successful
integration of the businesses we acquire with our existing business. Even if we are successful in integrating
acquired businesses, we cannot assure you that these integrations will result in the realization of the full benefit
of any anticipated growth opportunities or cost synergies or that these benefits will be realized within the
expected time frames. In addition, acquired businesses may have unanticipated liabilities or contingencies.
If we complete an acquisition, investment or other strategic transaction, we may require additional
financing that could result in an increase in the number of our outstanding shares or the aggregate amount of
our debt, although there are restrictions on our ability to issue additional shares of stock for these purposes until
July 2012. See “We will be unable to take certain actions until July 2012 because such actions could jeopardize
the tax-free status of the spin-off or the merger, and such restrictions could be significant.” The number of
shares of our common stock or the aggregate principal amount of our debt that we may issue may be
significant. A strategic transaction may result in a change in control of our company or otherwise materially
and adversely affect our business.
Risks Related to Liquidity, Financial Resources and Capitalization
If the lingering impact of the ongoing economic uncertainty continues through 2011, it may have an
impact on our business and financial condition.
Disruption and uncertainty in the capital markets, and tightening of credit availability may continue
through 2011. This economic scenario may affect the financial health of our customers, vendors and partners,
which in turn may negatively affect our revenues, operating expenses and cash flows. In addition, we have a
$750.0 million revolving credit facility. Although we believe, based on currently available information, that the
financial institutions with commitments under the revolving credit facility will be able to fulfill their
commitments to us, as applicable, future adverse economic conditions could prevent them from doing so.
20
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES