FairPoint Communications 2005 Annual Report Download - page 34

· even if our dividend policy was not modified or revoked, the actual amount of dividends distributed under this policy and the decision to make any
distributions are entirely at the discretion of our board of directors;
· the amount of dividends distributed is subject to covenant restrictions under our credit facility;
· the amount of dividends distributed is subject to restrictions under Delaware law;
· our stockholders have no contractual or other legal right to receive dividends; and
· we may not have enough cash to pay dividends due to changes in our cash from operations, distributions we receive from minority investments and
passive partnership interests, working capital requirements and/or anticipated cash needs.
We believe that our dividend policy limits, but does not preclude, our ability to pursue growth. If we continue paying dividends at the level currently
anticipated under our dividend policy, we expect that we would need additional financing to fund significant acquisitions or to pursue growth opportunities
requiring capital expenditures that are significantly beyond our current expectations. However, we intend to retain sufficient cash after the distribution of
dividends to permit the pursuit of growth opportunities that do not require material capital investment.
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.
Our credit facility restricts our ability to declare and pay dividends on our common stock as follows:
· 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 (a) minus (i) interest expense,
(ii) repayments of indebtedness other than repayments of the revolving facility (unless funded by debt or equity), (iii) capital expenditures (unless
funded by long-term debt, equity or the proceeds from asset sales or insurance recovery events), (iv) cash taxes, (v) cash consideration paid for
acquisitions (unless funded by debt or equity), (vi) cash paid to make certain investments, and (vii) certain non-cash items excluded from Adjusted
EBITDA and paid in cash and (b) plus (i) the cash amount of extraordinary gains and gains on sales of assets and (ii) certain non-cash items
excluded from Adjusted EBITDA and received in cash. “Adjusted EBITDA” is defined in our credit facility as Consolidated Net Income (which is
defined in our credit facility and includes distributions from investments) (a) plus the following to the extent deducted from Consolidated Net Income:
provision for income taxes, interest expense, depreciation, amortization, losses on sales of assets and other extraordinary losses, and certain other non-
cash items, and (b) minus, to the extent included in Consolidated Net Income, gains on sales of assets and other extraordinary gains and all non-cash
items.
· We may not pay dividends if a default or event of default under our credit facility has occurred and is continuing or would exist after giving effect to
such payment, if our leverage ratio (total debt (net of cash) divided by Adjusted EBITDA) 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).
Our credit facility also permits us to use available cash to repurchase shares of our capital stock, subject to the same conditions.
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