FairPoint Communications 2005 Annual Report Download - page 86

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(f) Other
In conjunction with the senior notes payable to the RTFC and the RTB and the first mortgage notes payable to the Rural Utilities Service, certain of the
Company’s subsidiaries are subject to restrictive covenants limiting the amounts of dividends that may be paid. A portion of the RTFC notes, the full amount
of the RTB notes and notes payable to the Rural Utilities Service were repaid in 2005 using proceeds from the Company’s initial public offering and
borrowings under the 2005 Senior Secured Notes. The Company was in compliance with all of these covenants as of December 31, 2005.
The Company also has $0.4 million unsecured demand notes payable to various individuals and entities with interest payable at 5.25% at December 31,
2005 and 2004.
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The Series A preferred stock was issued to the lenders in connection with the Carrier Services debt restructuring. The Series A preferred stock is
nonvoting and is not convertible into common stock of the Company. The Series A preferred stock provides for the payment of dividends at a rate equal to
17.428% per annum. Dividends on the Series A preferred stock are payable, at the option of the Company, either in cash or in additional shares of Series A
preferred stock. The Company has the option to redeem any outstanding Series A preferred stock at any time. The redemption price for such shares is payable
in cash in an amount equal to $1,000 per share plus any accrued but unpaid dividends thereon (the Preference Amount). Under certain circumstances, the
Company would be required to pay a premium of up to 6% of the Preference Amount in connection with the redemption of the Series A preferred stock. In
addition, upon the occurrence of certain events such as (i) a merger, consolidation, sale, transfer, or disposition of at least 50% of the assets or business of the
Company and its subsidiaries; (ii) a public offering of the Company’s common stock which yields in the aggregate at least $175.0 million; or (iii) the first
anniversary of the maturity of the Company’s senior subordinated notes (which first anniversary will occur in May 2011), the Company would be required to
redeem all outstanding shares of the Series A preferred stock at a price per share equal to the Preference Amount, unless prohibited by the Company’s credit
facility or by the indentures governing its senior subordinated notes. In connection with the March refinancing, certain holders of the Series A preferred stock
agreed to reduce the dividend rate payable on the shares they hold from 17.428% to 15% for the period from March 6, 2003 to March 6, 2005.
In May 2003, the FASB issued SFAS No. 150, 
SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.
SFAS No. 150 applies specifically to financial instruments that companies have historically presented within their financial statements either as equity or
between the liabilities section and the equity section, rather than as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial
instruments of a nonpublic entity, in which this statement shall be effective for fiscal periods beginning after December 15, 2003. For purposes of adoption of
SFAS No. 150, the Company met the definition of a nonpublic entity. The Company prospectively adopted SFAS No. 150 effective July 1, 2003. The SFAS
No. 150 adoption had no impact on net income (loss) attributed to common shareholders for any of the periods presented.
SFAS No. 150 requires the Company to classify as a long-term liability its Series A preferred stock and to classify dividends and accretion from the
Series A preferred stock as interest expense. Such stock is
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