FairPoint Communications 2006 Annual Report Download - page 36

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· 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.
Prior to the closing of the Merger, we expect to invest approximately $95 million to $110 million in transition and other costs in connection with the
transaction. Verizon has agreed to reimburse us for up to $40 million of these pre-closing transition costs as described in the Merger Agreement. A significant
portion of the amount we expect to spend on pre-closing transition costs will be spent on assets and services which will not be useful in our existing business.
We expect to fund these expenditures principally from the proceeds we expect to receive from the sale of our interest in Orange County Poughkeepsie Limited
Partnership to an affiliate of Verizon, which sale is expected to occur during the second quarter of 2007. See “—Restrictions on Payment of Dividends” below.
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 our cumulative distributable cash to pay dividends, but may not in general pay dividends in excess of the amount of our cumulative
distributable cash. “Cumulative distributable cash” is defined in our credit facility as the amount of “available cash” generated beginning on April 1,
2005 through the end of the Company’s most recent fiscal quarter for which financial statements are available and a compliance certificate has been
delivered (a) minus the aggregate amount of dividends paid after July 30, 2005 and the aggregate amount of investments made after April 1, 2005
using such cash, (b) plus the aggregate amount of distributions received from such investments (not to exceed the amount originally invested).
“Available cash” is defined in our credit facility as Adjusted EBITDA (a) minus (i) cash interest expense (adjusted for amortization and swap
interest), (ii) scheduled principal payments on indebtedness, (iii) consolidated capital expenditures, (iv) investments, (v) cash income taxes, and
(vi) non-cash items excluded from Adjusted EBITDA and paid in cash and (b) plus (i) the cash amount of any extraordinary gains and gains realized
on asset sales other than in the ordinary course of business and (ii) cash received on account of non-cash gains and non-cash income excluded from
Adjusted EBITDA. “Adjusted EBITDA” is defined in our credit facility as Consolidated Net Income (which is defined in the credit facility and
includes distributions from investments) (a) plus the following to the extent deducted from Consolidated Net Income: provision for income taxes,
consolidated interest expense, depreciation, amortization, losses on sales of assets and other extraordinary losses, certain one-time charges recorded as
operating expenses related to the transactions contemplated by the Merger Agreement and certain other non-cash items, each as defined, (b) minus gains
on sales of assets and other extraordinary gains and all non-cash items increasing Consolidated Net Income.
· 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 is above 5.25 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).
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