FairPoint Communications 2007 Annual Report Download - page 20

Table of Contents
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 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;
• the required capital contribution of approximately $316.2 million by the Verizon Group;
• requirements that we make (a) average capital expenditures in Maine of $48 million, $48 million and $47 million, respectively in
the first three years following the closing, (b) average capital expenditures in New Hampshire of $52 million each of the first
three years following the closing and $49 million in each of the fourth and fifth years following the closing, (c) $50 million in
additional capital expenditures in New Hampshire on other network improvement expenditures approved by the NHPUC using
an equivalent portion of the required capital contribution provided by the Verizon Group, and (d) capital expenditures in Vermont
of $41 million for the first year and averaging $40 million per year for the first two years and $40 million averaged for the first
three years following the closing;
• a requirement that we remove double poles in Vermont, make service quality improvements and address certain broadband
buildout commitments under a performance enhancement plan in Vermont; and it in the case of double pole removal and service
quality improvements under the performance enhancement plan using funds, up to $6.7 million and $25.0 million, respectively,
provided by the Verizon Group as part of the required capital contribution;
• a requirement that we pay annually the greater of $45 million or 90% of our annual free cash flow (defined as the cash flow
remaining after all operating expenses, interest payments, tax payments, capital expenditures, dividends and other routine cash
expenditures have occurred) to reduce the principal amount of the term loan portion of our new credit facility;
• requirements that we expand substantially the availability of broadband service (such as DSL) to specified levels in each of
Maine, New Hampshire and Vermont; and
• a requirement that the Verizon Group pay $15 million to us for each of the first and second years after the closing of the merger if
in either such year our line losses in New Hampshire are greater than 10%.
The terms of the orders also prohibit us from consummating any acquisition with a transaction value in excess of $100 million
during a period of one year following the completion of the cutover from the systems that will be provided by the Verizon Group during
the period of the transition services agreement to our systems, and for a period of up to three years following the closing of the merger if
certain financial tests are not met. The order issued by the NHPUC also prohibits us from consummating any acquisition until it meets
specified service quality benchmarks.
Prior to the closing of the transactions, the Company, Verizon and Spinco will amend the transaction documents as necessary to
reflect the terms of the final orders of the state regulatory authorities. In particular, the Verizon Group will be required to provide at, or
prior to, closing a contribution to Spinco that would increase Spinco’s working capital in the amount of not less that approximately
$316.2 million. This contribution would be in addition to the amount specified for working capital in the distribution agreement between
Verizon and Spinco and Spinco will not be entitled to receive credit for amounts up to $12.0 million
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