FairPoint Communications 2007 Annual Report Download - page 24

Table of Contents
condition, contractual restrictions, provisions of applicable law and other factors that our board of directors may deem relevant. Our
board of directors may decrease the level of dividends provided for in the dividend policy or entirely discontinue the payment of
dividends. Our existing credit facility contains significant restrictions on our ability to make dividend payments and the terms of our
future indebtedness are expected to contain similar restrictions.
As a condition to the approval of the transactions by state regulatory authorities, we have agreed that we will be subject to reductions
in our dividend rate and certain other restrictions on the payment of dividends following the merger. Until the termination of conditions
date, we may not pay annual dividends in excess of approximately $1.03 per share. Beginning with the third full quarter following the
closing of the merger until the termination of conditions date, we may not declare or pay any dividend unless (i) for the three preceding
quarters, the ratio of adjusted EBITDA to interest expense is at least 2.25 and the ratio of our indebtedness to adjusted EBITDA does not
exceed (a) 5.50 or (b) after the fifth full quarter following the closing of the merger, 5.0 and (ii) for the immediately preceding quarter, the
interest coverage ratio is at least 2.5 and the ratio of indebtedness to adjusted EBITDA does not exceed 5.0. Beginning with the third full
quarter following the closing of the merger until the termination of conditions date, we will limit the cumulative amount of dividends on
our common stock to not more than the cumulative adjusted free cash flow we generate after the closing of the merger. 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. See “Item 1. Business — Recent Developments — Regulatory Conditions,” “Item 1.
Business — Regulatory Environment — State Regulation — Regulatory Conditions to the Merger” and “Item 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividend Policy and Restrictions.” In
addition to these conditions and requirements imposed by the regulatory orders, the new credit facility and the indenture governing the
notes will contain conditions and requirements with respect to our payment of dividends, and certain of these conditions and requirements
may be more restrictive than the conditions and requirements imposed by the regulatory orders. See “Item 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividend Policy and Restrictions.”
There can be no assurance that we will generate sufficient cash from continuing operations in the future, or have sufficient surplus
or net profits, as the case may be, under Delaware law, or be permitted under the terms of the regulatory orders and the agreement
governing our indebtedness to pay dividends on our common stock in accordance with the dividend policy. The reduction or elimination
of dividends may negatively affect the market price of our common stock.
Based on the dividend restrictions contained in the fifth amendment to our existing credit facility, we anticipate that we will not be
permitted to pay dividends on our common stock pursuant to our existing credit facility; provided that we would be permitted to declare a
divided payment at any time prior to April 30, 2008, so long as the payment of such dividend is expressly subject to the consummation
of the merger and related transactions and we have repaid in full all of the obligations owing under our existing credit facility.
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A significant amount of our cash flow from operations will be dedicated to capital expenditures and debt service. The fifth
amendment to our existing credit facility requires us to use a significant portion of our excess cash flow to reduce the indebtedness
outstanding under our existing credit facility. In addition, we currently expect to distribute a significant portion of our remaining cash flow
to our stockholders in the form of a quarterly dividend (subject to restrictions imposed by the regulatory orders approving the transactions
and the agreements governing our existing and future indebtedness). As a result, there can be no assurance that the
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