FairPoint Communications 2007 Annual Report Download - page 45

Table of Contents
• 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.
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. See “Item 1. Business — Recent
Developments — Regulatory Conditions,” “Item 1. Business — Regulatory Environment — State Regulation — Regulatory Conditions to
the Merger” and “— Resections on Payment of Dividends.”
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 may declare a dividend at any
time prior to April 30, 2008 so long as the repayment of such dividend is expressly subject to the consummation of the merger and related
transactions and the repayment in full of all obligations owing under our existing credit facility.
We believe that our dividend policy limits, but does not preclude, our ability to pursue growth. If we pay dividends at the level
currently anticipated under our expected 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.
At the time that our board of directors approved the merger, we expected to maintain our current dividend policy for the Company
following the transactions, subject to the limitations and restrictions described below under “— Restrictions on Payments of Dividends.”
However, following the transactions we will pay dividends at a reduced annual rate of no more than $1.03 per share beginning with the
first full fiscal quarter following the closing of the merger. See “Item 1. Business — Recent Developments — Regulatory Conditions” and
“Item 1. Business — Regulatory Environment — State Regulation — Regulatory Conditions to the Merger.”


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 existing 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 existing 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) and (c) minus the
aggregate principal amount of term loans actually repaid (or required to be repaid) on a date of determination or the next business
day thereafter pursuant to a mandatory excess cash flow sweep. “Available cash” is defined in our existing credit facility as
Adjusted EBITDA (determined without regard to any portion of Adjusted EBITDA attributable to merger operating expense add-
backs, one-time restructuring add-backs and excluded capital expenditure amounts pursuant to the terms of the existing credit
agreement) (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
43