FairPoint Communications 2007 Annual Report Download - page 7

Table of Contents
• 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 New Hampshire
Public Utilities Commission, referred to as 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, including 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 TSA 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.
We have agreed to the appointment of an independent third-party monitor for the cutover process contemplated by the TSA. The
monitor will consult with representatives of the Vermont Department of Public Service, referred to as the VDPS, the Maine Public Utilities
Commission, referred to as the MPUC, and the NHPUC. The monitor will evaluate and approve our testing and cutover readiness
process to evaluate our readiness to support our operations after the cutover from the systems that will be provided by the Verizon Group
during the period of the TSA.
The parties have also obtained the approval of the Federal Communications Commission, or the FCC, in an order dated January 9,
2008 that imposed no additional conditions.
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On February 25, 2008, we entered into the fifth amendment to our existing credit facility, as amended, referred to as our existing
credit facility, in order to accommodate the expected March 31, 2008 closing date for the merger. The fifth amendment to our existing
credit facility (i) allows us to continue to make pre-closing expenditures related to the merger during the three months ending March 31,
2008; (ii) provides accommodations for certain restructuring charges that we would incur if the merger is not consummated; (iii) amends
the interest coverage ratio maintenance covenant to require our interest coverage ratio to be not less than 1.85:1.00 for any fiscal quarter
ending after December 31, 2007 and on or prior to December 31, 2008, 2.50:1.00 for any fiscal quarter ending after December 31, 2008
and on or prior to December 31, 2009 and 2.75:1:00 for any fiscal quarter ending thereafter; (iv) amends the leverage ratio maintenance
covenant to require our leverage ratio to not exceed 6.50:1.00 for any quarter ending after December 31, 2007 and on or
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