FairPoint Communications 2009 Annual Report Download - page 79

Table of Contents
In addition, as a result of the Restatement, we determined that we were not in compliance with the interest coverage ratio maintenance covenant and
the leverage ratio maintenance covenant under our Pre-petition Credit Facility for the measurement period ended June 30, 2009, which constituted an
event of default under each of the Pre-petition Credit Facility and the Swaps, and may have constituted an event of default under the Notes, in each case
at June 30, 2009.
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As a condition to the approval of the Merger and related transactions by state regulatory authorities, we have agreed to make capital expenditures
following the completion of the Merger. As a condition to the approval of the transactions by the state regulatory authority in Maine, we agreed that,
following the closing of the Merger, we will make capital expenditures in Maine during the first three years after the closing of $48 million in the first
year and an average of $48 million in the first two years and an average of $47 million in the first three years. We are also required to expend over a five
year period not less than $40 million on equipment and infrastructure to expand the availability of broadband services in Maine, which is expected to
result in capital expenditures in Maine in excess of the minimum capital expenditure requirements described above.
The order issued by the state regulatory authority in Vermont also requires us to make capital expenditures in Vermont during the first three years
after the closing of the Merger in the amount of $41 million for the first year and averaging $40 million per year in the first two years and averaging
$40 million per year in the first three years following the closing. Pursuant to the Vermont order, we are required to remove double poles in Vermont,
make service quality improvements and address certain broadband build-out commitments under a performance enhancement plan in Vermont, using, in
the case of double pole removal, $6.7 million provided by the Verizon Group and, in the case of service quality improvements under the performance
enhancement plan, $25 million provided by the Verizon Group. In Vermont we have also agreed to certain broadband build-out milestones that require
us to reach 100% broadband availability in 50% of our exchanges in Vermont, which could result in capital expenditures of $44 million over such
period in addition to the minimum capital expenditures required by the Vermont order as set forth above.
We are also required to make capital expenditures in New Hampshire of at least $52 million during each of the first three years after the closing of
the Merger and $49 million during each of the fourth and fifth years after the closing of the Merger. The amount of any shortfall in any year must be
expended in the following year, and the amount of any excess in any year may be deducted from the amount required to be expended in the following
year. If any shortfall in any year exceeds $3 million, then the amount that we are required to spend in the following year shall be increased by 150% of
the amount of such shortfall. If there is any shortfall at the end of the fifth year after the closing of the Merger, we will be required to spend 150% of the
amount of such shortfall at the direction of the NHPUC. The NHPUC may require that a portion of these increased capital expenditures be directed
toward state programs rather than invested in our assets. We are required to spend at least $56.4 million over the 60-month period following the closing
of the Merger on broadband infrastructure in New Hampshire, which is expected to result in capital expenditures in New Hampshire in excess of the
minimum capital expenditure requirements described above.
We also had the availability of $49.2 million contributed to us by the Verizon Group, and $1.1 million in interest earned thereon, to make capital
and operating expenditures in New Hampshire in addition to those described above for unexpected infrastructure improvements proposed by us and
approved by the NHPUC. These funds were reflected on the Company's March 31, 2009 balance sheet as restricted cash to be used only in accordance
with the NH 2008 Settlement. During the three months ended June 30, 2009, we requested that these funds be made available for general working
capital purposes. By letter, dated as of May 12, 2009, the NHPUC approved our request, conditioned upon our commitment to invest funds on certain
NHPUC approved network improvements in New
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