FairPoint Communications 2010 Annual Report Download - page 61

Table of Contents
We expect our capital expenditures will be approximately $180 million to $200 million in 2011. We anticipate that we will fund these expenditures through
cash flows from operations, cash on hand and funds available under the Exit Credit Agreement.
We have a five year contract with our primary IT vendor which was executed in 2009. In 2010, we spent approximately $28.3 million for services under
such contract, of which approximately $12.9 million was capitalized in accordance with the Intangibles — Goodwill and Other Topic and the Interest Topic
of the ASC and approximately $15.4 million was included in operating expenses. Our contract includes a baseline spend in 2011 with this vendor of
approximately $22.1 million, which will be allocated between capital expenditures and operating expenses depending on the type of activities performed. While
the contract term is five years, we have the ability to reduce the amount we spend with this vendor below the baseline amount by either in-sourcing certain
work functions or finding alternate vendors. In order to reduce our spend below the contractual amount, we are required to provide six months notice to the
vendor for the work functions we wish to move or eliminate.
We expect our contributions to our Company sponsored employee pension plans and post-retirement healthcare plans will be approximately $9.3 million in
2011.
Exit Credit Agreement
On the Effective Date, FairPoint Communications and FairPoint Logistics entered into the Exit Credit Agreement. The Exit Credit Agreement is comprised of
the Exit Revolving Facility and the Exit Credit Agreement Loans. On the Effective Date, we paid to the lenders providing the Exit Revolving Facility an
aggregate fee equal to $1.5 million. Interest on the Exit Credit Agreement Loans accrues at an annual rate equal to either (a) LIBOR plus 4.50%, with a
minimum LIBOR floor of 2.00% for the Exit Term Loan, or (b) a base rate plus 3.50% per annum in which base rate is equal to the highest of (x) Bank of
America’s prime rate, (y) the federal funds effective rate plus 0.50% and (z) LIBOR (with minimum LIBOR floor of 2.00%) plus 1.00%. In addition, we are
required to pay a 0.75% per annum commitment fee on the average daily unused portion of the Exit Revolving Facility. The entire outstanding principal
amount of the Exit Credit Agreement Loans is due on the Exit Maturity Date; provided that on the third anniversary of the Effective Date, we must elect
(subject to the absence of events of default under the Exit Credit Agreement) to continue the maturity of the Exit Revolving Facility and must pay a continuation
fee of $0.75 million and, on the fourth anniversary of the Effective Date, we must elect (subject to the absence of events of default under the Exit Credit
Agreement) to continue the maturity of the Exit Revolving Facility and must pay a second continuation fee of $0.75 million. The Exit Credit Agreement
requires quarterly repayments of principal of the Exit Term Loan after the first anniversary of the Effective Date. In the second and third years following the
Effective Date, such quarterly payments shall each be in an amount equal to $2.5 million; during the fourth year following the Effective Date, such quarterly
payments shall each be in an amount equal to $6.25 million; and for the first three quarters during the fifth year following the Effective Date, such quarterly
payments shall each be in an amount equal to $12.5 million, with all remaining outstanding amounts owed in respect of the Exit Term Loan being due and
payable on the Exit Maturity Date.
The Exit Credit Agreement Loans are guaranteed by all of our current and future direct and indirect subsidiaries, other than (x) any subsidiary that is
prohibited by applicable law from guaranteeing the obligations under the Exit Credit Agreement Loans and/or providing any security therefor without the
consent of a state public utilities commission, and (y) the Exit Financing Loan Parties. The Exit Credit Agreement Loans as a whole are secured by liens upon
substantially all existing and after-acquired assets of the Exit Financing Loan Parties, with first lien and payment waterfall priority for the Exit Revolving
Facility and second lien priority for the Exit Term Loan.
The Exit Credit Agreement contains customary representations, warranties and affirmative covenants. In addition, the Exit Credit Agreement contains
restrictive covenants that limit, among other things, the ability of the Exit Financing Loan Parties to incur indebtedness, create liens, engage in mergers,
consolidations and other fundamental changes, make investments or loans, engage in transactions with affiliates, pay dividends, make capital expenditures
and repurchase capital stock. The Exit Credit Agreement also contains minimum interest coverage and maximum total leverage maintenance covenants, along
with a maximum senior leverage covenant measured upon the incurrence of certain types of debt. The Exit Credit Agreement contains certain events of default,
including failure to make payments, breaches of covenants and representations, cross defaults to other material indebtedness, unpaid and uninsured
judgments, changes of control and bankruptcy events of default. The lenders’ commitments to fund amounts under the Exit Credit Agreement are subject to
certain customary conditions.
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