FairPoint Communications 2003 Annual Report Download

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(Exact Name of Registrant as Specified in its Charter)
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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(Address of Principal Executive Offices)
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(Zip code)
Registrant's Telephone Number, Including Area Code: 
Securities registered pursuant to Section 12(b) of the Act: 
Securities registered pursuant to Section 12(g) of the Act: 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b 2 of the Securities Exchange Act of
1934). Yes o No
As of March 22, 2004, the registrant had outstanding 45,697,566 shares of class A common stock and 4,269,440 shares of class C
common stock. There is no public market for our class A common stock or class C common stock.
Documents incorporated by reference: None
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Table of contents

  • Page 1
    ... East Morehead Street, Suite 250 Charlotte, North Carolina (Address of Principal Executive Offices) 13-3725229 (I.R.S. Employer Identification No.) 28202 (Zip code) Registrant's Telephone Number, Including Area Code: (704) 344-8150. Securities registered pursuant to Section 12(b) of the Act: NONE...

  • Page 2
    ... communities, offering an array of services, including local voice, long distance, data, Internet and broadband product offerings. We are one of the largest rural telephone companies, and we believe that we are the 16th largest local telephone company, in the United States. We operate in 17 states...

  • Page 3
    ...and Internet services. In addition, we offer enhanced features such as caller identification, call waiting, call forwarding, teleconferencing, video conferencing and voicemail. We also offer broadband communications solutions to most of our customers primarily through DSL technology. Management team...

  • Page 4
    ... and receive an unlimited number of calls within a defined "exchange" area. The customer is charged a flat monthly fee for basic service and service charges for special calling features. Network Access Charges 48% Enables long distance companies to utilize our local network to originate or...

  • Page 5
    ... wireless broadband. Customers can utilize this access in combination with customer owned equipment and software to establish a presence on the web. In addition, we offer enhanced Internet services, which include obtaining Internet protocol addresses, basic web site design and hosting, domain name...

  • Page 6
    ... local access and transport areas, or LATAs, who pay for local phone service and (ii) the IXCs which pay us for access to customers located within our LATAs. In general, the vast majority of our local customers are residential, as opposed to business, which is typical for rural telephone companies...

  • Page 7
    ... is an independent local exchange carrier, or ILEC, that provides voice communication services to over 7,200 access line equivalents serving five communities in New York State. Berkshire's communities of service are adjacent to Taconic Telephone Corp., one of the Company's subsidiaries. This...

  • Page 8
    ... existing rate structure for charges assessed on long distance carriers for connection to local networks. States often mirror federal rules in establishing intrastate access charges. In 2001, the FCC adopted an order implementing the beginning phases of the Multi-Association Group, or MAG, plan to...

  • Page 9
    ... our long distance affiliates (i) maintain separate books of account, (ii) not own transmission or switching facilities jointly with the local exchange affiliate, and (iii) acquire any services from its affiliated local exchange telephone company at tariffed rates, terms and conditions. The FCC has...

  • Page 10
    ...that competitors' customers can use the same number of digits when dialing and receive nondiscriminatory access to telephone numbers, operator service, directory assistance and directory listing; (iv) ensure access to telephone poles, ducts, conduits and rights of way; and (v) compensate competitors...

  • Page 11
    ... The FCC has stated its intention to develop a long-term plan based on forward-looking costs when the five-year period expires in 2006. The MAG plan created a new universal service support mechanism, Interstate Common Line Support, to replace carrier common line 15 access charges. In a recent order...

  • Page 12
    ..., long distance carriers and cable television companies. Many of these companies provide direct access to the Internet and a variety of supporting services to businesses and individuals. In addition, many of these companies, such as America Online, Inc., Microsoft Network and Yahoo, offer on-line...

  • Page 13
    ...our ability to pay dividends, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Description of Certain Indebtedness." For a description of our equity compensation plans, see "Item 11. Executive Compensation." ITEM 6. SELECTED FINTNCITL DTTT Certain...

  • Page 14
    ..., long distance, data, Internet and broadband product offerings. We are one of the largest rural telephone companies, and we believe that we are the 16th largest local telephone company, in the United States. We operate in 17 states with approximately 264,300 access line equivalents in service as...

  • Page 15
    ... termination of toll calls both to and from our customers. Interstate access charges to long distance carriers and other customers are based on access rates filed with the FCC. These revenues also include USF payments for local switching support, long term support and interstate common line support...

  • Page 16
    ... provides voice communication services to over 7,200 access line equivalents serving five communities in New York State. Berkshire's communities of service are adjacent to Taconic Telephone Corp., one of the Company's subsidiaries. This acquisition is expected to close during the third quarter of...

  • Page 17
    ... provides wholesale long distance services and support to our RLECs and other non-affiliated communications providers. These services allow such companies to operate their own long distance communication services and sell such services to their respective customers. Our long distance business is...

  • Page 18
    ... due to higher levels of activity related to the promotion of custom calling features, data services and other performance products. The increased expenses in 2003 would have been larger except for lower compensation costs in 2003 as a result of employee termination costs incurred in 2002, as well...

  • Page 19
    ... long distance company. We derived our revenues from the following sources. Local calling services. Local calling service revenues increased $3.4 million from $50.6 million in 2001 to $54.0 million in 2002, including an increase of $2.2 million from an increase in the number of access lines...

  • Page 20
    ... of our wholesale long distance company decreased $2.5 million as a result of lower minutes of use from our wholesale customers. In addition, expenses of our existing operations decreased by $4.4 million, mainly attributable to overall cost reduction efforts throughout the company. This decrease...

  • Page 21
    ... notes are general unsecured obligations of the Company, subordinated in right of payment to all of the Company's senior debt. In March 2003, the Company used a portion of the proceeds from the offering of the 11 7/8% notes and borrowings under the credit facility's tranche A term loan facility...

  • Page 22
    ... preferred stock have agreed with the Company to reduce the dividend rate payable on the shares they hold for a period of two years. In March 2003, the Company used a portion of the proceeds from the offering of the 117/8% notes and borrowings under the credit facility's tranche A term loan facility...

  • Page 23
    ... additional financing; increasing our vulnerability to generally adverse economic and communications industry conditions, including changes in interest rates; requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of...

  • Page 24
    ... notes and the floating rate notes at any time, in each case, at the redemption prices stated in the indenture under which those notes were issued, together with accrued and unpaid interest, if any, to the redemption date. In the event of a change of control, the Company must offer to repurchase the

  • Page 25
    ..., management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. We had $250.8 million in federal and state net operating loss carryforwards as of December 31, 2003. In order to fully utilize the deferred tax assets, mainly...

  • Page 26
    ... 1, 2003. This statement requires, among other things, the accounting and reporting of legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal operation of a long-lived asset. The FCC has ordered that companies...

  • Page 27
    ...TBOUT MTRKET RISK At December 31, 2003, we recorded our marketable available-for-sale equity securities at a fair value of $1.9 million. These securities have exposure to price risk. A hypothetical ten percent adverse change in quoted market prices would decrease the recorded value by approximately...

  • Page 28
    ...' Report The Board of Directors FairPoint Communications, Inc.: We have audited the accompanying consolidated balance sheets of FairPoint Communications, Inc. and subsidiaries (the Company) as of December 31, 2002 and 2003, and the related consolidated statements of operations, stockholders' equity...

  • Page 29
    ...investment tax credits Total long-term liabilities 798,486 - 13,070 5,265 245 134 817,200 16 803,578 96,699 12,278 2,571 100 85 915,311 15 Minority interest Common stock subject to put options, 239 shares at December 31, 2002 and 163 shares at December 31, 2003 Redeemable preferred stock, Series...

  • Page 30
    ... Net gain (loss) on sale of investments and other assets Interest and dividend income Interest expense Impairment on investments Equity in net earnings of investees Realized and unrealized gains (losses) on interest rate swaps Other nonoperating, net Total other expense (648) 1,998 (76,314) - 4,930...

  • Page 31
    ...' gomprehensive Tggumulated equity defigit ingome (loss) (defigit) 440 Balance at December 31, 2000 Net loss Compensation expense for stockbased awards Forfeit of unvested stock options Other comprehensive loss from available-for-sale securities Exercise of stock options Other comprehensive loss...

  • Page 32
    ... from equity method investments Deferred patronage dividends Minority interest in income of subsidiaries Loss on early retirement of debt Net loss (gain) on sale of investments and other assets Impairment on investments Amortization of investment tax credits Stock-based compensation Change in fair...

  • Page 33
    ... flows from financing activities of continuing operations: Proceeds from issuance of long-term debt Repayment of long-term debt Repurchase of shares of common stock subject to put options Repurchase of redeemable preferred stock Loan origination costs Dividends paid to minority stockholders Proceeds...

  • Page 34
    ... provide telephone local exchange services in various states. Operations also include resale of long distance services, internet services, cable services, equipment sales, and installation and repair services. MJD Capital Corp. leases equipment to other subsidiaries of FairPoint. Carrier Services...

  • Page 35
    ...and stated at cost. For investments in partnerships, the equity method of accounting is used. The investment in Choice One stock is a marketable security classified as available for sale. Non-Qualified Deferred Compensation Plan assets are classified as trading. The Company uses fair value reporting...

  • Page 36
    ... dividends annually at the discretion of its board of directors. (h) PrDperty, Plant, and Equipment Property, plant, and equipment are carried at cost. Repairs and maintenance are charged to expense as incurred and major renewals and improvements are capitalized. For traditional telephone companies...

  • Page 37
    ... FASB Interpretation No. 28, Accounting for etock Appreciation Rights and Other Variable etock Option or Award Plans. The Company measures compensation as the amount by which the market value of the shares of the Company's stock covered by the grant exceeds the option price or value specified, by...

  • Page 38
    ... straight-line method over the vesting period of the option. Had the Company 55 determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income (loss) would have been: Degember 31, 2001 Degember 31, 2002 Degember 31, 2003...

  • Page 39
    ...The Company's 2001 and 2003 acquisitions have been accounted for using the purchase method and, accordingly, the results of their operations have been included in the Company's consolidated financial statements from the date of acquisition. The excess of the purchase price and acquisition costs over...

  • Page 40
    ...(5) Investments The cost, unrealized holding gains and losses, and fair value of the Company's marketable equity investments classified as availablefor-sale, at December 31, 2002 and 2003 are summarized below (dollars in thousands): Unrealized holding gains Unrealized holding loss Cost Fair value

  • Page 41
    ... 2003 Chouteau Cellular Telephone Company Illinois Valley Cellular RSA 2-I Ptnrs Illinois Valley Cellular RSA 2-II Ptnrs Illinois Valley Cellular RSA 2-III Ptnrs ILLINET Communications, LLC Orange County-Poughkeepsie Limited Partnership ILLINET Communications of Central IL LLC Syringa Networks, LLC...

  • Page 42
    ... in Tulsa, LLC. The RTFC debt balance at December 31, 2003 was $6.0 million. The Company has issued an unsecured guarantee of the RTFC debt. As of December 31, 2003, the amount of the unsecured guarantee was $1.5 million. During 2003, the Company sold its ownership percentages of Illinois Valley...

  • Page 43
    ... unless such proceeds are used by us to finance acquisitions permitted under our amended and restated credit facility within 180 days (270 days with respect to a Special Asset Sale, as defined in the credit facility) of our receipt of such proceeds. Change of control transactions trigger a mandatory...

  • Page 44
    ...the redemption prices stated in the indenture under which those notes were issued, together with accrued and unpaid interest, if any, to the redemption date. In the event of a change of control, FairPoint must offer to repurchase the outstanding 1998 Fixed Rate Notes and 1998 Floating Rate Notes for...

  • Page 45
    ... million to Carrier Services, which used these proceeds to retire $2.2 million of its debt; and (vi) pay transaction fees. As a result of the issuance of the 2003 Notes, the Company recorded $2.8 million and $0.7 million of non-operating gains on the extinguishment of the 1998 Fixed Rate Notes and...

  • Page 46
    ... the Carrier Services debt restructuring. The Series A Preferred Stock is nonvoting and is not convertible into common stock of the Company. The Series A Preferred Stock provides for the payment of dividends at a rate equal to 17.428% per annum. Dividends on the Series A Preferred Stock are payable...

  • Page 47
    ..." tax benefit from continuing operations State income tax benefit (expense), net of Federal income tax expense Amortization of investment tax credits Goodwill amortization Dividends on preferred stock Dividends received deduction Stock-based compensation Valuation allowance Disallowed expenses and...

  • Page 48
    ...2022. At December 31, 2003, the Company has alternative minimum tax credits of $1.7 million which may be carried forward indefinitely. (10) Stogsholders' Equity The following summarizes the authorized share capital of the Company: Class T gommon stogs-authorized 236,200,000 voting common shares at...

  • Page 49
    ... in the FairPoint Communications Corp. Stock Incentive Plan (Carrier Services' Plan) in consideration of the cancellation of all options previously granted under the Carrier Services' Plan. The Company issued 1,620,465 and 73,200 options to purchase Class A common stock of the Company at an...

  • Page 50
    ... variables used in the model included no expected dividend yields, a risk-free interest rate of 6.52%, and an estimated option life of 10 years. Because the Company was nonpublic on the date of the grant, no assumption as to the volatility of the stock price was made. 73 Stock option activity under...

  • Page 51
    ... 2000 Plan provided for grants to members of management of up to 10,019,200 options to purchase Class A common stock, at the discretion of the compensation committee. During 2002, the Company amended the 2000 Plan to limit the number of shares available for grant to 2,365,510. In December 2003, the...

  • Page 52
    ... of stock options granted under the 2000 Plan during 2000, 2002, and 2003 were $1.85, $2.84, and $1.59, respectively, on the date of grant using the Black Scholes option-pricing model. Input variables used in the model included no expected dividend yields, a weighted average risk free interest rate...

  • Page 53
    ...2001 restructuring charge, $3.4 million related to employee termination benefits and other employee termination related costs. The Company terminated 365 positions in January 2001. Certain positions were eliminated at the central operating facility in Albany, New York, and at the corporate office in...

  • Page 54
    ...owned by Services of Union Telephone Company of Hartford, Armour Independent Telephone Co., WMW Cable TV Co. and Kadoka Telephone Co. to Golden West Telephone Properties, Inc. ("Golden West"). The sale was completed in accordance with the terms of the Purchase Agreement, dated as of May 9, 2003 (the...

  • Page 55
    ...is stated at quoted market prices. The fair value of the Company's remaining long-term debt is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities. At December 31, 2002 and 2003, the Company...

  • Page 56
    ... access services are based on reimbursement of costs and an allowed rate of...telephone companies for interstate revenue sharing arrangements and for certain intrastate revenue. Such sharing arrangements are funded by toll revenue and/or access charges within state jurisdiction and by access charges...

  • Page 57
    ...Mr. Nixon served as Executive Vice President of C&E. From April 1, 1978 to March 31, 1989, Mr. Nixon served as Vice President of Operations for C&E. Mr. Nixon has served as the past Chairman of the New York State Telephone Association, in addition to his involvement in several community and regional...

  • Page 58
    ...as Vice President, Operations and Engineering of Rochester Tel Mobile Communications, State Vice President Minnesota, Nebraska and Wyoming and Director of Network Planning and Operations for Pennsylvania and New Jersey for Sprint and served in various management positions with C&P Telephone and Bell...

  • Page 59
    ...Compensation Table Long-term Compensation Twards Tnnual Compensation Other Tnnual Name and Pringipal Position Year Salary Bonus Compensation(1) Number of Segurities Underlying Options/ STRS Tll Other Compensation(2) Eugene B. Johnson Chairman and Chief Executive Officer 2003 $ 2002 2001 2003...

  • Page 60
    ... the value of group term life insurance coverage. (2) 1995 Stogs Option Plan Our 1995 Stock Option Plan, or 1995 plan, was adopted on February 22, 1995. The 1995 plan provides for the grant of options to purchase up to an aggregate of 1,136,800 shares of our class A common stock. The 1995 plan is...

  • Page 61
    ...of control over the exercise price for such option. On August 3, 2001, the Company made an offer to its employees to cancel their existing options issued under the 2000 plan in exchange for new options to be granted on the date that is on or after six months and one day following the expiration date...

  • Page 62
    ... named in the "Summary Compensation Table"; (ii) each director, (iii) all of our named executive officers and directors as a group, and (iv) each person who beneficially owns 5% or more of the outstanding shares of our class A common stock. All persons listed have sole voting and investment power...

  • Page 63
    ... York, New York 10022 Thomas H. Lee Equity Fund IV, L.P. and affiliates(9) 75 State Street Boston, Massachusetts 02109 18,199,496 36.4% 21,461,720 42.9% * (1) Less than 1%. Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole investment power...

  • Page 64
    ...the next 60 days. Does not include 850,000 shares of class A common stock issuable upon exercise of options that are not currently exercisable or do not become exercisable during the next 60 days. (10) 92 Equity Compensation Plan Information Number of shares remaining available for future issuange...

  • Page 65
    ... accounting and reporting standards. During 2003, $479,000 of audit related fees were associated with the March 6, 2003 refinancing activities. Tax Fees consist of fees for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal...

  • Page 66
    ...the Company filed a Current Report on Form 8-K disclosing that on September 30, 2003, MJD Services, a wholly-owned subsidiary of the Company, completed the sale of all of the capital stock owned by MJD Services of Union Telephone Company of Hartford, Armour Independent Telephone Co., WMW Cable TV Co...

  • Page 67
    ... Communications, Inc.(11) Stock Purchase Agreement dated as of May 9, 2003 by and among Golden West Telephone Properties, Inc., MJD Services Corp., Union Telephone Company of Hartford, Armour Independent Telephone Co., WMW Cable TV Co. and Kadoka Telephone Co.(10) 2.2 2.3 2.4 Agreement and Plan...

  • Page 68
    ... FairPoint Communications, Inc, the credit parties named therein, Wachovia Bank, National Association and Deutsche Bank Trust Company Americas.* Amended and Restated Subsidiary Guaranty dated as of March 6, 2003 by FairPoint Broadband, Inc., MJD Ventures, Inc., MJD Services Corp. and ST Enterprises...

  • Page 69
    ... Peter G. Nixon.(9) 10.22 99 10.23 10.24 10.25 Letter agreement dated as of November 13, 2002 by and between FairPoint and Shirley J. Linn.(9) Institutional Stockholders Agreement dated as of January 20, 2000 by and among FairPoint and the other parties thereto.(1) FairPoint 1995 Stock Option...

  • Page 70
    ...COMMUNICATIONS, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 PART I ITEM 1. BUSINESS ITEM 2. PROPERTIES ITEM 3. LEGAL PROCEEDINGS ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER...

  • Page 71
    ... Compensation Table ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS...

  • Page 72
    ... 10.2 FIRST AMENDMENT TO CREDIT AGREEMENT FIRST AMENDMENT TO CREDIT AGREEMENT (this " First Amendment"), dated as of December 17, 2003, among FAIRPOINT COMMUNICATIONS, INC. (f/k/a MJD Communications, Inc.), a Delaware corporation (the " Borrower"), the undersigned Credit Parties, the lenders from...

  • Page 73
    ... Financial Officer of the Borrower, dated the Incremental Revolving Commitment Date, in form and substance satisfactory to the Administrative Agent,". 8. Section 1 of the Credit Agreement is hereby further amended by inserting the following new Section 1.15: "1.15 Incremental A Term Loan Commitments...

  • Page 74
    ... assets of FairPoint Carrier Services and its Subsidiaries (including the capital stock of such Subsidiaries) securing such Indebtedness, shall be permitted to be outstanding on the date FairPoint Carrier Services becomes a Subsidiary under the Credit Agreement, so long as (and only so long as) all...

  • Page 75
    ... Carrier Services Refinancing Proceeds", "Excluded Permitted Subordinated Debt Proceeds", "Facility", "Incremental Commitment Requirements", "Lender", "Total A Term Commitment" and "Total Commitment" appearing in said Section and (ii) inserting in the appropriate alphabetical order the following new...

  • Page 76
    ..." shall mean, with respect to each Lender, the amount set forth opposite such Lender's name on Annex I hereto directly below the column entitled "Initial A Term Commitment", as the same may be (x) reduced or terminated pursuant to Sections 2.02, 2.03 and/or 8 or (y) adjusted from time to time as...

  • Page 77
    ... agrees, so long as the First Amendment Effective Date occurs, to pay to each Lender which has executed and delivered to the Administrative Agent (or its designee) a counterpart hereof by the later to occur of (x) 12:00 noon (New York time) on December 17, 2003 and (y) 5:00 p.m. (New York time) on...

  • Page 78
    ... First Amendment to be duly executed and delivered as of the date first above written. FAIRPOINT COMMUNICATIONS, INC. (f/k/a MJD Communications, Inc.) By: /s/ TIMOTHY W. HENRY Name: Title: Timothy W. Henry Vice President of Finance & Treasurer ST ENTERPRISES, LTD., as a Subsidiary Guarantor and...

  • Page 79
    ...RAVENSWOOD COMMUNICATIONS, INC., as a Pledgor By: /s/ TIMOTHY W. HENRY Name: Title: Timothy W. Henry Vice President of Finance & Treasurer UTILITIES, INC., as a Pledgor By: /s/ TIMOTHY W. HENRY Name: Title: Timothy W. Henry Vice President of Finance & Treasurer DEUTSCHE BANK TRUST COMPANY...

  • Page 80
    ... Capital Management LLC, as Collateral Manager By: /s/ MARK E. WITTNEBEL Name: Title: Mark E. Wittnebel Sr. Vice President BLUE SQUARE FUNDING LIMITED SERIES 3 By: Name: Title: CITIGROUP INVESTMENTS CORPORATE LOAN FUND INC. By: Travelers Asset Management International Company LLC By: Name...

  • Page 81
    ...IV, LLC Its Managing Member By: /s/ JEFF MOORE Name: Title: Jeff Moore Vice President ARES VI CLO LTD. By: Ares CLO Management VI, L.P. Investment Manager By: Ares CLO GPVI, LLC Its Managing Member By: /s/ JEFF MOORE Name: Title: Jeff Moore Vice President THE CIT GROUP/EQUIPMENT FINANCING, INC...

  • Page 82
    ... V. PHANSALKAR Name: Title: Mohan V. Phansalkar Executive Vice President COLUMBUS LOAN FUNDING LTD. By: Travelers Asset Management International Company LLC By: Name: Title: EXHIBIT L FORM OF INCREMENTAL A TERM COMMITMENT AGREEMENT [Name(s) of Lender(s)] [Date] Fairpoint Communications, Inc...

  • Page 83
    ... set forth opposite its name on Annex I attached hereto, which upfront fee shall be due and payable to such Incremental A Term Lender on the effective date of this Agreement.] Each Incremental A Term Lender, to the extent that it is not already a Lender under the Credit Agreement, (i) confirms that...

  • Page 84
    ... this day of , : FAIRPOINT COMMUNICATIONS, INC. By: Name: Title: [NAMES OF OTHER CREDIT PARTIES](1) By: Name: Title: DEUTSCHE BANK TRUST COMPANY AMERICAS, as Administrative Agent By: Name: Title: (1) Insert signature blocks for each other Credit Party. 3 ANNEX I Name of Incremental A Term...

  • Page 85
    ... a lump sum payment from the Company, an amount equal to your Base Salary as of the date of termination for a period of twelve (12) months, plus all accrued and unpaid base salary and benefits as of the date of termination. In addition, the Company shall maintain your long-term disability, term life...

  • Page 86
    ... FAIRPOINT COMMUNICATIONS, INC. Amended and Restated 2000 Employee Stock Incentive Plan 1. Purposes. The purpose of the Plan (as such term and any other capitalized term used herein without definition are defined in Section 2) is to foster and promote the long-term financial success of the Company...

  • Page 87
    ... the meaning of Section 162(m) of the Code. Common Stock means the Class A common stock of the Company, par value $0.01 per share. Company means FairPoint Communications, Inc. a Delaware corporation, and any successor thereto. Disability: the termination of the employment of any Participant by the...

  • Page 88
    ... more of the voting power of all classes of stock entitled to vote and any other business organization, regardless of form, in which the Company possesses directly or indirectly 50% or more of the total combined equity interests. THL means Thomas H. Lee Equity Fund IV, L.P. and the parties listed on...

  • Page 89
    ...delivered. Each Option shall be evidenced by an option agreement that shall specify the type of Option granted, the exercise price, the duration of the Option, the number of shares of Common Stock to which the option pertains, and such other terms and conditions not inconsistent with the Plan as the...

  • Page 90
    ...shall be forfeited and cancelled upon such termination of employment. (e) Buyout. The Committee may at any time offer to buy out a Restricted Stock Unit previously granted for a payment in cash, based on such terms and conditions as the Committee shall establish and communicate to the Participant at...

  • Page 91
    ... to any Restricted Stock Unit or any other action under the Plan for as long as necessary to permit the Company, with reasonable diligence, to complete stock exchange listing or registration or qualification of such Common Stock or other action required under any Federal or State law, rule or...

  • Page 92
    ... the Plan in order to prevent the Company or any Subsidiary being denied a Federal income tax deduction with respect to any Option other than an Incentive Stock Option. (j) Governing Law . The Plan shall be construed in accordance with, and governed by, the laws of the State of New York, without...

  • Page 93
    ... terms and conditions and other Option exercise trigger events set forth in the 1995 Option Plan and your 1995 Incentive Stock Option Agreement. No action is needed upon expiration of the Succession Agreement with respect to your 850,000 fully vested options under the Company's 1998 Option Plan...

  • Page 94
    QuickLinks Exhibit 10.30

  • Page 95
    ...and the other policies and procedures that govern the conduct of employees of FairPoint and its subsidiaries. In addition to applying to FairPoint's chief executive officer, chief financial officer, vice president of finance and treasurer, controller and regional controllers, this Code of Ethics for...

  • Page 96
    QuickLinks Exhibit 14

  • Page 97
    ... Wireless Corp. Taconet Corp. Ellensburg Telephone Company Elltel Long Distance Corp. Sidney Telephone Company Utilities, Inc. Standish Telephone Company China Telephone Company Maine Telephone Company UI Long Distance, Inc. UI Communications, Inc. UI Telecom, Inc. Telephone Service Company Chouteau...

  • Page 98
    ...Paso Long Distance Company Yates City Telephone Company FairPoint Carrier Services, Inc. (f/k/a FairPoint Communications Solutions Corp., f/k/a FairPoint Communications Corp.) FairPoint Communications Solutions Corp.-New York FairPoint Communications Solutions Corp.-Virginia FairPoint Broadband, Inc...

  • Page 99
    ... I, Eugene B. Johnson, certify that: 1. I have reviewed this annual report on Form 10-K of FairPoint Communications, Inc. (the "Company"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the...

  • Page 100
    Exhibit 31.1

  • Page 101
    ... I, Walter E. Leach, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of FairPoint Communications, Inc. (the "Company"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the...

  • Page 102
    Exhibit 31.2

  • Page 103
    ... with the Annual Report of FairPoint Communications, Inc. (the "Company") on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eugene B. Johnson, Chief Executive Officer of the Company, certify, pursuant...

  • Page 104
    ... with the Annual Report of FairPoint Communications, Inc. (the "Company") on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Walter E. Leach, Jr., Chief Financial Officer of the Company, certify, pursuant...

  • Page 105
    ...of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP New York, New York February 23...

  • Page 106
    ...Total current assets PROPERTY, PLANT AND EQUIPMENT-Net DEFERRED CHARGES AND OTHER ASSETS-Net 3g,1g7 29,473 2 TOTAL ASSETS $ g0,376 $ 64,632 LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Accounts payable and accrued liabilities Advance billings $ 348 310 $ 1,23g 247 Total current...

  • Page 107
    ... YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Dollars in Thousands) Limited Partners General Partner NYNEX Mobile Limited Partnership 2 Verizon Wireless Taconic Telephone Warwick Valley Telephone of the East LP Corporation Company Total Partners' Capital BALANCE, JANUARY 1, 2001 Net income...

  • Page 108
    ..., New York service areas. The partners and their respective ownership percentages as of December 31, 2003 are as follows: Managing and general partner: Verizon Wireless of the East LP* 8g.0% Limited partners: Taconic Telephone Corporation ("Taconic") Warwick Valley Telephone Company ("Warwick...

  • Page 109
    ...network and real estate properties under development are capitalized as part of property, plant and equipment and recorded as construction in progress until the projects are completed and placed into service. FCC Licenses -The Federal Communications Commission ("FCC") issues licenses that authorize...

  • Page 110
    ... the Partnership's 2003, 2002 and 2001 revenue is affiliate revenue. The general partner relies on local and long-distance telephone companies, some of whom are related parties, and other companies to provide certain communication services. Although management believes alternative telecommunications...

  • Page 111
    ... the following: Allocated capitalized network engineering costs of $41g and $466 were recorded during the years ended December 31, 2003 and 2002 respectively. Construction-in-progress included in certain of the classifications shown above, principally wireless plant equipment, amounted to $8g2 and...

  • Page 112
    ...effects as a result of wireless phone usage. Various consumer class action lawsuits allege that the Cellco breached contracts with consumers, violated certain state consumer protection laws and other statutes and defrauded customers through concealed or misleading billing practices. Certain of these...

  • Page 113
    ..., Cellco is subject to various other legal actions and claims in the normal course of business. While Cellco's legal counsel cannot give assurance as to the outcome of each of these matters, in management's opinion, based on the advice of such legal counsel, the ultimate liability with respect to...

  • Page 114
    ... the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/ KIESLING ASSOCIATES LLP Madison, Wisconsin March 1, 2003 1 ILLINOIS VALLEY CELLULAR RSA 2-1 PARTNERSHIP BALANCE SHEETS December 31, 2002 and 2001 2002 2001 ASSETS...

  • Page 115
    ...ILLINOIS VALLEY CELLULAR RSA 2-1 PARTNERSHIP BALANCE SHEETS December 31, 2002 and 2001 2002 2001 LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES Current portion of long-term debt Capital lease obligation Notes Payable Accounts Payable...Cost of services Cost of equipment sales Selling, general ...

  • Page 116
    ... net income to net cash provided by operating activities: Depreciation Provision for losses on accounts receivable Changes in assets and liabilities: (Increase) Decrease in: Accounts receivable Prepaids Increase (Decrease) in: Accounts payable $ 341,281 $ 1,413,315 $ 1,669,620 956,539...

  • Page 117
    ... of the Illinois RSA 2 Cellular Geographic Service Area. At December 31, 2002, 2001, and 2000, the general partners and their respective ownership percentages in the Partnership were as follows: Partner Percentage Verizon Wireless CENCOMM, Inc. C-R Cellular, Inc. DePue Communications, Inc. Gemcell...

  • Page 118
    ... increasingly been using pricing plans that include flat rate pricing and larger home service areas. Under these types of plans, amounts charged to the Partnership by other wireless providers may not necessarily be passed through to its customers. In 2002, the Partnership adopted a policy to include...

  • Page 119
    ... were fully financed through the issuance of long-term debt obligations to RTFC. It is not practical to estimate the fair value for these investments due to a lack of quoted market prices. NOTE 5. NOTES PAYABLE In 2002, the Partnership entered into a $1,000,000 revolving line of credit loan...

  • Page 120
    ... all of whom are local residents of this geographic area. Roamer cellular revenues are derived under arrangements with other wireless carriers (roaming partners) whose customers use the Partnership's network to place or complete calls. Roaming revenues from Verizon Wireless accounted for 21%, 31...

  • Page 121
    ..., including seasonal variations in customer calling patterns and timing of promotional activities. NOTE 12. RECENT ACCOUNTING DEVELOPMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 143, "Accounting for Asset Retirement...

  • Page 122
    ... requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees...

  • Page 123
    ... & Equipment Plant In Service Less Accumulated Depreciation 13,605,649 (7,432,892 ) 6,172,757 57,033 6,229,790 Plant Under Construction nther Noncurrent Assets Investments 94,246 $ LIABILI-IES AND PAR-NERS' CAPI-AL 8,596,098 -n-AL ASSE-S Current Liabilities: Note Payable Accounts Payable Trade...

  • Page 124
    ... the Six Months Ending June 30, 2003 nperating Revenues Retail service Roamer service Equipment sales Miscellaneous services $ 3,636,082 2,344,412 122,749 505,930 6,609,173 nperating Expenses Cost of services Cost of eauipment sales Selling, general and administrative Depreciation 3,053,145 554...

  • Page 125
    ... period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/ KIESLING ASSOCIATES LLP Madison, Wisconsin March 1, 2003 1 ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP BALANCE SHEETS December 31, 2002 and 2001 2002 2001 ASSETS...

  • Page 126
    ...683,747 $ 3,930,058 2 ILLINOIS VALLEY CELLULAR RSA 2-III PARTNERSHIP BALANCE SHEETS December 31, 2002 and 2001 2002 2001 LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES Current portion of long-term debt Capital lease obligation Notes payable Accounts payable: Trade Affiliates $ - $ 11...

  • Page 127
    ... reconcile net income to net cash provided by operating activities: Depreciation Provision for losses on accounts receivable Changes in assets and liabilities: (Increase) Decrease in: Accounts receivable Prepaids Increase (Decrease) in: Accounts payable $ (211,590) $ 570,358 $ 437,164 580,137...

  • Page 128
    ...,927) (129,498) 128,861 (637) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowings Repayment of long-term borrowings Payments of capital lease obligations Partnership distribution Net cash provided by/(used in) financial activities 1,100,000 (236,690) (3,173) - 860,137 32,768...

  • Page 129
    ... increasingly been using pricing plans that include flat rate pricing and larger home service areas. Under these types of plans, amounts charged to the Partnership by other wireless providers may not necessarily be passed through to its customers. In 2002, the Partnership adopted a policy to include...

  • Page 130
    ... were fully financed through the issuance of long-term debt obligations to RTFC. It is not practical to estimate the fair value for these investments due to a lack of quoted market prices. NOTE 5. NOTES PAYABLE Notes payable consist of: 2002 2001 RTFC lines of credit RTFC revolving line of credit...

  • Page 131
    ... all of whom are local residents of this geographic area. Roamer cellular revenues are derived under arrangements with other wireless carriers (roaming partners) whose customers use the Partnership's network to place of complete calls. Roaming revenues from Verizon Wireless accounted for 34%, 43...

  • Page 132
    .... NOTE 10. ALLOWANCE FOR UNCOLLECTIBLES The Company uses the reserve method to recognize uncollectible customer accounts. The following activity has been recognized under this method. 2002 2001 2000 Balance, December 31 Provision for uncollectibles Accounts written off, net of recoveries...

  • Page 133
    ... issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. In November 2002, the...

  • Page 134
    ... RSA 2-III Balance Sheet (Unaudited) June 30, 2003 ASSETS Current Assets Cash & Cash Equivalents Accounts Receivable $ 33,376 Due from Customers Less Allowance for Uncollectible of $118,647 Affiliates Prepayments Total Current Assets 936,584 242,373 136,797 1,349,130 Plant & Equipment Plant In...

  • Page 135
    ... the Six Months Ending June 30, 2003 Operating Revenues Retail service Roamer service Equipment sales Miscellaneous services $ 1,963,145 1,816,313 55,035 374,008 4,208,501 Operating Expenses Cost of services Cost of equipment sales Selling, general and administrative Depreciation 2,443,176 270...