FairPoint Communications 2005 Annual Report Download

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(Exact Name of Registrant as Specified in Its Charter)
 
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
 
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(Address of Principal Executive Offices)
Registrant’s Telephone Number, Including Area Code: .
Securities registered pursuant to Section 12(b) of the Act:
 
Common Stock, par value $0.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
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 x 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. x
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one).
Large accelerated filer oAccelerated filer oNon-accelerated filer x
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2005 (based on the closing price of $16.15 per share as quoted on
the New York Stock Exchange as of such date) was approximately $442,591,000.
As of March 06, 2006, there were 35,015,019 shares of the Registrant’s common stock, par value $0.01 per share, outstanding.
Documents incorporated by reference: Part III of the Annual Report incorporates information by reference from the registrant’s definitive proxy statement to be filed with
the Securities and Exchange Commission not later than April 30, 2006.

Table of contents

  • Page 1
    ...Principal Executive Offices) 28202 (Zip code) Registrant's Telephone Number, Including Area Code: (704) 344-8150 . Securities registered pursuant to Section 12(b) of the Act: Title of Eagh Class Name of Exghange on Whigh Registered Common Stock, par value $0.01 per share New York Stock Exchange...

  • Page 2
    ... PART III Directors and Executive Officers of the Registrant Executive Compensation . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . Certain Relationships and Related Transactions . Principal Accounting Fees and Services . 5. 6. 7. 7A. 8. 9. 9A...

  • Page 3
    ...Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. Forward-looking statements may relate to, among other things: · future performance generally, · our dividend policy and expectations regarding dividend payments, · business development activities, · future capital...

  • Page 4
    ... 17th largest local telephone company, in each case based on number of access lines. We operate in 17 states with 288,899 access line equivalents (including voice access lines and high speed data lines, which include digital subscriber lines, or DSL, wireless broadband and cable modem) in service as...

  • Page 5
    ... local and long distance voice, data 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...

  • Page 6
    ... of our basic local telephone service to customers within our service areas; (ii) the provision of network access to interexchange carriers for origination and termination of interstate and intrastate long distance phone calls; (iii) Universal Service Fund high cost loop payments; and (iv) the...

  • Page 7
    ...cable modem and 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...

  • Page 8
    ...business customers are predominantly in the agriculture, light manufacturing and service industries. The following chart identifies the number of access line equivalents in each of our 17 states as of December 31, 2005: State Tggess Line Equivalents Maine Florida New York Washington Ohio Illinois...

  • Page 9
    ... two thirds of our access lines, by the middle of 2006 and the remaining companies by early to mid 2007. Networs Trghitegture and Teghnology Our rural local exchange carrier networks consist of central office hosts and remote sites, all with advanced digital switches (primarily manufactured by...

  • Page 10
    ... new market entrants that provide close substitutes for the traditional telephone services we provide, such as cable television, satellite communications and electric utility companies. Cable television companies are entering the communications market by upgrading their networks with fiber optics...

  • Page 11
    ..., 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 12
    ... procedures pursuant to which incumbent local exchange carriers may provide other services, such as the provision of long distance services by regional bell operating companies, and imposes on incumbent local exchange carriers duties to negotiate interconnection arrangements in good faith. 10

  • Page 13
    ...Federal Communications Commission price structure. A significant amount of our revenues come from network access charges, which are paid to us by intrastate carriers and interstate long distance carriers for originating and terminating calls in the regions served by our rural local exchange carriers...

  • Page 14
    ... local telephone services. State regulatory commissions generally regulate the rates incumbent local exchange carriers charge for intrastate services, including rates for intrastate access services paid by providers of intrastate long distance services. Although the Federal Communications Commission...

  • Page 15
    ... 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 for the competitors' costs of completing calls to competitors' customers. Competitors...

  • Page 16
    ..., the total Universal Service Fund available to all rural local telephone companies, including our 28 rural local exchange carrier subsidiaries, is subject to a cap. In any given year, the cap may or may not be reached. In any year where the cap is reached, the per access line rate at which we can...

  • Page 17
    ...has stated its intention to develop a long-term plan based on forward looking costs when the five-year period expires on May 30, 2006. The Multi Association Group plan created a new universal service support mechanism, Interstate Common Line Support, to replace carrier common line access charges and...

  • Page 18
    ... or their impact on our business. The Federal Communications Commission adopted FCC Order 05-150. This Order puts wireline broadband Internet access service, commonly delivered by digital subscriber line (DSL) technology, on an equal regulatory footing with cable modem service. This approach is...

  • Page 19
    ... to make dividend payments. There can be no assurance that we will generate sufficient cash from continuing operations in the future, or have sufficient surplus or net profits, as the case may be, under Delaware law, to pay dividends on our common stock in accordance with the dividend policy. If...

  • Page 20
    ...into a new interest rate swap or purchase an interest rate cap or other interest rate hedge. If we choose to enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge in the future, the amount of cash available to pay dividends on our common stock may decrease...

  • Page 21
    ... a direct or indirect equity interest in the Company's operating subsidiaries. As a result, the Company will rely on dividends and other payments or distributions from its operating subsidiaries to pay dividends with respect to its common stock and to meet its debt service obligations generally. The...

  • Page 22
    ... us to pay gash taxes in future periods, may affegt our ability to pay dividends to you. Our initial public offering in February 2005 resulted in an "ownership change" within the meaning of the U.S. federal income tax laws addressing net operating loss carry forwards, alternative minimum tax credits...

  • Page 23
    ...addition, in the past, securities class action litigation has often been instituted against a company following periods of volatility in its stock price. This type of litigation could result in substantial costs and divert our management's attention and resources. Future sales or the possibility of...

  • Page 24
    ... face competition from wireline and cable television operators. We may face additional competition from new market entrants, such as providers of wireless broadband, voice over internet protocol, satellite communications and electric utilities. The Internet services market is also highly competitive...

  • Page 25
    ... a limited number of network equipment manufacturers, including Nortel Networks Corporation and Siemens Information and Communication Networks, Inc. In addition, when our new billing platform is completed, we will rely on a single outsourced supplier to support our billing and related customer care...

  • Page 26
    ... to continue to provide our customers reliable service over our network. Some of the risks to our network and infrastructure include: · physical damage to access lines; · power surges or outages; · software defects; and · disruptions beyond our control. Disruptions may cause interruptions in...

  • Page 27
    ... on rights-of-way and other permits from railroads, utilities, state highway authorities, local governments and transit authorities to install conduit and related communications equipment for any expansion of our networks. We may need to renew current rights-of-way for our networks and cannot assure...

  • Page 28
    ... 31, 2005, almost 44% of our revenues came from network access charges, which are paid to us by intrastate and interstate long distance carriers for originating and terminating calls in the regions served. This 44% also includes Universal Service Fund payments for local switching support, long term...

  • Page 29
    ... local switching support, long term support, and interstate common line support that used to be included in our interstate access charge revenues (the Federal Communications Commission has recently merged long term support into interstate common line support). If our rural local exchange carriers...

  • Page 30
    ... new or greater obligations related to assisting law enforcement, bolstering homeland security, minimizing environmental impacts, or addressing other issues that impact our business. For example, existing provisions of the Communications Assistance for Law Enforcement Act and Federal Communications...

  • Page 31
    ... rolling stock, central office and remote switching platforms and transport and distribution network facilities in each of the 17 states in which we operate our rural local exchange carrier business. Our administrative and maintenance facilities are generally located in or near the rural communities...

  • Page 32
    ... 3, 2005) and the related prospectus dated February 3, 2005, each relating to the Company's initial public offering of common stock, contained certain material misstatements and omitted certain material information necessary to be included relating to the Company's broadband products and access line...

  • Page 33
    ... The following table shows the high and low closing sales prices per share of the Company's Common Stock as reported on the New York Stock Exchange for the periods indicated: Year ended Degember 31, 2005 High Low First quarter Second quarter Third quarter Fourth quarter $ 18.05 16.55 16.66 14.30...

  • Page 34
    ... our ability to declare and pay dividends on our common stock as follows: · We may use all of our available cash accumulated after April 1, 2005 plus certain incremental funds to pay dividends, but we may not in general pay dividends in excess of such amount. "Available cash" is defined in our...

  • Page 35
    ... under equity gompensation plans(2) Equity compensation plans approved by our stockholders Equity compensation plans not approved by our stockholders 1,125,869 0 $15.91 $ 0 467,654 0 (1) Includes 832,888 options to purchase shares of our common stock under the FairPoint Communications, Inc...

  • Page 36
    ... 9,499 9,468 9,483 9,498 9,499 (2.57) $ (1.50) $ (2.17) $ (2.68) Operating Data: Capital expenditures Access line equivalents(6) Residential access lines Business access lines High Speed Data subscribers Summary Cash Flow Data: Net cash provided by operating activities of continuing operations Net...

  • Page 37
    ... per share amounts related to our common stock have been restated to reflect the reverse stock split. Total access line equivalents includes voice access lines and high speed data lines, which include DSL lines, wireless broadband and cable modem. In connection with the offering, we repurchased all...

  • Page 38
    ...services, including local and long distance voice, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural communities and we are the 17th largest local telephone company, in each case based on number of access lines...

  • Page 39
    .... We have selected MACC as our new provider of billing services. We expect to complete the conversion of 17 of our operating companies, or approximately two thirds of our access lines, by the middle of 2006 and the remaining companies by the middle of 2007. Our dividend policy reflects our judgment...

  • Page 40
    ... 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 Federal Communications Commission. These revenues also include Universal Service Fund payments for local switching support, long...

  • Page 41
    ... recurring charges for services, including high speed data, special access, private lines, Internet and other services. · Otper services . We receive revenues from other services, including billing and collection, directory services and sale and maintenance of customer premise equipment. The...

  • Page 42
    ... Telephone Corporation, or Berkshire, for a purchase price of approximately $20.3 million (or $16.4 million net of cash acquired), subject to adjustment. Berkshire is an independent local exchange carrier that provides voice communication, cable and internet services to over 7,200 access line...

  • Page 43
    ... long distance services and support to our rural local exchange carriers and communications providers not affiliated with us. 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...

  • Page 44
    ... 48.0 20.8 - 68.8 31.2 Impairment of investments Equity in net earnings of investees Realized and unrealized losses on interest rate swaps Other nonoperating, net Total other expense Loss from continuing operations before income taxes Income tax benefit (expense) Minority interest in income of...

  • Page 45
    ... of promotional efforts and bundles with unlimited long distance designed to generate more revenue. Data and Internet services. Data and internet services revenues increased $5.1 million to $24.2 million in 2005 from $19.1 million in 2004. The increase is due primarily to increases in DSL customers...

  • Page 46
    ... in 2005. Consulting fees increased $1.8 million primarily related to preparation for compliance with Section 404 of the Sarbanes-Oxley Act. Expenses related to high speed data and long distance services increased $2.3 million principally due to the increase in HSD and long distance subscribers. Bad...

  • Page 47
    ... of promotional efforts and bundles with unlimited long distance designed to generate more revenue. Data and Internet services. Data and internet services revenues increased $5.7 million from $13.4 million in 2003 to $19.1 million in 2004. The increase is due primarily to increases in DSL customers...

  • Page 48
    ... to a year ago. Network operations expense, wholesale digital subscriber line charges and transport and network costs associated with our broadband initiatives increased $4.0 million. Cost of goods sold associated with the one-time sale and installation of E911 system equipment was $1.0 million in...

  • Page 49
    ... support the growth of our business; (iv) dividend payments on our common stock; and (v) potential acquisitions. Our board of directors has adopted a dividend policy which reflects our judgment that our stockholders would be better served if we distributed a substantial portion of our cash available...

  • Page 50
    ...may not be able to enter into a new interest rate swap or to purchase an interest rate cap or other interest rate hedge on acceptable terms. Based on the dividend policy with respect to our common stock, we may not have any significant cash available to meet any unanticipated liquidity requirements...

  • Page 51
    ... of series A preferred stock and common stock of $129.3 million. The remaining proceeds were used to pay fees and penalties associated with the early retirement of long term debt of $61.0 million, to pay a deferred transaction fee of $8.4 million and to pay debt issuance costs of $9.0 million. For...

  • Page 52
    ... in the nature of our business, mergers, acquisitions, asset sales and transactions with affiliates. Subject to certain limitations set forth in the credit facility, we are permitted to pay dividends for the period from the closing date of the offering through July 30, 2005. In addition, we may use...

  • Page 53
    ... 12 1ï,¤2 % notes on May 2, 2005. In 2003, the Company issued $225.0 million aggregate principal amount of the 11 7ï,¤8 % notes. These notes were to mature on March 1, 2010. These notes are general unsecured obligations of the Company, ranking pari passu in right of payment with all existing and...

  • Page 54
    .... Certain of our interstate network access and data revenues are based on tariffed access charges filed directly with the Federal Communications Commission; the remainder of such revenues are derived from revenue sharing arrangements with other local exchange carriers administered by the National...

  • Page 55
    ... in federal and state net operating loss carry forwards as of December 31, 2005. In February 2005, we completed the offering which resulted in an "ownership change" within the meaning of the U.S. federal income tax laws addressing net operating loss carry forwards, alternative minimum tax credits...

  • Page 56
    ... estimate the fair value of an asset retirement obligation. FIN 47 is effective for the year ended December 31, 2005. We account for our wireline operations under SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation". Therefore, in accordance with federal and state regulations, we...

  • Page 57
    ... TO FINTNCITL STTTEMENTS Page FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES: Report of Independent Registered Public Accounting Firm CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003: Consolidated Balance Sheets as of December 31, 2005 and 2004 Consolidated...

  • Page 58
    ... of Directors and Stockholders FairPoint Communications, Inc.: We have audited the accompanying consolidated balance sheets of FairPoint Communications, Inc. and subsidiaries (the Company) as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders' equity...

  • Page 59
    ... 40,705 Property, plant, and equipment, net Goodwill Investments Intangible assets, net Debt issue costs, net Deferred income tax Interest rate swaps Other Total assets Liabilities and Stogsholders' Equity (Defigit) Current liabilities: Accounts payable Dividend payable Other accrued liabilities...

  • Page 60
    ... Interest and dividend income Interest expense Impairment on investments Equity in net earnings of investees Realized and unrealized losses on interest rate swaps Other nonoperating, net Total other expense Loss from continuing operations before income taxes Income tax benefit (expense) Minority...

  • Page 61
    ...,635) $ (146,150) 1,671 15 awards Other comprehensive loss from available-forsale securities Other comprehensive income from cash flow hedges Repurchase redeemable preferred stock Preferred stock accretion Preferred stock dividends Balance at December 31, 2003 Net income Compensation expense for...

  • Page 62
    ... Consolidated Statements of Comprehensive Ingome (Loss) Years ended Degember 31, 2005, 2004, and 2003 (in thousands) 2005 2004 2003 Net income (loss) Other comprehensive income (loss): Available-for-sale securities: Unrealized holding gains (losses) Less reclassification adjustment for gain...

  • Page 63
    ... of debt issue costs Provision for uncollectible revenue Deferred income taxes Income from equity method investments Deferred patronage dividends Minority interest in income of subsidiaries Loss on early retirement of debt Write-off of offering costs Net (loss) gain on sale of investments...

  • Page 64
    ...with early retirement of long term debt Payment of deferred transaction fee Repurchase of shares of common stock subject to put options Repurchase of redeemable preferred stock Loan origination and offering costs Dividends paid to minority stockholders Proceeds from the exercise of stock options Net...

  • Page 65
    ... and repair services. MJD Capital Corp. leases equipment to other subsidiaries of FairPoint. Carrier Services provides wholesale long distance services. Broadband provides wireless broadband services and wholesale data products. STE's wholly owned subsidiaries include Sunflower Telephone Company...

  • Page 66
    ...from: access, pooling, local calling services, Universal Service Fund receipts, long distance services, Internet and data services, and other miscellaneous services. Local access charges are billed to local end users under tariffs approved by each state's public utilities commission. Access revenues...

  • Page 67
    ... stated at cost. For investments in partnerships, the equity method of accounting is used. Non-Qualified Deferred Compensation Plan assets are classified as trading. The Company uses fair value reporting for marketable investments in debt and equity securities classified as either available-for-sale...

  • Page 68
    ... note 2. As of December 31, 2005, debt issue and offering costs of $1.0 million remained capitalized after the write-off that are a direct and incremental benefit to the transactions described in note 2. In 2005, the Company entered into a new senior secured credit facility consisting of a revolving...

  • Page 69
    ... for impairment at least annually. During this assessment, management relies on a number of factors, including operating results, business plans, and anticipated future cash flows. Other intangible assets recorded by the Company consist of acquired customer relationships. These intangible assets...

  • Page 70
    ... tax planning strategies in making this assessment, as well as all positive and negative evidence that would affect the recoverability of deferred tax assets. As a result of the offering, the Company has reduced its aggregate long term debt and expects a significant reduction in its annual interest...

  • Page 71
    ... an estimated amount the Company would pay if the contracts were canceled or transferred to other parties. Amounts receivable or payable under interest rate swap agreements are accrued at each balance sheet date and gains and losses related to effective hedges are reported, net of tax effect, as...

  • Page 72
    ...and Related Informationo the Company's only separately reportable business segment is its traditional telephone operations. The Company's traditional telephone operations are conducted in rural, suburban, and small urban communities in various states. The operating income of this segment is reviewed...

  • Page 73
    ... discontinued operations, which in prior periods were reported on a combined basis as a single amount. (s) New Accounting Pronouncements In December 2004, the FASB issued SFAS No. 123(R). This new standard requires companies to adopt the fair value methodology of valuing stockbased compensation and...

  • Page 74
    ... 8, 2005, the Company consummated an initial public offering, or the offering, of 25,000,000 shares of its common stock, par value $0.01 per share, or common stock, at a price to the public of $18.50 per share. In connection with the offering, the Company entered into a new senior secured credit...

  • Page 75
    ..., if any, capital expenditures, taxes and future reserves, if any, would in general be distributed as regular quarterly dividend payments to the holders of its common stock, rather than retained and used for other purposes. On December 14, 2005, the Company declared a dividend of $0.39781 per share...

  • Page 76
    ... deductible for income tax purposes. The Company incurred acquisition costs of $0.6 million. Berkshire is an independent local exchange carrier that provides voice communication, cable and internet services. Berkshire's communities of service are adjacent to those of Taconic Telephone Corp., one of...

  • Page 77
    ...Property, plant, and equipment Investments Excess cost over fair value of net assets acquired Other assets Intangible assets Current liabilities Long term debt Other liabilities Total net purchase price...thousands, except per share data). Pro forma year ended Degember 31, 2005 2004 Revenues Income (...

  • Page 78
    ... Marketable Equity Securities As of December 31, 2005, the Company no longer holds any marketable equity investments classified as available-for-sale. Following an August 2, 2004 announcement by Choice One of a financial restructuring under Chapter 11 of the United States Bankruptcy Code, the quoted...

  • Page 79
    ... investments accounted for under the equity method and the Company's ownership percentage as of December 31, 2005 and 2004 are summarized below: 2005 2004 Chouteau Cellular Telephone Company ILLINET Communications, LLC Orange County-Poughkeepsie Limited Partnership ILLINET Communications of Central...

  • Page 80
    ... gains of approximately $0.4 million were realized on these sales. During 2005, the Company determined that the carrying amount of its investment in Illinois Valley Cellular RSA No. 2, which is accounted for under the equity method, exceeded the estimated fair value and such decline was "other-than...

  • Page 81
    ...the Company did not identify any events or circumstances that may have had a significant adverse effect on the fair value of those investments. (7) Long-term Debt Long-term debt at December 31, 2005 and 2004 is shown below (in thousands): 2005 2004 2005 Senior secured notes, variable rates ranging...

  • Page 82
    ... the Company receives from any sale, transfer or other disposition of any assets, 100% of net casualty insurance proceeds and 100% of the net cash proceeds the Company receives from the issuance of permitted securities and, at certain times if the Company is not permitted to pay dividends, with...

  • Page 83
    ... Company's business, mergers, acquisitions, asset sales and transactions with the Company's affiliates. The credit facility restricts the Company's ability to declare and pay dividends on its common stock as follows: · The Company may use all of its available cash accumulated after April 1, 2005...

  • Page 84
    ... under the Carrier Services' senior secured notes. There was no gain or loss on the extinguishment of this indebtedness. The 1998 Senior Secured Notes were repaid in full in 2005 using proceeds from the Company's initial public offering and borrowings under the 2005 Senior Secured Notes. 82

  • Page 85
    ... Company to make any dividend payments. The 1998 Fixed Rate Notes and the 1998 Floating-Rate Notes were repaid in full in 2005 using proceeds from the Company's initial public offering and borrowings under the 2005 Senior Secured Notes. (d) Senior Subordinated Notes Issued in 2000 FairPoint issued...

  • Page 86
    ... dividends that may be paid. A portion of the RTFC notes, the full amount of the RTB notes and notes payable to the Rural Utilities Service were repaid in 2005 using proceeds from the Company's initial public offering and borrowings under the 2005 Senior Secured Notes. The Company was in compliance...

  • Page 87
    ...the accompanying consolidated balance sheets. C&E, Taconic, and GT Com also sponsor defined contribution 401(k) retirement savings plans for union employees. C&E, Taconic, and GT Com match contributions to these plans based upon a percentage of pay of all qualified personnel and make certain profit...

  • Page 88
    ... below (in thousands): 2005 2004 2003 Computed "expected" Federal tax benefit (expense) from continuing operations State income tax benefit (expense), net of Federal income tax expense Dividends and loss on redemption on preferred stock Dividends received deduction Rate change Change in valuation...

  • Page 89
    ... portions of the deferred tax assets and deferred tax liabilities as of December 31, 2005 and 2004 are presented below (in thousands): 2005 2004 Deferred tax assets: Federal and state tax loss carryforwards Employee benefits Self insurance reserves Restructure charges and exit liabilities Allowance...

  • Page 90
    ... 31, 2005, the Company has alternative minimum tax credits of $1.4 million that may be carried forward indefinitely. The Company completed an initial public offering on February 8, 2005, which resulted in an "ownership change" within the meaning of the U.S. Federal income tax laws addressing net...

  • Page 91
    ..., Inc. Stock Incentive Plan In August 1998, the Company adopted FairPoint Communications, Inc. (formerly MJD Communications, Inc.) Stock Incentive Plan (the "1998 Plan"). The 1998 Plan provided for grants of up to 1,317,425 of nonqualified stock options to executives and members of management, at...

  • Page 92
    ..., 2005 is 2.8 years. (d) FairPoint Communications, Inc. 2000 Employee Stock Incentive Plan In May 2000, the Company adopted the FairPoint Communications, Inc. 2000 Employee Stock Incentive Plan (the 2000 Plan). The 2000 Plan provided for grants to members of management of up to 1,898,521 options to...

  • Page 93
    ... to certain provisions, in the event of a change of control, the Company will cancel each option in exchange for a payment in cash of an amount equal to the excess, if any, of the highest price per share of Class A common stock offered in conjunction with any transaction resulting in a change of...

  • Page 94
    ... directors. An additional 408 restricted units were granted in the third and fourth quarters of 2005 in lieu of dividends on the restricted units. (13) Disgontinued Operations and Restrugture Charges (a) Competitive Communications Business Operations In November 2001, in connection with the sale...

  • Page 95
    ...-going obligations of the Company. Assets and liabilities of discontinued operations of Carrier Services as of December 31, 2005 and 2004 follows (in thousands): 2005 2004 Accounts receivable Current assets of discontinued operations Accrued liabilities Restructuring accrual Accrued property taxes...

  • Page 96
    ... charges Cash payments Restructuring accrual as of December 31, 2005 $ 7,182 (246) (1,683) 5,253 80 (2,682) 2,651 (600) (739) $ 1,312 (b) Rural Local Exchange Carrier Operations On September 30, 2003, the Company completed the sale of all of the capital stock owned by Services of Union Telephone...

  • Page 97
    ...the Company to this law firm prior to February 8, 2005. Total fees paid to this law firm in 2005 were $1.4 million. In 2004, the law firm was paid $3.5 million, of which $0.1 million was for general counsel services and $3.4 million was for services related to financing and equity offering costs. In...

  • Page 98
    .... (c) Long-term Debt The fair value of the Company's publicly registered long-term debt is stated at quoted market prices. The fair value of the Company's remaining longterm debt is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for...

  • Page 99
    ... in revenue-sharing arrangements with other telephone companies for interstate revenuesharing 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 in the interstate market. Revenues...

  • Page 100
    ...June 6, 2005, a purported class action complaint was filed in the General Court of Justice, Superior Court Division, of the State of North Carolina by Robert Lowinger on behalf of himself and all other similarly situated persons against the Company, the Company's Chairman and Chief Executive Officer...

  • Page 101
    ... this Annual Report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) of the Exchange Act...

  • Page 102
    ... Company's definitive proxy statement to be filed not later than April 30, 2005 with the SEC pursuant to Regulation 14A under the Exchange Act. PTRT IV ITEM 15. EXHIBITS, FINTNCITL STTTEMENT SCHEDULES (a) Finangial Statements The financial statements filed as part of this Annual Report are listed...

  • Page 103
    ... duly authorized. FAIRPOINT COMMUNICATIONS, INC. Date: March 13, 2006 By: /s/ EUGENE B. JOHNSON Name: Eugene B. Johnson Title: Chairman of the Board of Directors and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed...

  • Page 104
    ...14, 2005, by and among FairPoint, Local Exchange Company LLC, Cass County Telephone Company Limited Partnership and LEC Long Distance, Inc.* Stock Purchase Agreement, dated February 17, 2006, by and among Southern Illinois Cellular Corp. and Crosslink Wireless, Inc., Egyptian Communication Services...

  • Page 105
    ... 1995 Stock Option Plan.(13) FairPoint Amended and Restated 1998 Stock Incentive Plan.(13) FairPoint Amended and Restated 2000 Employee Stock Incentive Plan.(10) 10.21 10.22 10.23 10.24 FairPoint 2005 Stock Incentive Plan.(3) FairPoint Annual Incentive Plan.(3) Form of Restricted Stock Agreement...

  • Page 106
    ... for the Orange County-Poughkeepsie Limited Partnership for the years ended December 31, 2005, 2004 and 2003.* Filed herewith. Pursuant to Securities and Exchange Commission Release No. 33-8238, this certification will be treated as "accompanying" this Quarterly Report on Form 10-Q and not...

  • Page 107
    (11) Incorporated by reference to the Annual Report on Form 10-K of FairPoint for the year ended December 31, 2004. (12) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on May 24, 2005. (13) Incorporated by reference to the Registration Statement on Form S-4 of ...

  • Page 108
    ... and related services including but not limited to wireline services to approximately 8,083 access lines, SLASS services, voice-mail services, Internet services, long distance services, 911 services, switching and transport services, billing and collection services and directory services in...

  • Page 109
    ...account of rent, property taxes, utility charges, fees and deposits; (i) originals (if available) or copies (at the option of Buyer) of (i) all books, records, manuals, files, customer lists and records, accounts and billing records, plans, blueprints, specifications, drawings, surveys, engineering...

  • Page 110
    ... all federal, state and local income tax, franchise tax or other tax credits and tax refund claims arising out of the operations of the Business prior to Slosing; (b) the minute books, equity record books and tax returns of Sellers; (c) except as provided in Section 1.5, any insurance policies...

  • Page 111
    ... obligations associated with or relating to any Excluded Assets, any long term indebtedness and any intercompany payables or receivables of the Sellers owed to any one or more of Sellers or Sellers' Affiliates; members, managers or partners; (b) any liability, complaint, claim or obligation of any...

  • Page 112
    ... and obligations relating to the operation of the Business or the actions of the Sellers prior to the Slosing Date under any rule, regulation, law, mandate, decision or order of the MPSS, KSS, FSS, National Exchange Sarriers Association ("NESA"), Universal Service Administration Sompany...

  • Page 113
    ... or charges under applicable law incurred in connection with the sale and transfer of the Purchased Assets under this Agreement will be borne and paid by the Sellers. 1.10 Purchase Price Adjustment . (a) As used herein, for the purposes of this Section, (i) "Net Working Sapital" shall mean Surrent...

  • Page 114
    ... the provisions set forth above) differs from the Purchase Price Adjustment Estimate, then within five (5) business days after such final determination, Buyer will pay the Sellers, or the Buyers will be entitled to recover from the Escrow Account, the difference in immediately available funds, in...

  • Page 115
    ... under the laws of the State of Missouri and is qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required including but not limited to Kansas. Each of LES, SassTel and SassTel LD has all requisite power and authority to own...

  • Page 116
    ... or made, violate or constitute a default under any judgment, order, restriction, writ, injunction, decree, law, statute, ordinance, rule or regulation applicable to any of the Sellers or to any of their respective assets; or (e) create (directly or indirectly with or without notice of or lapse of...

  • Page 117
    ... actions of the Sellers resulting in this Agreement, since the Balance Sheet Date, each Seller has conducted the Business only in conformity with all rules and regulations of any Governmental Entity. Without limiting the generality of the foregoing, since the Balance Sheet Date, except as set forth...

  • Page 118
    ... any Seller (or any of their respective managers, members, partners, directors, officers or employees) which relate to the Business or the Purchased Assets. No investigation, complaint, action, suit or proceeding is pending at law or in equity or by or before any governmental instrumentality or...

  • Page 119
    .... Each Seller has timely and properly filed all federal, state, local and foreign tax returns (including but not limited to income, franchise, sales, payroll, employee withholding and social security and unemployment) ("Tax Returns") that it was required to file since January 1, 1998. All such...

  • Page 120
    ... due and payable. (g) Each Seller and each payor of benefit payments under any Sompany Plan, has withheld and timely paid all taxes (including, without limitation, federal, state, local, or foreign income, franchise, payroll, employee withholding and social security and unemployment taxes) required...

  • Page 121
    ... (within the meaning of Section 3(14) of ERISA) has taken any action with respect to any Sompany Plan that could subject any such plan (or its related trust), the Sellers or any member, manager, partner, officer, director or employee of any of the foregoing to a material penalty or tax under Section...

  • Page 122
    ... and complete list of names and current hourly wage, monthly salary or other compensation of all directors, officers, managers, employees, consultants, independent contractors or managers of the Business, with a summary of existing bonuses, additional compensation and other benefits (whether current...

  • Page 123
    ... Materials or worker health and safety as currently in effect or as in effect at any time in the past; (b) "Environmental Authority" shall mean any Governmental Entity (as such term is defined in Section 8.9(c) below) responsible for the due administration and/or enforcement of any Environmental Law...

  • Page 124
    ... action) under any administrative order, decree, or agreement pursuant to any Environmental Law. (vi) Except as set forth in Schedule 2.12 , (A) no real property currently or formerly owned, leased, operated or used by any of the Sellers in connection with the Business (including any real property...

  • Page 125
    ... the Sellers (including all telephone and cable lines) to operate the business and to provide services to existing customers and none of the Sellers is in breach of, or default under, any such easement, right-of-way or other right and there are not any burdensome limitations or obligations under any...

  • Page 126
    ...patents and copyrights. 2.15 Insurance. Schedule 2.15 sets forth a list of all insurance policies and all material fidelity bonds or other insurance service contracts (the "Insurance Policies") providing coverage for the properties or operations of the Business, the type and amount of coverage, and...

  • Page 127
    ...; and the conduct of the Business has been and is in compliance with all federal, state and local energy, public utility, health, wage and hour (including but not limited to the Fair Labor Standards Act), employment, workplace or worker safety and health, including but not limited to OSHA, and all...

  • Page 128
    ... termination. (b) Except as set forth on Schedule 2.19 , there are no contracts, understandings, arrangements or commitments (whether written or oral) between any of the Sellers, on the one hand, and another Seller or any stockholder, member, manager, partner, officer, director or employee...

  • Page 129
    ... or hereafter in effect relating to creditors' rights generally, and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). 3.3 Sonsents and Approvals; No Violation . Neither the execution and delivery of this Agreement by Buyer nor...

  • Page 130
    ... or state takeover laws or (iii) such filings and consents as may be required under any local government environmental, health or safety law or regulation pertaining to any notification, disclosure or required approval triggered by the transactions contemplated by this Agreement; (c) except as set...

  • Page 131
    ..., retirement allowance or other employee benefit not required or contemplated by any of the existing benefit, severance, termination, pension or employment plans, agreements or arrangements as in effect on the date hereof to any such member, partner, manager, employee, director or officer, whether...

  • Page 132
    ... business combination, sale of equity interest, sale of assets, tender offer, exchange offer or other transaction (a "Sompeting Transaction"), (ii) participate in any discussions or negotiations regarding, or furnish to any person any information or data with respect to or access to the properties...

  • Page 133
    ... expeditiously as possible). 4.5 Access to Information . Following execution of this Agreement, upon reasonable notice, each of the Sellers shall afford to officers, employees, counsel, accountants, engineers, consultants, prospective financing sources, and other authorized representatives of Buyer...

  • Page 134
    ...agree to make health insurance plan continuation coverage available to the extent required by Part 6 of Title I of ERISA (and similar provisions under the Sode and any similar continuation coverage law) (collectively "SOBRA") under the appropriate Sompany Plan for each employee or former employee of...

  • Page 135
    ...and such health plan shall be designed so that it will fully meet all obligations which SOBRA may impose upon Sellers and Buyer regarding offering continuation coverage to any past or present employees (and their dependents) of the Business (and any other affiliated entity related to the Business or...

  • Page 136
    ... applicable law or Order), a notice, in form and substance reasonably acceptable to each of them in compliance with Section 64.1120(e) of the FSS's rules and any and all other applicable state and federal law, to customers notifying them of the pending sale transaction contemplated by this Agreement...

  • Page 137
    ... or KSS, that are related to or arise out of (i) the operation of Business by the Sellers prior to the Slosing Date; (ii) the allegations contained in the Somplaint of the Staff of the MPSS pending in Sase No. TS-2005-0357 before the Public Service Sommission of the State of Missouri; or (iii) any...

  • Page 138
    ... warranties of Sellers or in furtherance of the transactions contemplated by this Agreement as Buyer or its counsel may reasonably request. (f) The Buyer shall have timely received the monthly unaudited balance sheets and related statements of income and cash flow of each Seller for the additional...

  • Page 139
    ...to ensure that all federal Universal Service Funds to which the study area associated with the Business is entitled are paid as of Slosing of the transaction contemplated by this Agreement to the Buyer's Affiliate in its capacity as an incumbent rural local exchange carrier designated as an Eligible...

  • Page 140
    ... applicable to the Business and not subject of a policy law, rule or regulation of general application. (d) Employee Matters . All costs, expenses or loss of revenue incurred by Buyer, the Business, or any of Buyer's employee benefit plans after the Slosing arising out of or related to any of...

  • Page 141
    ... Assets of the Business. (h) Related Expenses. All expenses and costs, including but not limited to reasonable legal fees, paid or incurred in connection with any such indemnified Slaim. 6.4 Indemnification by the Buyer. After the Slosing Date, subject to the limitations set forth in Sections...

  • Page 142
    ... shall immediately pay such amount to the Indemnitee in order to enable the Indemnitee to make such payment, and otherwise shall promptly reimburse the Indemnitee in an amount equal to the amount of such payment, in either case, plus all reasonable out-of-pocket expenses (including legal fees and...

  • Page 143
    ...otherwise. The parties hereto agree that all service of process may be made on any such party by personal delivery or by registered or certified mail addressed to the appropriate party at the address for such party set forth in this Agreement. All fees, costs and expenses of the prevailing party in...

  • Page 144
    ... or present operation of the Business, and the cost of the required assessment and remediation activities requested, specified or directed by the applicable Governmental Entities having jurisdiction or as otherwise required by applicable Environmental Laws in order to obtain from such Governmental...

  • Page 145
    ...any issues that have been or can be raised or are related to or arising out of (i) any of the allegations contained in the Somplaint of the Staff of the MPSS pending in Sase No. TS 2005-0357 before the Public Service Sommission of the State of Missouri or (ii) any over-earnings of the Business prior...

  • Page 146
    ..., rules or construction or similar rules under the law of the State of North Sarolina or any other state. Unless otherwise provided, any and all disputes arising under this Agreement may, but are not required to be adjudicated in the state or federal courts located in the State of Missouri and each...

  • Page 147
    ..., a specific person is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. (b) "Assumed Sontracts" means the following contracts, obligations, understandings or commitments (whether written...

  • Page 148
    ... or other governmental or other regulatory authority or agency, including the MPSS, KSS or FSS and other public utility or service commission or similar agency. (e) "Lien" means any lien, encumbrance, pledge, mortgage, security interest, claim, lease, charge, option, right of first refusal, easement...

  • Page 149
    ... hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written. FAIRPOINT SOMMUNISATIONS, INS. By: /s/ Walter E. Leach, Jr. Name: Walter E. Leach, Jr. Title: Executive Vice President Sorporate Development LOSAL EXSHANGE SOMPANY LLS...

  • Page 150
    Exhibit 2.4 STOCK PURCHASE AGREEMENT Dated as of February 17, 2006 By and Among SOUTHERN ILLINOIS CELLULAR CORP. And CROSSLINK WIRELESS, INC., EGYPTIAN COMMUNICATION SERVICES, INC., HAMILTON COUNTY COMMUNICATIONS, INC., HTC HOLDING CO., MJD SERVICES CORP., SHAWNEE COMMUNICATIONS, INC., AND ...

  • Page 151
    ... are listed on Schedule 2.1 hereto (the Subsidiaries"), are engaged in the business of marketing, selling and providing mobile wireless voice and data telecommunications services (including the provision of long distance telecommunications services for wireless calls) and related services (together...

  • Page 152
    ... to the Shareholders, the Purchase Price shall be adjusted to be reduced by an amount equal to the sum of ( x) the RSA 6 & 7 Value, plus (y) any federal, state and local tax liability of SICC (on a consolidated basis) resulting from, and solely from such sale (the "RSA 6 & 7 Tax Liability"). The...

  • Page 153
    ... retention bonus payments pursuant to Section 6.25, and (iii) fees payable or deferred expenses related to Daniels & Associates L.P. and other transaction expenses of the Shareholders consistent with Section 1.4(e); (B) current liabilities shall also exclude the RSA 6 & 7 Tax Liability; (C) current...

  • Page 154
    ... statement to Buyer (with appropriate supporting document for the details of the calculation) of its estimate of: (a) Working Capital; (b) the RSA 6 & 7 Tax Liability; (c) all amounts to be deducted from the purchase price for Indebtedness, Employment Related Payments and transaction expenses to be...

  • Page 155
    ... other individuals listed above on October 20, 2005, as such agreements are in effect on the date hereof (collectively, the "Executive Retention Bonus" and collectively with the Deferred Compensation, the "Employment Related Payments"). The Buyer shall pay the amount of the Purchase Price adjustment...

  • Page 156
    ... or prejudice any right or remedy Buyer may have at law or equity or under the terms of this Agreement. (b) Communications and Actions. Buyer shall be entitled to rely upon any communication or writings given by or to, or executed by the Shareholder Representative. All notices to be sent to any...

  • Page 157
    ... under this Agreement and the Related Agreements have been duly authorized by all required action other than any required Consents. Each of this Agreement and the Related Documents constitute a legal, valid and binding obligation of SICC and each Shareholder, as applicable, enforceable against each...

  • Page 158
    ... similar laws affecting the enforcement of creditors' rights generally, and general principles of equity and limitations on the availability of equitable remedies. (b) Except as listed on Schedule 2.3 , SICC's and each Shareholder's execution and delivery of this Agreement and the Related Agreements...

  • Page 159
    ...outstanding shares of SICC capital stock have been duly authorized and validly issued in accordance with all applicable federal and state securities laws, not in violation of preemptive or other similar rights of any shareholder, and are fully paid and non-assessable. Except as set forth on Schedule...

  • Page 160
    ... law or regulation (the "Franchises"), and (ii) all United States and foreign issued patents, patent rights, patent applications, registered trademarks, trademark applications, registered service marks, service mark applications, trade names, copyrights, software, trade dress, customer lists...

  • Page 161
    ... or agreement concerning any Material Intellectual Property, will not cause forfeiture or termination or give rise to a right of forfeiture or termination of any of the Material Intellectual Property or impair the right of Buyer to make, use, sell license or dispose of, or to bring any action for...

  • Page 162
    ...set forth on Schedule 2.9 , neither SICC nor any Subsidiary has any liabilities for any customer overbillings or prospective refunds of overearnings. 2.10 Capital Improvements Required by Authorities . Neither SICC nor any Subsidiary is required by any federal, state or local regulatory body to make...

  • Page 163
    ... Cellular Services industry in Illinois generally), (b) loan by SICC or any Subsidiary to any officer, director, employee or stockholder thereof, nor any agreement or commitment therefor, (c) increase, whether direct or indirect, in the compensation paid or payable to any officer, director, employee...

  • Page 164
    ..., developments or circumstances in worldwide or national conditions (political, economic, or regulatory) that generally adversely affect the local, regional or national market for Cellular Services or that generally adversely affect companies engaged in the telecommunications business (including...

  • Page 165
    ... upon personal contact with any agent of such Taxing Authority. Neither SICC, any Subsidiary, any Shareholder nor any officer or employee responsible for Tax matters has received a request from any Taxing Authority for information related to Tax matters. Schedule 2.15(c) lists all tax returns filed...

  • Page 166
    ... is party to any agreement, contact arrangement, or plan that has resulted or would result, separately or in the aggregate, in the payment of any "excess parachute payment" within the meaning of Code §280G (or any corresponding provision of state, local or foreign tax law) in connection with the...

  • Page 167
    ... of business; (b) has any employment contracts, stock redemption or purchase agreements, financing agreements, collective bargaining agreements, consulting or management services agreements, independent contractor agreements, or agreements with any current or former officers, directors, employees or...

  • Page 168
    ... complaint, action, suit or proceeding at law or in equity or by or before any adjudicative body now pending against SICC, a Subsidiary or any director, officer or key employee of SICC or a Subsidiary which has a reasonable possibility of hindering the enforceability or performance of this Agreement...

  • Page 169
    ... Internal Revenue Service; and, (v) related trust agreements, insurance policies and contracts and other funding or administrative agreements for such Benefit Arrangements. (b) SICC and each ERISA Affiliate are and have always been in compliance with the applicable provisions of ERISA and the Code...

  • Page 170
    ...the Subsidiaries or otherwise requiring action by its boards of directors or other governing bodies and/or shareholders and equity holders have been duly authorized or ratified as necessary and are evidenced in such minute books; and, (c) the stock certificate books and stock records of SICC and the...

  • Page 171
    ...its Subsidiaries: (a) any material unfair labor practice charges, complaints, disputes or proceedings, or representation elections, petitions or demands; (b) grievances or arbitration demands arising pursuant to any collective bargaining agreement; (c) any material claims, charges, complaints or 21

  • Page 172
    ... are in material compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and unfair labor practices. 2.29 Subscribers; Rate Plans; Form of Agreements . As of December 31, 2005, the aggregate number of Postpay...

  • Page 173
    ... of SICC or each Shareholder, Threatened which, individually or in the aggregate, would have the effect of terminating or materially limiting such access. 2.31 (a) Roaming. Schedule 2.31(a) contains a true, correct and complete: (i) list of the five Commercial Mobile Service providers ("Roaming...

  • Page 174
    ... pursuant to the rules and regulations of the FCC relating to the put option regarding the Viza Wireless Limited Partnership exercised by Zagarri Holdings, Inc. on January 20, 2006. These payments, if any, will either be paid out of Working Capital prior to Closing or, in the event not paid prior...

  • Page 175
    ..., moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally, and general principles of equity and the availability of equitable remedies. Buyer's execution and delivery of this Agreement and the Related Documents, and its performance of the...

  • Page 176
    ...and any applicable state securities regulatory agencies or pursuant to an available exemption. Buyer will acquire the Shares at the Closing for its own account, for investment and not with a view to the distribution thereof. Buyer acknowledges having had access to the Shareholder's virtual data room...

  • Page 177
    ... and the Subsidiaries is in good standing; (e) Stock certificates representing all Shares, duly endorsed for transfer and accompanied by any required transfer tax stamps, if applicable under Illinois law; (f) The Escrow Agreement, executed by SICC, the Shareholders and the Escrow Agent. (g) an...

  • Page 178
    ... to Buyer on all real property owned or leased by SICC and the Subsidiaries. If Buyer determines to obtain title insurance, surveys and/or Phase I environmental assessments, Buyer agrees it shall order the same within ten (10) days after the execution of this Agreement and shall arrange to...

  • Page 179
    ..., developments or circumstances in worldwide or national conditions (political, economic, or regulatory) that generally adversely affect the local, regional or national market for Cellular Services or that generally adversely affect companies engaged in the telecommunications business (including...

  • Page 180
    ... and all applicable waiting periods under the HSR Act shall have expired or been terminated. 5.5 Litigation. There shall not be in effect any order, injunction or decree at law or in equity or by or before any governmental or administrative instrumentality or other agency of competent authority, or...

  • Page 181
    ...the rate plans and promotions as disclosed on Schedule 2.29 ; (vii) maintain customer service operations in the ordinary course of business consistent with past practice, and refrain from changing any policies or practices relating to customer service in any material manner; (viii) use commercially...

  • Page 182
    ... marketing, advertising or similar costs related to the acquisition of subscribers; (xi) not terminate, amend, modify or waive any terms or conditions of any agreement, contract or commitment for roaming services (including, without limitation, the agreements, contracts or commitments with Roaming...

  • Page 183
    ... any such action with respect to any other Cellular Entity or (b) declare, set aside or pay any noncash dividend or make any noncash distribution with respect to the capital stock, limited partner interests, general partner interests, membership interests, units or other equity or similar interests...

  • Page 184
    ...the acceleration of payment or performance or other consequence as a result of the change of control of SICC; (g) Award or pay any bonuses to officers, directors or employees in excess of awards or bonuses historically paid; or (h) Take any action or fail to take any action that would make any of...

  • Page 185
    ... respective Subsidiaries in order to enable or obtain any FCC Consent or any approval of a third party or Governmental Authority under any antitrust law or other legal requirement that is necessary to consummate the transactions contemplated by this Agreement or any Related Agreement. 6.12 Consents...

  • Page 186
    ... imposed by federal law on any party that has any class of securities registered with the U. S. Securities and Exchange Commission. Subject to the foregoing, the form, content and timing of all press releases, public announcements or publicity statements with respect to this Agreement and the...

  • Page 187
    ... or waiver of the limitation period applicable to any Tax claim or assessment relating to SICC or any Cellular Entity, or take any other similar action relating to the filing of any Tax Return or the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender...

  • Page 188
    ... its Affiliates to, make available to Buyer any and all Tower Documents for any Tower Site. If, prior to the (11) Material omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Exchange Act of 1934. Material filed separately with the Securities and Exchange Commission. 38

  • Page 189
    ... any of their Affiliates to, directly or indirectly market, sell, or provision Cellular Service in the counties and communities of the state of Illinois set forth on Schedule 6.24 . Buyer shall, during this two (2) year period, continuously offer the Shareholders and any of their Affiliates the...

  • Page 190
    ... shares of capital stock of any corporation listed on a national securities exchange or publicly trading on Nasdaq, or the resale of Cellular Services by HTC Technologies Co. in the portion of Randolph County, Illinois identified on Schedule 6.24 . (b) The Shareholders acknowledge that a violation...

  • Page 191
    ... by applicable Law. Buyer shall have no obligation to make payments pursuant to the Retention Pool in the event this Agreement is terminated or abandoned. For purposes of this Section 6.25, the term "qualifying resignation" is defined as a resignation of any employee within thirty (30) business days...

  • Page 192
    ... and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. SICC, the Shareholders and Buyer agree (A) to retain all books and records with respect to Tax matters pertinent to SICC and its Subsidiaries relating...

  • Page 193
    ... relating to a Straddle Period shall be applied to the taxable period ending on the Closing Date. Additionally, any overpayments of taxes and tax refunds that are not included in the Working Capital Adjustment Amount shall first off-set any Taxes that may then be claimed due from the Shareholders...

  • Page 194
    ... to Closing. (h) Transfer Taxes. Shareholders shall pay and be jointly and severally liable for any sales, use, transfer and documentary Taxes and similar recording and filing fees applicable to the transfer of the Shares to Buyer at Closing under the laws of the State of Illinois or North Carolina...

  • Page 195
    ...parachute payments and the basis for such determinations, and the amount so determined shall be utilized for such calculation purposes unless Buyer shall, in good faith, question the reasonableness of such calculation amounts, in which event the parties agree to confer promptly to reach agreement on...

  • Page 196
    ... asserted in writing together with adequate written detail to evidence the existence of and basis for such claim prior to the expiration of the applicable survival period set forth in Sections 9.1(b) or (c), shall survive with respect to such claim or any dispute with respect thereto until the final...

  • Page 197
    ...with Article 7 of this Agreement, or any liability of SICC to make payments to or indemnify any other Person with respect to Taxes, for any Taxable period or portion thereof ending on or before the Closing Date; and, (d) all actions, suits, proceedings, claims, demands, assessments, judgments, fines...

  • Page 198
    ... settlement of any Third Party Claim controlled by the Indemnifying Party, in which case the Indemnified Party shall bear the costs and expenses relating to such participation. Notwithstanding the foregoing, (i) the Indemnified Party shall have the unilateral right to pay or settle such Third Party...

  • Page 199
    ... the Buyer and the Shareholders and their respective officers, directors, employees, agents, Affiliates, legal representatives, successors and permitted assigns. The foregoing limitation shall not apply with respect to any claim based on intentional fraud or the break-up fee set forth in Section 11...

  • Page 200
    ... authority) shall not at any time be used by such party, or disclosed to third parties and shall remain subject to the Confidentiality Agreement between ALLTEL Corporation and Daniels on behalf of SICC, SIRP and First Wireless, Inc. dated August 19, 2005. 11.3 Effect of Termination; Break-up Fee...

  • Page 201
    ... fee set forth in this Section 11.3 shall be the sole and exclusive remedy of the Seller and the Shareholders and their respective officers, directors, employees, agents, Affiliates, legal representatives, successors and permitted assigns in the event this Agreement is terminated by the Shareholders...

  • Page 202
    ... Executive Vice President and Secretary Facsimile Number: 501-905-0962 If to SICC or the Shareholders before Closing to : Southern Illinois Cellular Corp. 417 South 42 nd Street Mt. Vernon, IL 62864 Attn: Terry Addington If to Shareholders after Closing to: Crosslink Wireless, Inc. 60A Technical...

  • Page 203
    ... best efforts to deliver any such notice to each Shareholder at their respective addresses set forth in this Section 12.3. 12.4 Counterparts . This Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be taken to be an original...

  • Page 204
    ...mean including without limitation. 12.10 Parties. Nothing in this Agreement is intended to confer any rights or remedies under or by reason of this Agreement...decision-making authority who will negotiate in good faith to attempt to reach a resolution of the Dispute prior to pursuing other available ...

  • Page 205
    ... controls, is controlled by or is under common control with another Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership or voting securities, by contract...

  • Page 206
    ...6 of ERISA, and any similar state group health plan continuation law, together with all regulations and proposed regulations promulgated thereunder. "Code" means the Internal Revenue Code of 1986, as amended, and all regulations thereunder. "Commercial Mobile Service" has the meaning set forth in 47...

  • Page 207
    ...the Federal Communications Commission (or any successor agency, commission, bureau, department or other political subdivision of the United States of America). "FCC License" means any license, permit, approval, registration or authorization granted or issued by the FCC. "Final Order" means an action...

  • Page 208
    ... inquiry" mean that the foregoing representatives have, at a minimum, (1) reviewed the relevant statement or representation contained in this Agreement and have consulted with the appropriate individuals (which shall include, without limitation, current directors, officers and employees of SICC...

  • Page 209
    ... subscribed to the business of SICC and its Subsidiaries for Commercial Mobile Service (excluding telephone numbers assigned pursuant to prepaid and reseller contracts or arrangements), and not more than 90 days delinquent in paying their account. "PSAP" means Public Safety Answering Point. "Related...

  • Page 210
    ... of any federal or state historic preservation authority), (viii) title reports, commitments or policies of SICC's or Subsidiary's leasehold or fee simple interest, (ix) Tower site plans, Tower drawings, and foundation plans, (x) all lease, license and sublease agreements whereby any third...

  • Page 211
    ... Group President - Operations SHAREHOLDERS: Crosslink Wireless, Inc. By: Title: /s/ George Rawlinson President Egyptian Communication Services, Inc. By: Title: /s/ Kevin J. Jacobsen Executive Vice President Hamilton County Communications, Inc. By: Title: /s/ Robert Thomason General Manager...

  • Page 212
    Shawnee Communications, Inc. By: Title: /s/ James T. Coyle President Wabash Independent Networks, Inc. By: Title: /s/ David R. Grahn General Manager/EVP 62

  • Page 213
    ... discussed or policies or procedures referred to in this Code or are in doubt about the best course of action to take in a particular situation, you should contact the General Counsel, or follow the guidelines set forth in Section 16 of this Code. Every director, officer and employee has a duty...

  • Page 214
    ... that enhances or supports a competitor's position. If you have any questions regarding this requirement, you should contact the Legal Department. (b) Outside Directorships It is a conflict of interest to serve as a director of any company that competes with the Company. Employees may not serve...

  • Page 215
    .... The Company must report all material related party transactions and business or professional relationships under applicable accounting rules and the Securities and Exchange Commission's (the "SEC") rules and regulations. Any dealings with a related party must be conducted in such a way as to...

  • Page 216
    ... and balance the need or desirability for confidentiality with respect to non-public negotiations or other business developments. The Company's CEO and CFO are responsible for establishing effective disclosure controls and procedures and internal controls over financial reporting within the meaning...

  • Page 217
    ...The purpose of business entertainment and gifts in a commercial setting is to create good will and sound working relationships, not to gain unfair advantage with customers. No gift or entertainment should ever be offered, given, provided or accepted by any Company employee, officer, director, family...

  • Page 218
    ... in order to make responsible business decisions. Many employees, officers and directors regularly use business expense accounts, which must be documented and recorded accurately. If you are not sure whether a certain expense is legitimate, ask your supervisor or contact the Company's Controller...

  • Page 219
    ... of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. It is strictly prohibited to make illegal payments to government officials of any country. In addition, there are a number of federal and state laws and...

  • Page 220
    ... securities law or stock exchange regulation. With regard to employees who are not executive officers, waivers must be approved by the General Counsel. 14. ReportiIg aIy Illegal or UIethical Behavior; No RetaliatioI It is your obligation and ethical responsibility to help enforce this Code...

  • Page 221
    ... General Counsel at the following address: FairPoint Communications, Inc., 521 East Morehead Street, Suite 250, Charlotte, NC 28202, Attention: Shirley J. Linn. (f) You may also report aIy violatioIs of this Code oI aI aIoIymous aId coIfideItial basis through the EthicsPoiIt HotliIe liIk set forth...

  • Page 222
    its business in accordance with its stated values. We expect all of our directors, officers, employees, agents, contractors, consultants and representatives to adhere to these rules in carrying out their duties for the Company. Any individual whose actions are found to violate these policies or any ...

  • Page 223
    ..., officer or director of the Company. I further agree to comply with the Code. If I have questions concerning the meaning or application of the Code, any Company policies, or the legal and regulatory requirements applicable to my position, I know I can consult my supervisor, my Human Resources...

  • Page 224
    ... China Telephone Company Maine Telephone Company UI Long Distance, Incq UI Communications, Incq UI Telecom, Incq Telephone Service Company Chouteau Telephone Company Chautauqua and Erie Telephone Corporation Chautauqua & Erie Communications, Incq (d/b/a C& E Teleadvantage) Chautauqua & Erie Network...

  • Page 225
    ... New York Maine Maine MJD Services Corp. Bluestem Telephone Company Big Sandy Telecom, Incq FairPoint Communications Missouri, Incq Odin Telephone Exchange, Incq Columbine Telecom Company (f/k/a Columbine Acquisition Corpq) Ravenswood Communications, Incq The El Paso Telephone Company El Paso Long...

  • Page 226
    ... and in the related prospectuses, of our report dated March 13, 2006 with respect to the consolidated balance sheets of FairPoint Communications, Inc. and subsidiaries (the Company) as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders' equity (deficit...

  • Page 227
    ... PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration htatements No. 333-122809 on Form h-8, and Nos. 333-127759 and 333-127760 on Form h-3 of FairPoint Communications, Inc. of our report relating to the financial statements of mrange County-Poughkeepsie Limited...

  • Page 228
    ...certify that: 1. 2. I have reviewed this annual report on Form 10-K of FairPoint Communications, Inc. (the "Company"); 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 statements made, in light...

  • Page 229
    ...certify that: 1. 2. I have reviewed this annual report on Form 10-K of FairPoint Communications, Inc. (the "Company"); 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 statements made, in light...

  • Page 230
    ... with the Annual Report on Form 10-K of FairPoint Communications, Inc. (the "Company") for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eugene B. Johnson, Chief ExecutiKe Officer of the Company, certify, pursuant...

  • Page 231
    ... connection with the Annual Report on Form 10-K of FairPoint Communications, Inc. (the "Company") for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John P. Crowley, Chief Financial Officer of the Company, certify, pursuant...

  • Page 232
    Exhibit 99.1 Orange County - Poughkeepsie Limited Partnership Report of Independent Registered Public Accounting Firm Financial Statements Years Ended December 31, 2005, 2004 and 2003

  • Page 233
    ORANGE COUNTY POUGHKEEPSIE LIMITED PARTNERSHIP TABLE OF CONTENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Balance Sheets 1 2 December 31, 2005 and 2004 Statements of Operations 3 For the years ended December 31, 2005, 2004 and 2003 Statements of Changes in Partners' Capital ...

  • Page 234
    ...'s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management...

  • Page 235
    ... 1,249 - 52 1,545 34,525 $ 36,070 Total current assets PROPERTY, PLANT AND EQUIPMENT - Net TOTAL ASSETS LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Accounts payable and accrued liabilities Advance billings Due to general partner Total current liabilities $ 47,328 $ 171 261 - 432...

  • Page 236
    ...144,643 OPERATING COSTS AND EXPENSES (NOTE 4): Cost of service (excluding depreciation and amortization related to network assets included below) General and administrative Depreciation and amortization Net loss (gain) on sale of property, plant and equipment Total operating costs and expenses 25...

  • Page 237
    ... IN PARTNERS' CAPITAL YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 (Dollars in Thousands) General Partner Verizon Wireless of the East LP Limited Partners Warwick Taconic Valley Telephone Telephone Corporation Company Total Partners' Capital BALANCE, JANUARY 1, 2003 Net income $ 53,678 103...

  • Page 238
    ... and amortization Net loss / (gain) on sale of property, plant and equipment Changes in certain assets and liabilities: Accounts receivable Unbilled revenue Prepaid expenses and other current assets Accounts payable and accrued liabilities Advance billings and other current liabilities Net cash...

  • Page 239
    ... service areas. The partners and their respective ownership percentages as of December 31, 2005, 2004 and 2003 are as follows: Managing and general partner: Verizon Wireless of the East LP* 85.0% Limited partners: Taconic Telephone Corporation ("Taconic") Warwick Valley Telephone Company...

  • Page 240
    ...Partnership's 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...

  • Page 241
    .... Approximately 98% of the Partnership's 2005, 2004 and 2003 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 9

  • Page 242
    ... income related to the Due from General Partner balance of $782, $980 and $1,472 for the years ended December 31, 2005, 2004 and 2003, respectively. Recently Issued Accounting Pronouncements - In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement...

  • Page 243
    ...the years ended December 31, 2005, 2004 and 2003: 2005 2004 2003 Revenue: Operating revenues (b) Cellsite allocated revenues (c) Cost of Service: Direct telecommunication charges (a) Long distance charges Allocation of cost of service (a) Allocation of switch usage cost (a) $ 176,310 1,377 6,355...

  • Page 244
    ... purchase commitments, primarily for network equipment, on behalf of the Partnership. 6. VALUATION AND QUALIFYING ACCOUNTS Balance at Beginning of the Year Additions Write-offs Balance at End Charged to Operations Net of Recoveries of the Year Accounts Receivable Allowances: 2005 2004 2003...

  • Page 245
    ... effects as a result of wireless phone usage. Various consumer class action lawsuits allege that 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...