FairPoint Communications 2006 Annual Report Download - page 5

including receipt of certain regulatory approvals, Verizon will distribute to its stockholders all of the shares of capital stock of Spinco, and then Spinco will
immediately be merged with and into the Company, with the Company continuing as the surviving corporation. Spinco stockholders will receive newly issued
shares of the Company’s common stock in exchange for their shares of Spinco. This transaction is referred to herein as the Merger.
Verizon and Spinco entered into a Distribution Agreement, dated as of January 15, 2007, under which certain specified assets and liabilities will be
transferred to subsidiaries of Spinco and certain distributions will be made and debt securities issued by Spinco. We, as successor by merger to Spinco, will
have certain post-closing rights for specified periods to ensure that the assets and liabilities specified in the Distribution Agreement were transferred to Spinco.
For accounting purposes, we expect that FairPoint will be the acquiree. Consequently, merger related costs will been expensed as incurred in connection with the
transaction and FairPoint’s assets and liabilities will be recorded at fair value at acquisition.
In connection with the Merger, on January 15, 2007 we also entered into (i) a Transition Services Agreement with certain subsidiaries of Verizon, (ii) an
Employee Matters Agreement with Verizon and Spinco, (iii) a Tax Sharing Agreement with Verizon and Spinco, and (iv) a Master Services Agreement with
Capgemini U.S. LLC. The Merger and related transactions are expected to be completed within one year.
Separately, on January 15, 2007, Taconic Telephone Corp., or Taconic, a subsidiary of the Company, entered into a Partnership Interest Purchase
Agreement, referred to herein as the O-P Purchase Agreement, with Cellco Partnership d/b/a Verizon Wireless and Verizon Wireless of the East LP pursuant to
which Taconic will sell its 7.5% limited partnership interest in Orange County-Poughkeepsie Limited Partnership to Cellco Partnership. The sale is expected to
be completed in the second quarter of 2007.
For additional information regarding the Merger and related transactions, and the Merger Agreement and related agreements, see our Current Report on
Form 8-K filed with the SEC on January 19, 2007.
Following the Merger, our operations will be more focused on small urban markets and geographically concentrated in the northeastern United States, we
expect to face more competition in our business located in the northeastern United States, and we expect to be less dependent on regulated revenues.
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We believe we are distinguished by the following competitive strengths:
· We have the leading market position in the communities we serve, with limited competition. Demand for telephone services
from our residential and local business customers has historically been very stable despite changing economic conditions. As a result, we have
experienced less of a decline in access lines during the last two years as compared to regional bell operating companies. Additionally, our telephone
companies operate in generally supportive regulatory environments. These factors have permitted us to generate consistent cash flows and strong
margins.
·  . We currently operate 31 local exchange companies in 18 states enabling us to capitalize on economies of scale
and operating efficiencies. Our geographic diversity significantly enhances our cash flow stability by limiting our exposure to competition, local
economic downturns and state regulatory changes. In addition, we believe that we have achieved significant scale efficiencies by centralizing many
functions, such as sales and marketing, operations, network planning, accounting and customer service.
· Our advanced network infrastructure enables us to provide a wide array of communications services.
Our network consists of central office hosts and remote sites all with digital switches (primarily manufactured by Nortel and Siemens) and operating
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