FairPoint Communications 2009 Annual Report Download

Download and view the complete annual report

Please find the complete 2009 FairPoint Communications annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 286

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219
  • 220
  • 221
  • 222
  • 223
  • 224
  • 225
  • 226
  • 227
  • 228
  • 229
  • 230
  • 231
  • 232
  • 233
  • 234
  • 235
  • 236
  • 237
  • 238
  • 239
  • 240
  • 241
  • 242
  • 243
  • 244
  • 245
  • 246
  • 247
  • 248
  • 249
  • 250
  • 251
  • 252
  • 253
  • 254
  • 255
  • 256
  • 257
  • 258
  • 259
  • 260
  • 261
  • 262
  • 263
  • 264
  • 265
  • 266
  • 267
  • 268
  • 269
  • 270
  • 271
  • 272
  • 273
  • 274
  • 275
  • 276
  • 277
  • 278
  • 279
  • 280
  • 281
  • 282
  • 283
  • 284
  • 285
  • 286

Table of Contents






(Exact Name of Registrant as Specified in Its Charter)



Securities registered pursuant to Section 12(g) of the Act: 





o 



(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer Identification No.)


(Address of Principal Executive Offices)

(Zip code)
 
Common Stock, par value $0.01 per share None

Table of contents

  • Page 1
    ... Suite 500 Charlotte, North Carolina (Address of Principal Executive Offices) 28202 (Zip code) Registrant's Telephone Number, Including Trea Code: (704) 344-8150 Securities registered pursuant to Section 12(b) of the Tct: Title of Each Class Name of Exchange on Which Registered Common Stock, par...

  • Page 2
    ..., 2009 (based on the closing price of $0.60 per share as quoted on the New York Stock Exchange as of such date) was approximately $52,946,423. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange...

  • Page 3
    .... 14. Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services 157 162...

  • Page 4
    ...of the Chapter 11 Cases (as defined herein) on our business, including our ability to maintain contracts, trade credit and other customer and vendor relationships; our ability to obtain the necessary approvals from state public utilities commissions ("PUCs") and the Federal Communications Commission...

  • Page 5
    ... forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this Annual Report that are not historical facts. When used in this Annual Report, the words "expects," "anticipates," "intends," "plans...

  • Page 6
    ... of the local exchange businesses of Verizon New England in Maine, New Hampshire and Vermont to Spinco and the related long distance and internet service provider businesses in those states to subsidiaries of Spinco. After extensive federal and state regulatory review and approval, on March 31, 2008...

  • Page 7
    ... communications for many years, more recently LECs, including the Company, have experienced a decline in the number of access lines in service, primarily due to increased competition from wireless carriers, cable television operators who offer voice services, and Internet service providers who offer...

  • Page 8
    ... their Old Notes in the Exchange Offer as payment for accrued and unpaid interest on the exchanged Old Notes up to, but not including, the July 29, 2009 settlement date of the Exchange Offer (the "Settlement Date"). The New Notes permitted the Company to pay the interest payable on the New Notes...

  • Page 9
    ... Credit Facility. Pursuant to the Plan Support Agreement, the Consenting Lenders agreed, subject to the terms and conditions contained in the Plan Support Agreement, to support the Company's proposed financial restructuring described in the FairPoint Communications, Inc. and Affiliates Chapter...

  • Page 10
    ... in Maine, New Hampshire and Vermont. The Plan incorporates and implements various settlements reached with these parties, but is subject to the approval of the applicable state commissions or boards with respect to certain actions resulting from the Plan. On February 8, 2010, the Company filed an...

  • Page 11
    ... the Company, including but not limited to all outstanding shares of common stock, options and contractual or other rights to acquire any equity interests, will be cancelled and extinguished on the actual date of emergence from Chapter 11 protection (the "Effective Date"). Under the Plan, claims of...

  • Page 12
    ... annual meeting of stockholders. New Long Term Incentive Plan and Success Bonus Plan As contemplated by the Plan, on the Effective Date, the Company will be deemed to have adopted the FairPoint Communications, Inc. 2010 Long Term Incentive Plan (the "New Long Term Incentive Plan") and the FairPoint...

  • Page 13
    ...of options to purchase New Common Stock that are available for future distribution under the New Long Term Incentive Plan will be automatically reduced by 620,651 shares. Debtor-in-Possession Financing DIP Credit Agreement In connection with the Chapter 11 Cases, the Company and FairPoint Logistics...

  • Page 14
    ... the following: Interest Rate and Fees. Interest rates for borrowings under the DIP Credit Agreement are, at the DIP Borrowers' option, at either (i) the Eurodollar rate plus a margin of 4.5% or (ii) the base rate plus a margin of 3.5%, payable monthly in arrears on the last business day of each...

  • Page 15
    ... is prohibited from granting a lien and security interest therein pursuant to applicable law. Reporting Requirements As a result of the filing of the Chapter 11 Cases, the Company is now required to file various documents with, and provide certain information to, the Bankruptcy Court, including...

  • Page 16
    ... change pursuant to a Chapter 11 reorganization, the amount of this annual limitation is equal to the "long term tax-exempt rate" (published monthly by the IRS) for the month in which the ownership change occurs, multiplied by the value of FairPoint Communications' stock immediately after, rather...

  • Page 17
    ... operations of the business. Amounts that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the statements of operations beginning in the quarter ending December 31, 2009. The balance sheet must distinguish...

  • Page 18
    ... under the Swaps upon the expiration of a three business day grace period. Prior to the filing of the Chapter 11 Cases, the Company also failed to make the October 1, 2009 interest payment on the Notes. The failure to make the interest payment on the Notes constituted an event of default under...

  • Page 19
    ... Maine, New Hampshire and Vermont operations we acquired from Verizon. These services were provided by Verizon under the Transition Services Agreement, dated as of January 15, 2007, which we entered into with certain subsidiaries of Verizon in connection with the Merger, as amended on March 31, 2008...

  • Page 20
    ... Company filed amendments to its Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2009, June 30, 2009 and September 30, 2009 (collectively, the "Amendments") to reflect the effect of an accounting error, a one-time non-operating loss related to a disputed claim and certain billing...

  • Page 21
    ... and long distance voice, data, Internet, television and broadband product offerings. We operate in 18 states with 1.6 million access line equivalents (including voice access lines and high speed data lines, which include digital subscriber lines ("DSL"), wireless broadband, cable modem and fiber-to...

  • Page 22
    ...number of calls within a defined "exchange" area. Local calling services include basic local lines, private lines and switched data services. We provide local calling services to residential and business customers, generally for a fixed monthly charge and service charges for special calling features...

  • Page 23
    ...distance services to communications providers that are not affiliated with us. Data and Internet Services We offer broadband Internet access via DSL technology, fiber-to-the-home "FAST" technology, dedicated T-1 connections, Internet dial-up, high speed cable modem and wireless broadband. Customers...

  • Page 24
    ...long distance services to our LEC customers and may elect to use our billing and collection services. Our LECs charge interexchange carriers a billing and collection fee for each call record generated by the interexchange carrier's customer. Directory Services. Through our local telephone companies...

  • Page 25
    ...In our LEC markets, DSL-enabled access technology has been deployed to provide significant broadband capacity to our customers. As of December 31, 2009, nearly all of our central offices are capable of providing broadband services through cable modem, wireless broadband and DSL technology. Rapid and...

  • Page 26
    ... services in both pricing and the speed of such services. We estimate that as of December 31, 2009, a majority of the customers that we serve had access to local calling, long distance and Internet services through a cable television company. The FCC's requirement that telephone companies offer...

  • Page 27
    ... threat to our local calling, long distance and high-speed Internet services, since they have existing assets and access to low cost capital that could allow them to enter a service area rapidly and accelerate network development. Other Competitors VoIP. VoIP service is increasingly being...

  • Page 28
    ..., reforming high-cost and low-income programs to promote universal service, to make those funds more efficient while promoting broadband communications in areas that otherwise would be unserved. We also expect the FCC to undertake new rulemakings addressing changes to interstate access charges and...

  • Page 29
    ... by long-distance carriers. The amount of access charge revenue that we will receive is subject to change. Our ILEC operations in Maine, New Hampshire and Vermont are subject to price cap regulation of access charges. Under price cap regulation, limits are imposed on a company's interstate rates...

  • Page 30
    ... FCC's rules in the forms of Interstate Access Support ("IAS") and Interstate Common Line Support ("ICLS"). We receive IAS support in all three of our federal price cap study areas (Maine, New Hampshire and Vermont). We also continue to receive ICLS support in our rate-of-return study areas. These...

  • Page 31
    ... to telephone numbers, operator service, directory assistance and directory listing; (iv) ensure competitive access to telephone poles, ducts, conduits and rights of way; and (v) compensate competitors for the cost of completing calls to competitors' customers from the other carrier's customers. In...

  • Page 32
    ... jointly with the local exchange affiliate, and (iii) acquire any services from their affiliated LEC at tariffed rates, terms and conditions. The Bell Operating Companies are subject to a different set of rules allowing them to offer both long-distance and local exchange services in the regions...

  • Page 33
    ...FairPoint operations, the option to continue providing DSL service as a common carrier (status quo) offering. The FCC also has concluded that broadband Internet access service providers must comply with CALEA. Despite the FCC's previous ruling that broadband Internet access is an information service...

  • Page 34
    ... competitors. State Regulation The local service rates and intrastate access charges of substantially all of our telephone subsidiaries are regulated by state regulatory commissions which typically have the power to grant and revoke franchises authorizing companies to provide communications services...

  • Page 35
    ..., that with respect to reimbursement claims of third parties arising under the ME 2008 Merger Order, the Maine Regulatory Parties will recommend that the Maine Regulatory Settlement shall not affect the status of such claims under applicable bankruptcy law. Service Quality: • We and the MPUC...

  • Page 36
    ...committee" that will monitor compliance with the terms of the ME 2008 Order, as modified by the Maine Regulatory Settlement, and all other regulatory matters involving the States of Vermont, New Hampshire and Maine. • • We have agreed that any management bonuses will be based on a combination...

  • Page 37
    ... to honor the "for life" pricing that Verizon had offered to certain customers. The first $500,000 of any penalty amounts resulting from any failure to meet broadband commitments will be paid to the New Hampshire Telecommunications Planning and Development Fund. We will retain penalty amounts above...

  • Page 38
    ...and for the reorganized Company in total. Other: • • We will reimburse the State of New Hampshire for actual, reasonable costs and expenses in the Chapter 11 Cases. We will not agree with Maine or Vermont to materially different terms taken as a whole pertaining to the Plan, or, if applicable...

  • Page 39
    ...permitting and construction plan will at a minimum identify tower sites and set a schedule for permitting and construction. We will undertake to deploy broadband services to 95% of all access lines in those exchanges that have been identified for 100% broadband availability in the VT 2008 Order (the...

  • Page 40
    ... requirements of the VT 2008 Order as modified by the Vermont Regulatory Settlement, and the resold services are purchased through and serviced by FairPoint. • Penalty amounts resulting from any failure to meet broadband deployment requirements will be managed by us with funds deposited into an...

  • Page 41
    ... AFOR implemented upon the Merger. The AFOR provides for the capping of rates for basic local exchange services and allows pricing flexibility for other services, including intrastate long distance, optional services and bundled packages. Under the terms of the ME 2008 Order, among other things, we...

  • Page 42
    ... Verizon Northern New England business committed to make broadband capability available to 75% of its access lines in Vermont by 2008 and 80% of its access lines in Vermont by 2010 with milestones of 65% and 77% for 2007 and 2009, respectively. The Amended Incentive Regulation Plan provides pricing...

  • Page 43
    ... applicable environmental laws and regulations. Other Information We make available on our website, www.fairpoint.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to such reports as soon as reasonably practical after we file such...

  • Page 44
    ...their securities cancelled and in return receive no payment or other consideration, or a payment or other consideration that is less than the par value or the purchase price of such securities. Operating under Bankruptcy Court protection for a long period of time may harm our business. A long period...

  • Page 45
    ... to raise additional funds through public or private debt or equity financing or other various means to fund our business after the completion of the Chapter 11 Cases. Irrespective of the Exit Facility, adequate funds may not be available when needed or may not be available on favorable terms. 41

  • Page 46
    ... Indebtedness and Common Stock Our stock is no longer listed on a national securities exchange. It will likely be more difficult for stockholders and investors to sell our common stock or to obtain accurate quotations of the share price of our common stock. Effective October 26, 2009, the NYSE...

  • Page 47
    ... interest rates, these agreements may not offer complete protection from this risk. We are a holding company and rely on dividends, interest and other payments, advances and transfers of funds from our operating subsidiaries and investments, to meet our debt service and other obligations, and to pay...

  • Page 48
    ... ability to execute on our business plan. Our future operating performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, our ability to borrow funds in the future to make payments on...

  • Page 49
    ... pay dividends to our stockholders in the future. Our initial public offering in February 2005 resulted in an "ownership change" within the meaning of the U.S. federal income tax laws addressing NOL carryforwards, alternative minimum tax credits and other similar tax attributes. Moreover, the Merger...

  • Page 50
    .... On February 9, 2009, we began to independently operate our business on the new systems. Following the Cutover, a number of the key back-office systems, such as order entry, order management and billing, have experienced certain functionality issues as well as issues with communication between the...

  • Page 51
    ...wireless carriers is expected to increase. We also face increasing competition from wireline and cable television companies for our local calling, long distance and Internet services. For example, we estimate that as of December 31, 2009, a majority of the customers that we serve had access to local...

  • Page 52
    ... regulatory action in any of those states may adversely affect our business, financial condition, results of operations and liquidity. As of December 31, 2009, approximately 86% of our access line equivalents were located in Maine, New Hampshire and Vermont. As a result of this geographic...

  • Page 53
    ... be forced to pay for services we do not need. If we underestimate demand, we may need to acquire additional capacity on a short-term basis at unfavorable prices, assuming additional capacity is available. If additional capacity is not available, we will not be able to meet this demand. In addition...

  • Page 54
    ...our internal controls over financial reporting existed as of December 31, 2009: • Our information technology controls were not adequate. Adequate testing was not performed to ensure that certain revenue transactions were properly accounted for and transferred from our billing system to our general...

  • Page 55
    ... Universal Service Fund, and in some cases, state universal support, to support our operations in high-cost areas. These federal revenues include Universal Service Support payments for local switching support, ICLS, or IAS. High-cost support for the operations conducted by our Northern New England...

  • Page 56
    ...to decline based on historical trends. We receive IAS in all of our price cap study areas (Maine, New Hampshire and Vermont) and ICLS in our rate-of-return study areas. The FCC also is considering changes to its rules governing who contributes to the Universal Service Support mechanisms, and on what...

  • Page 57
    ... stayed as a result of the filing of the Chapter 11 Cases. For a discussion of the Chapter 11 Cases, see "Item. 1-Business-Chapter 11 Cases." We are subject to certain service quality requirements in the states of Maine, New Hampshire and Vermont. Failure to meet these requirements in any of these...

  • Page 58
    ... STOCKHOLDER MTTTERS TND ISSUER PURCHTSES OF EQUITY SECURITIES General Our common stock began trading on the NYSE under the symbol "FRP" on February 4, 2005. Prior to that time, there was no trading market for our common stock. As a result of the filing of the Chapter 11 Cases, on October 26, 2009...

  • Page 59
    ... and other factors that our board of directors may deem relevant. In addition, our ability to make dividend payments in the future is expected to be limited by the orders of the state regulatory authorities approving the Merger as modified in connection with the Plan and the agreements governing our...

  • Page 60
    ..., Inc. 2008 Long Term Incentive Plan and 11,476,190 shares under the FairPoint Communications, Inc. 2009 CEO Compensation Plan. (2) Repurchase of Equity Securities We did not repurchase equity securities during the three months ended December 31, 2009. Unregistered Sales of Equity Securities On...

  • Page 61
    ... the local exchange businesses of Verizon New England in Maine, New Hampshire and Vermont and the customers of the related long distance and Internet service provider businesses in those states to subsidiaries of Spinco. The Merger was accounted for as a "reverse acquisition" of Legacy FairPoint by...

  • Page 62
    (loss) per share Cash dividends per share $ $ (2.70) $ 0.2575 $ (0.85) $ 0.773 $ 57 0.61 $ - $ 0.59 $ - $ 0.81 -

  • Page 63
    ... approved amount of the allowed claims for our pre-petition debt. These write-offs are included in Reorganization items. (2) Total access line equivalents includes voice access lines and high speed data lines, which include DSL lines, wireless broadband, cable modem and fiber-to-the-premises. 58

  • Page 64
    ... of services, including local and long distance voice, data, Internet, television and broadband product offerings. We operate in 18 states with 1.6 million access line equivalents (including voice access lines and high speed data lines, which include DSL, wireless broadband, cable modem and fiber-to...

  • Page 65
    ... those used by Verizon to operate and support our network and back-office functions in the Maine, New Hampshire and Vermont operations we acquired from Verizon. These services were provided by Verizon under the Transition Services Agreement through January 30, 2009. On January 30, 2009, we began the...

  • Page 66
    ...the Merger Agreement, Legacy FairPoint issued 53,760,623 shares of common stock to Verizon stockholders. Prior to the Merger, the Verizon Group engaged in a series of restructuring transactions to effect the transfer of specified assets and liabilities of the Verizon Northern New England business to...

  • Page 67
    ... telephone calls both to and from our customers. Intrastate access charges to long distance carriers and other customers are based on access rates filed with the state regulatory agencies. Universal Service Fund pigp-cost loop support. We receive payments from the Universal Service Fund to support...

  • Page 68
    ... general and administrative expense includes salaries and wages and benefits not directly attributable to a service or product, bad debt charges, taxes other than income, advertising and sales commission costs, customer billing, call center and information technology costs, professional service fees...

  • Page 69
    ...2009 % of revenue Year Ended December 31, 2008 % of revenue Year Ended December 31, 2007 % of revenue Revenues $ 1,126,761 Operating expenses Cost of services and sales 514,935 Selling, general... (expense): Interest expense Gain (loss) on derivative instruments Gain on early retirement of debt Other...

  • Page 70
    ... of Cutover issues that prevented us from executing fully on our operating plan for 2009, as well as detrimental effects of the Chapter 11 Cases, our revenue has continued to decline. We derived our revenues from the following sources: Local calling services. Local calling service revenues decreased...

  • Page 71
    ... in the number of subscriber lines in 2009 due to technology substitution and the weakness of the economy, partially offset by increased revenue from bundled product offerings designed to retain customers and generate more revenue. Data and Internet services. Data and Internet services revenues...

  • Page 72
    ... the Merger. Accrued and unpaid interest on the Old Notes exchanged in the Exchange Offer through July 28, 2009 was paid on July 29, 2009 in the form of additional New Notes totaling $18.9 million. Accrued and unpaid interest on the New Notes from July 29, 2009 through September 30, 2009 is payable...

  • Page 73
    ... subscriber lines in 2008, partially offset by increased revenue from bundled product offerings designed to retain customers and generate more revenue. Data and Internet services. Data and Internet services revenues increased $31.7 million to $114.9 million in 2008 compared to 2007. Legacy FairPoint...

  • Page 74
    ...of the Merger, which has more than offset direct costs incurred by us to operate our Northern New England operations. Sellingo general and administrative. Selling, general and administrative expenses increased $95.6 million to $384.4 million in 2008 compared to 2007. Legacy FairPoint contributed $38...

  • Page 75
    ... Our short term and long term liquidity needs arise primarily from: (i) interest and principal payments on our indebtedness; (ii) capital expenditures; and (iii) working capital requirements as may be needed to support and grow our business. Notwithstanding the direct impact of the Chapter 11 Cases...

  • Page 76
    ... PUCs in Maine, New Hampshire and Vermont as a condition to the to the approval of the Merger and whether such requirements will be enforceable against us in the future. We anticipate that we will fund these expenditures through cash flows from operations, cash on hand and funds available under the...

  • Page 77
    ... under the Term Loan B Facility. Prior to the filing of the Chapter 11 Cases, we failed to make principal and interest payments due under our Pre-petition Credit Facility on September 30, 2009. The failure to make the principal payment on the due date and failure to make the interest payment within...

  • Page 78
    ...interest payable on the New Notes for the Initial Interest Payment Period in the form of cash, by capitalizing such interest and adding it to the principal amount of the New Notes or a combination of both cash and such capitalization of interest, at our option. In connection with the Exchange Offer...

  • Page 79
    ...expand the availability of broadband services in Maine, which is expected to result in capital expenditures in Maine in excess of the minimum capital expenditure requirements described above. The order issued by the state regulatory authority in Vermont also requires us to make capital expenditures...

  • Page 80
    ... orders issued by the PUCs in Maine, New Hampshire and Vermont in connection with their approval of the Merger include a requirement that we pay the greater of $45 million or 90% of our free cash flow (defined as the cash flow remaining after all operating expenses, interest payments, tax payments...

  • Page 81
    ...for software development costs; and Purchase accounting. Revenue Recognition. We recognize service revenues based upon usage of our local exchange network and facilities and contract fees. Fixed fees for local telephone, long distance, Internet services and certain other services are recognized in...

  • Page 82

  • Page 83
    ... Significant pension and other post-retirement benefit plan assumptions, including the discount rate used, the long term rate of return on plan assets, and medical cost trend rates are periodically updated and impact the amount of benefit plan income, expense, assets and obligations. Accounting for...

  • Page 84
    ... 11 Cases or the application of "fresh start" accounting upon the Company's emergence from Chapter 11. Accounting for Software Development Costs. We capitalize certain costs incurred in connection with developing or obtaining internal use software in accordance with the Intangibles-Goodwill and...

  • Page 85
    ... authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The adoption of the ASC had no impact on our consolidated results of operations and financial position. On January 1, 2009, we adopted the accounting standard relating to business combinations. This...

  • Page 86
    ... a payment if the variable rate was above the fixed rate. Pursuant to our Pre-petition Credit Facility, we were required to reduce the risk of interest rate volatility with respect to at least 50% of our Term Loan borrowings. In connection with the Chapter 11 Cases, all of the Swaps were terminated...

  • Page 87
    ... Page FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES: Report of Management on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm 81 82 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007: Consolidated Balance...

  • Page 88
    ... registered public accounting firm. Ernst & Young LLP has also provided an attestation report on the Company's internal control over financial reporting. /s/ DAVID L. HAUSER David L. Hauser Chairman and Chief Executive Officer /s/ LISA R. HOOD Lisa R. Hood Senior Vice President and Corporate...

  • Page 89
    ...Independent Registered Public Tccounting Firm The Board of Directors and Stockholders of FairPoint Communications, Inc. (Debtors-in-Possession): We have audited FairPoint Communications, Inc.'s (Debtors-in-Possession) (the "Company") internal control over financial reporting as of December 31, 2009...

  • Page 90
    ... achievement of the objectives of the control criteria, FairPoint Communications, Inc. (Debtors-in-Possession) has not maintained effective internal control over financial reporting as of December 31, 2009 based on the COSO criteria. /s/ ERNST & YOUNG LLP Charlotte, North Carolina May 27, 2010 83

  • Page 91
    ... the standards of the Public Company Accounting Oversight Board (United States), FairPoint Communications, Inc.'s (Debtors-in-Possession) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee...

  • Page 92
    ...,742 4,788 15,100 - - 448,488 Accrued pension obligation Employee benefit obligations Deferred income taxes Unamortized investment tax credits Other long-term liabilities Long-term debt, net of current portion 2,425,253 41,681 2,942,685 Interest rate swap agreements Total long-term liabilities

  • Page 93
    ... - 3,312,154 2,836,340 3,390,549 Total liabilities Stockholders' equity (deficit): Common stock, $0.01 par value, 200,000,000 shares authorized, issued and outstanding 90,002,026 and 88,995,572 shares at December 31, 2009 and 2008, respectively Additional paid-in capital Retained deficit 900 725...

  • Page 94
    ... Statements of Operations Years ended December 31, 2009, 2008 and 2007 (in thousands, except per share data) 2009 2008 2007 Revenues Operating expenses: Cost of services and sales, excluding depreciation and amortization Selling, general and administrative expense, excluding depreciation and...

  • Page 95
    ... Statements of Stockholders' Equity (Deficit) Years ended December 31, 2009, 2008 and 2007 (in thousands) Tccumulated Total other stockholders' comprehensive equity income (loss) (deficit) Common Stock Shares Tdditional paid-in Tmount capital Retained earnings (deficit) Balance at December...

  • Page 96
    ... of restricted shares Restricted stock cancelled for withholding tax Restricted units cancelled for withholding tax Stock based compensation expense Net assets contributed back to Verizon Employee benefit adjustment to comprehensive income Balance at December 31, 2009 524 5 (5) - - - (20...

  • Page 97
    ... of Comprehensive (Loss) Income Years ended December 31, 2009, 2008 and 2007 (in thousands, except per share data) 2009 2008 2007 Net (loss) income Other comprehensive income (loss), net of taxes: Defined benefit pension and post-retirement plans (net of $5.4 million tax expense and $56.4 million...

  • Page 98
    ...flows from financing activities: Loan origination costs Proceeds from issuance of long-term debt Repayments of long-term debt 50,000 (20,848) - 65,114 (2,126) (22,996) 66,098 Contributions from (to) Verizon Restricted cash Repayment of capital lease obligations Dividends paid to stockholders Net...

  • Page 99
    ... of cash flow information: Interest paid, net of capitalized interest Income taxes paid, net of refunds Non-cash equity consideration Non-cash issuance of senior notes Capital additions included in accounts payable or liabilities subject to compromise at period-end Reorganization costs paid 89

  • Page 100
    ... of services, including local and long distance voice, data, Internet and broadband product offerings, to both residential and business customers. FairPoint is the seventh largest telephone company in the United States based on the number of access lines as of December 31, 2009. FairPoint operates...

  • Page 101
    ...periods prior to the Merger include the wireline-related businesses, Internet access, long distance and customer premises equipment services provided by the Verizon Northern New England business to customers in the states of Maine, New Hampshire and Vermont. All significant intercompany transactions...

  • Page 102
    ...revenues were determined using applicable billing system data and average access lines in service; cost of services and sales, selling, general and administrative expenses and interest expense were allocated based on the percentage of the Verizon Northern New England business revenues related to the...

  • Page 103
    ... needed to support and grow the Company's business. The Company expects that its primary sources of liquidity after the Effective Date will be cash flow from operations, cash on hand and funds available under the Exit Facility Loans. On March 4, 2009, the Board of Directors suspended the payment of...

  • Page 104
    ... the Company's business, mergers, acquisitions, asset sales and transactions with affiliates. Scheduled amortization payments on the Pre-petition Credit Facility began in 2009. No principal payments are due on the Notes prior to their maturity. As a result of the Chapter 11 Cases, the Company does...

  • Page 105
    ...in connection with the Chapter 11 Cases. Spinco issued, and the Company assumed in the Merger, $551.0 million aggregate principal amount of the Old Notes. The Old Notes mature on April 1, 2018 and are not redeemable at the Company's option prior to April 1, 2013. Interest is payable on the Old Notes...

  • Page 106
    ...Facility and Term Loan B Facility, the Company retired $34.5 million of outstanding debt during the year ended December 31, 2009. Prior to the filing of the Chapter 11 Cases, the Company failed to make the October 1, 2009 interest payment on the Notes. The failure to make the interest payment on the...

  • Page 107
    ... the following: Interest Rate and Fees. Interest rates for borrowings under the DIP Credit Agreement are, at the DIP Borrowers' option, at either (i) the Eurodollar rate plus a margin of 4.5% or (ii) the base rate plus a margin of 3.5%, payable monthly in arrears on the last business day of each...

  • Page 108
    ...granting a lien and security interest therein pursuant to applicable law. As a condition to the approval of the Merger and related transactions by state regulatory authorities, the Company has agreed to make capital expenditures following the completion of the Merger. As a condition to the approval...

  • Page 109
    ...Company to reach 100% broadband availability in 50% of the Company's exchanges in Vermont, which could result in capital expenditures of $44 million over such period in addition to the minimum capital expenditures required by the Vermont order as set forth above. The Company is also required to make...

  • Page 110
    ..., the orders issued by the PUCs in Maine, New Hampshire and Vermont in connection with their approval of the Merger include a requirement that we pay the greater of $45 million or 90% of the Company's free cash flow (defined as the cash flow remaining after all operating expenses, interest payments...

  • Page 111
    ...The termination of the Swaps resulted from the filing of the Chapter 11 Cases. (b) (c) Professional fees relate to legal, financial advisory and other professional costs directly associated with the reorganization process. Employment retention represents charges incurred relating to the execution...

  • Page 112
    ... (amounts in thousands): December 31, 2009 Senior secured credit facility Senior Notes Interest rate swap Accrued interest Accounts payable Other long-term liabilities Other accrued liabilities Capital lease obligations Employee benefit obligations Liabilities subject to compromise $ 1,965...

  • Page 113
    ... carriers. Revenues are primarily derived from: access, pooling, local calling services, Universal Service Fund receipts, long distance services, Internet and broadband services, and other miscellaneous services. Local access charges are billed to local end users under tariffs approved by each state...

  • Page 114
    ... billing and collecting charges for toll calls on behalf of interexchange carriers. The interexchange carrier pays a certain rate per each minute billed by the Company. The Company recognizes revenue from billing and collection services when the services are provided. Internet and broadband services...

  • Page 115
    ... the filing of the Chapter 11 Cases will have on the requirements imposed by the PUCs in Maine, New Hampshire and Vermont as a condition to the approval of the Merger and whether such requirements will be enforceable against the Company in the future. (f) Accounts Receivable Accounts receivable...

  • Page 116
    ... interexchange carriers and are otherwise limited to the Company's large number of customers in several states. The Company sponsors pension and post-retirement healthcare plans for certain employees. Plan assets are held by a third party trustee. The Company's plans hold debt and equity securities...

  • Page 117
    ... 11 Cases or the application of Fresh Start Accounting upon the Company's emergence from Chapter 11. (k) Computer Software and Interest Costs The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software which has a useful life in excess of one...

  • Page 118
    ... ASC. The Company has not capitalized interest costs incurred subsequent to the filing of the Chapter 11 Cases, as payments on all interest obligations have been stayed as a result of the filing of the Chapter 11 Cases. On January 15, 2007, FairPoint entered into the Master Services Agreement (the...

  • Page 119
    ...Old Notes exchanged in the Exchange Offer. Pursuant to the Debt Topic of the ASC, this consent fee was capitalized and the Company began to amortize these costs over the life of the New Notes using the effective interest method. Concurrent with the filing of the Chapter 11 Cases, on October 26, 2009...

  • Page 120
    ...Cases or the application of "fresh start" accounting upon the Company's emergence from Chapter 11. The Company's amortizable intangible assets consist of customer lists and a non-compete agreement. Amortizable intangible assets must be reviewed for impairment whenever indicators of impairment exist...

  • Page 121
    ... 31, 2008, management believed it was more likely than not the Company would realize the full benefits of these deductible differences. However, as a result of the change in facts and circumstances during 2009 in which the Company filed for Chapter 11 reorganization, the Company reassessed the...

  • Page 122
    ... employees of the Verizon Northern New England business participated in Verizon's benefit plans including noncontributory pension plans, post-retirement healthcare and life insurance plans for Verizon Northern New England business retirees and their dependents. Upon the effective date of the Merger...

  • Page 123
    ... video, data and voice communication services to residential and business customers as one business segment as defined in Segment Reporting Topic of the ASC. The Company consists of retail and wholesale telecommunications services, including local telephone, high speed Internet, long distance and...

  • Page 124
    ... of federal securities laws are also sources of authoritative GAAP for SEC registrants. The adoption of the ASC had no impact on the Company's consolidated results of operations and financial position. On January 1, 2009, the Company adopted the accounting standard relating to business combinations...

  • Page 125
    ... the local exchange businesses of Verizon New England in Maine, New Hampshire and Vermont and the customers of the related long distance and Internet service provider businesses in those states to subsidiaries of Spinco. The Merger was accounted for as a "reverse acquisition" of Legacy FairPoint by...

  • Page 126
    ... transactions to effect the transfer of specified assets and liabilities of the local exchange business of Verizon New England in Maine, New Hampshire and Vermont and the customers of the Verizon Group's related long distance and Internet service provider businesses in those states to Spinco and the...

  • Page 127
    ... of the total net purchase price of the Merger is shown in the table below (in thousands): Cash Current assets Property, plant, and equipment Investments Excess cost over fair value of net assets acquired Intangible assets Other assets Current liabilities Long-term debt Other liabilities Total...

  • Page 128
    ... is shown below (in thousands): Estimated life (in years) 2009 2008 Land Buildings and leasehold improvements Central office equipment Outside communications plant Furniture, vehicles and other work equipment Plant under construction Other - $ 23,871 $ 23,835 2 - 45 313,766 312,080 5 - 11 2,388...

  • Page 129

  • Page 130
    ... the fixed rate. The Company failed to make payments of $14.0 million due under the Swaps on September 30, 2009, which failure resulted in an event of default under the Swaps upon the expiration of a three business day grace period. The filing of the Chapter 11 Cases constituted a termination event...

  • Page 131
    ... FairPoint Communications, Inc. and Subsidiaries (DEBTORS-IN-POSSESSION) Notes to Consolidated Financial Statements (Continued) (9) Long-term Debt Long-term debt for the Company at December 31, 2009 and 2008 is shown below (in thousands): 2009 2008 Senior secured Pre-petition Credit Facility...

  • Page 132
    ... level and interest expense was allocated to the Verizon Northern New England business. Pre-petition Credit Facility On March 31, 2008, immediately prior to the Merger, FairPoint and Spinco entered into the Pre-Petition Credit Facility consisting of the Revolving Credit Facility, the Term Loan and...

  • Page 133
    ...result, the Company incurs interest expense at above-market levels when LIBOR rates are below 3.00%. The Pre-petition Credit Facility provides for payment to the lenders of a commitment fee on the average daily unused portion of the Revolving Credit Facility commitments, payable quarterly in arrears...

  • Page 134
    ... Term Loan B Facility. Prior to the filing of the Chapter 11 Cases, the Company failed to make principal and interest payments due under the Pre-petition Credit Facility on September 30, 2009. The failure to make the principal payment on the due date and failure to make the interest payment within...

  • Page 135
    ... percentage of the Verizon Northern New England business funding relative to the total debt and equity for the Verizon Companies. Prior to the filing of the Chapter 11 Cases, the Company failed to make the October 1, 2009 interest payment on the Notes. The failure to make the interest payment on the...

  • Page 136
    ... prior to a specified early consent deadline, which amount was equal to $3.75 in cash per $1,000 aggregate principal amount of Old Notes exchanged in the Exchange Offer. Prior to the filing of the Chapter 11 Cases, the Company failed to make the October 1, 2009 interest payment on the Notes. The...

  • Page 137
    ...of the DIP Financing, subject to the terms and conditions of the DIP Credit Agreement and related orders of the Bankruptcy Court. As of December 31, 2009, the Company had not borrowed any amounts under the DIP Credit Agreement and letters of credit totaling $1.6 million had been issued under the DIP...

  • Page 138
    Table of Contents FairPoint Communications, Inc. and Subsidiaries (DEBTORS-IN-POSSESSION) Notes to Consolidated Financial Statements (Continued) (9) Long-term Debt (Continued) fee was due and payable on the date the Final DIP Order was entered by the Bankruptcy Court. The DIP Credit Agreement also...

  • Page 139
    ... the Merger, the Verizon Northern New England business participated in Verizon's benefit plans. Verizon maintained noncontributory defined benefit pension plans for many of its employees. The postretirement health care and life insurance plans for the Verizon Northern New England business' retirees...

  • Page 140
    ... (Continued) (10) Employee Benefit Plans (Continued) Obligations and funded status A summary of plan assets, projected benefit obligation and funded status of the plans are as follows for the year ended December 31, 2009 and the nine months ended December 31, 2008: Qualified Pension Year ended...

  • Page 141
    Amounts recognized in accumulated other comprehensive income (loss): Prior service credit (cost) Net actuarial gain (loss) Net amount recognized in accumulated other comprehensive income (loss) $ (18,665) $ (80,666) (20,116) $ (98,979) (33,715) $ (75,707) (...

  • Page 142
    ... and various other factors. The fair values for the pension plans by asset category at December 31, 2009 are as follows: (In thousands) Total Level 1 Level 2 Level 3 Cash and cash equivalents Equity securities Fixed income securities Hedge funds Funds receivable from Verizon Other assets $ 18,972...

  • Page 143
    ..., 2008. The structure of Verizon's benefit plans did not provide for the separate determination of certain disclosures for the Verizon Northern New England business for periods prior to the Merger. The net periodic benefit cost related to the Verizon Northern New England business pension plans was...

  • Page 144
    ... December 31, 2008: Qualified Pension Year ended December 31, 2009 Nine months ended December 31, 2008 Post-retirement Health Year ended December 31, 2009 Nine months ended December 31, 2008 (In thousands) Amounts recognized in other comprehensive income (loss): New prior service cost Net loss...

  • Page 145
    ... reach the terminal rate Prior to the Merger, the weighted average assumptions were used in determining net periodic cost for the three months ended March 31, 2008 were as follows: Three months ended March 31, 2008 Qualified Pension Discount rate Expected return on plan assets Rate of compensation...

  • Page 146
    133

  • Page 147
    ...The expected long-term rate of return on qualified pension plan assets is based on target allocations of 50% equity and 50% fixed income securities for the management plan and 70% equity and 30% fixed income securities for the associate plan. The asset allocation at December 31, 2009 for the Company...

  • Page 148
    ... of Contents FairPoint Communications, Inc. and Subsidiaries (DEBTORS-IN-POSSESSION) Notes to Consolidated Financial Statements (Continued) (10) Employee Benefit Plans (Continued) The impact of the Medicare Drug Act of 2003 subsidy on the post-retirement health benefits at December 31, 2009 is as...

  • Page 149
    ... of Contents FairPoint Communications, Inc. and Subsidiaries (DEBTORS-IN-POSSESSION) Notes to Consolidated Financial Statements (Continued) (10) Employee Benefit Plans (Continued) up to 5% of compensation. For the 401(k) Plan years ended December 31, 2008 and 2007, the Company generally matched in...

  • Page 150
    ...2009 and 2008 are presented below (in thousands): 2009 2008 Deferred tax assets: Federal and state tax loss carryforwards Employee benefits Allowance for doubtful accounts Investment tax credits Alternative minimum tax and other state credits Basis in interest rate swaps Bond issuance costs Service...

  • Page 151
    ...31, 2009, the Company has alternative minimum tax credits of $3.8 million that may be carried forward indefinitely. Legacy FairPoint 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 NOL...

  • Page 152
    ...) for the payment of interest and penalties accrued in the consolidated balance sheet at December 31, 2009 and 2008, respectively. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and with various state and local governments. The Company is no longer...

  • Page 153
    ... of the Verizon Companies, filed a consolidated federal income tax return and combined state income tax returns in the states of Maine, New Hampshire and Vermont. The operations of the Verizon Companies, including the Verizon Northern New England business, for periods prior to the Merger were...

  • Page 154
    ... which Spinco merged with and into FairPoint, with FairPoint continuing as the surviving corporation for legal purposes. In order to effect the Merger, the Company issued 53,760,623 shares of common stock, par value $.01 per share, to Verizon stockholders for their interest in Spinco. At the time of...

  • Page 155
    ..., the Company adopted the 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 nonqualified stock options to executives and members of management, at the discretion of the compensation committee...

  • Page 156
    ... options have no aggregate intrinsic value based on the closing price of the Company's stock of $0.03 on December 31, 2009. (b) 2000 Employee Stock Incentive Plan In May 2000, the Company adopted the FairPoint Communications, Inc. 2000 Employee Stock Incentive Plan (the "2000 Employee Stock...

  • Page 157
    ... a public company and therefore the Company is accounting for these awards under the prospective method under SFAS 123(R). Stock option activity under the 2000 Employee Stock Incentive Plan is summarized as follows: Weighted average exercise price Options outstanding Outstanding at March 31, 2008...

  • Page 158
    ...(15) Stock-Based Compensation (Continued) these shares pay current dividends. At December 31, 2009, up to 79,781 additional shares of common stock may be issued in the future pursuant to awards authorized under the 2005 Stock Incentive Plan. In March 2006, the Company's board of directors approved...

  • Page 159
    ...Company adopted the FairPoint Communications, Inc. 2008 Long Term Incentive Plan (the "2008 Long Term Incentive Plan"). The 2008 Long Term Incentive Plan provides for the grant of up to 9,500,000 shares of non-vested stock, stock units and stock options to members of the Company's board of directors...

  • Page 160
    ... this grant. In 2008, the Company's board of directors approved an annual award to each of the Company's non-employee directors in the form of non-vested stock or stock units, at the recipient's option, issued under the 2008 Long Term Incentive Plan. The non-vested stock and stock units will vest in...

  • Page 161
    ... FairPoint Communications, Inc. and Subsidiaries (DEBTORS-IN-POSSESSION) Notes to Consolidated Financial Statements (Continued) (15) Stock-Based Compensation (Continued) The following table presents information regarding non-vested stock granted to employees under the 2008 Long Term Incentive Plan...

  • Page 162
    ...2009 (f) Verizon Northern New England Business Stock-based Compensations Plans Prior to the Merger, the Verizon Northern New England business participated in the Verizon Communications Long Term Incentive Plan (the Verizon Plan). The Verizon Plan permitted the granting of nonqualified stock options...

  • Page 163
    ...arranged for, the Verizon Northern New England business based on tariffed rates, market prices or negotiated terms that approximated market rates. These goods and services included items such as communications and data processing services, office space, professional fees and insurance coverage. 150

  • Page 164
    ... business also recognized an allocated portion of interest expense in connection with contractual agreements between the Verizon Companies and Verizon for the provision of short-term financing and cash management services. Verizon issues commercial paper and obtains bank loans to fund the working...

  • Page 165
    ... by the market spread on the Company's debt as of December 31, 2008. See note 8 for more information. (19) Revenue Concentrations As of December 31, 2009, approximately 86% of the Company's access line equivalents were located in Maine, New Hampshire and Vermont. As a result of this geographic...

  • Page 166
    ... the filing of the Chapter 11 Cases. For a discussion of the Chapter 11 Cases, see "Item. 1-Business-Chapter 11 Cases." (c) Service Quality Penalties The Company is subject to certain service quality requirements in the states of Maine, New Hampshire and Vermont. Failure to meet these requirements...

  • Page 167
    ... by the PUCs in Maine, New Hampshire and Vermont as a condition to the approval of the Merger and whether such requirements will be enforceable against the Company in the future. (21) Subsequent Events Impact of Healthcare Reform on Deferred Tax Assets President Obama signed into law on March 23...

  • Page 168
    ...financial reporting existed during 2009: 1. Our information technology controls were not adequate. Adequate testing was not performed to ensure that certain revenue transactions were properly accounted for and transferred from our billing system to our general ledger. Also, access to our information...

  • Page 169
    ...include, but are not limited to, information technology, order provisioning, customer billing, payment processing, credit and collections, inventory management, accounts payable, payroll, human resource administration, tax, general ledger accounting and external reporting. With the exception of the...

  • Page 170
    ... proposed new board members is attached to the Plan Supplement, which is available at www.fprestructuring.com under the "Court Filings" link. In accordance with the Tmended By-Laws, the initial members of the New Board are expected to hold office until the first annual meeting of stockholders which...

  • Page 171
    ...Nominees for Class II Directors witp Terms Expiring at tpe 2010 Annual Meeting. David L. Hauser- Mr. Hauser, age 58, has served as our Chairman and Chief Executive Officer since July 1, 2009. Prior to assuming this role, Mr. Hauser had served as a director of FairPoint Communications since February...

  • Page 172
    ... of Robinson, Bradshaw & Hinson, P.A., located in Charlotte, North Carolina, where he has worked since April 2002, and is also the managing member of Trilogy Capital Partners, LLC, a captive private equity fund with equity provided by a single family group, where he has also worked since April 2002...

  • Page 173
    ..., FairPoint Communications, Inc., 521 East Morehead Street, Suite 500, Charlotte, North Carolina 28202. Compensation Committee Interlocks and Insider Participation During 2009, decisions on various elements of executive compensation were made by our compensation committee. No officer, employee or...

  • Page 174
    ..., under the "Corporate Governance" caption. A copy of our code of business conduct and ethics is available free of charge upon request directed to our secretary at: Secretary, FairPoint Communications, Inc., 521 East Morehead Street, Suite 500, Charlotte, North Carolina 28202. Code of Etpics for...

  • Page 175
    ... and communications policy is available on our corporate website at www.fairpoint.com on the "Investors" page, under the "Corporate Governance" caption. Lead Director and Private Sessions The non-management directors regularly meet in private session without our Chairman and Chief Executive Officer...

  • Page 176
    ... officers and key employees; (2) pay for performance on both an individual and corporate level; (3) align stockholder and executive interests by placing a significant portion of executive compensation "at risk"; (4) tie executive compensation to the achievement of certain short term and long term...

  • Page 177
    ... Chief Executive Officer approves the goals of the other NEOs and the compensation committee reviews them. Long Term Incentives/Equity Awards We maintain the 2008 Long Term Incentive Plan that allows for a variety of stock-based awards to link employee compensation to stockholders' interests and...

  • Page 178
    ... other executive officers with the general goal of providing competitive salaries. In making its decisions, the compensation committee considers independent studies and surveys prepared by consultants based on publicly available information with respect to other comparable communications companies...

  • Page 179
    ...1. Business-Bankruptcy-The Plan -New Long Term Incentive Plan and Success Bonus Plan." Base Salary None of the NEOs received a base salary increase in 2009. Upon the recommendation of the compensation committee, our board of directors approved a starting annual base salary for Mr. Hauser of $800,000...

  • Page 180
    Table of Contents Annual Incentive Compensation Awards The compensation committee established the 2009 target bonuses and related performance goals for certain members of our senior management under the FairPoint Communications, Inc. Annual Incentive Plan, or the Annual Incentive Plan, on March 3, ...

  • Page 181
    ... during the first quarter of 2009; (vi) 5%-FairPoint making certain amendments to the credit agreement entered into in connection with the Verizon transaction; and (vii) 5%-promoting workers' safety and reducing the FairPoint's recordable accident rate. 50% (i) 25%-FairPoint achieving all major...

  • Page 182
    ... 2009 Tnnual Base Salary) Executive Position Performance Criteria Shirley J. Linn Executive Vice President, General Counsel and Secretary 50% (i) 20%-FairPoint entering into certain specified agreements and increasing internal succession-planning cross-training during 2009; (ii) 15%-FairPoint...

  • Page 183
    ... date; and (vii) 5%-promoting workers' safety and reducing FairPoint's recordable accident rate. (1) Mr. Johnson resigned as Chairman and Chief Executive Officer effective June 30, 2009. (2) Mr. Giammarino resigned as Executive Vice President and Chief Financial officer effective March 30, 2010...

  • Page 184
    ...Company adopted the FairPoint Communications, Inc. 2008 Long Term Incentive Plan (the "Long Term Plan") to permit the award of long term, equity based awards to key employees. The stockholders approved the Long Term Plan at the 2008 annual stockholders meeting. We believe the Long Term Plan supports...

  • Page 185
    ... to the executive officers based on the return delivered by the Company to its stockholders in comparison to the Company's peers. Mr. Hauser's Compensation The Company and Mr. Hauser negotiated and subsequently entered into an employment agreement that sets forth the terms and conditions of Mr...

  • Page 186
    ... the Internal Revenue Code (the "Code") generally disallows a tax deduction to public corporations for compensation, other than performance based compensation, over $1.0 million paid for any fiscal year to any of the corporation's Chief Executive Officer and three other highly compensated executive...

  • Page 187
    ... Incentive Stock Deferred Compensation Salary Name and Principal Position Year $ Bonus Twards Option Twards $(1) Plan Compensation Tll Other Compensation Earnings Total $ $ $(1) $ $ $(2) David L. Hauser(3) Chairman of the Board of Directors and Chief Executive Officer 2009 409...

  • Page 188
    who resigned effective June 30, 2009. (4) Ms. Hood was appointed Chief Financial Officer on an interim basis on March 31, 2010, succeeding Mr. Giammarino, who resigned effective March 30, 2010. 174

  • Page 189
    ... - - 186,458 Executive Vice President, General Counsel and Secretary Lisa R. Hood 03-(4) Mar09 - - - 15,972 39,931 79,862 - - - 71,476 Senior Vice President and Controller (1) The amounts shown in column (i) reflect the number of shares of restricted stock granted to Mr. Hauser on July 1, 2009 in...

  • Page 190
    ...FairPoint Communications, Inc. 2008 Long Term Incentive Plan for the performance period January 1, 2009 through December 31, 2011. Payout of awards is based 50% on the Company's TSR, as defined in the award agreement, versus its peer group and 50% on the Company's Adjusted EBITDA versus a target set...

  • Page 191
    ...Executive Officer Eugene B. Johnson Chairman of the Board of Directors and Chief Executive Officer Tlfred C. Giammarino Executive Vice President, Chief Financial Officer Grant Date 7/1/2009 7/1/2009 7/1/2009 7/1/2009 Equity Incentive Plan Twards: Number of Securities Number of Number of Securities...

  • Page 192
    ... listed in column (i) reflect the threshold number of shares to be issued, as performance to date has not exceed the threshold. Amounts listed in column (j) reflect the market value of these awards at December 31, 2009, based on the closing price of the Company's common stock on December 31, 2009...

  • Page 193
    ... were granted under the FairPoint Communications, Inc. 2008 Long Term Incentive Plan for the performance period January 1, 2009 through December 31, 2011. Payout of awards is based 50% on the Company's TSR, as defined in the award agreement, versus its peer group in the Dow Jones Telecommunications...

  • Page 194
    ... of the Board of Directors and Chief Executive Officer - - 40,539 - 175,973 Tlfred C. Giammarino Executive Vice President, Chief Financial Officer - - - - - Peter G. Nixon President 10,313 5,906 12,370 - 64,051 Shirley J. Linn Executive Vice President, General Counsel and Secretary...

  • Page 195
    FairPoint has an employment agreement with David L. Hauser and change in control and severance agreements with Messrs. Giammarino and Nixon and Ms. Linn. These agreements provide benefits to our NEOs in the event their employment is terminated under certain circumstances as summarized below. 178

  • Page 196
    ... us or to perform services for another company, or (2) accepting any employment or similar arrangements with our competitors. Cpange in Control Provisions Both the 2008 - 2010 performance units and the 2009 - 2011 performance units under the 2008 Long Term Incentive Plan contain provisions whereby...

  • Page 197
    ... effective June 30, 2009) if their employment had terminated on December 31, 2009. Tcceleration and Continuation of Equity Twards (Market Value Continuation of of Medical/Welfare Total Unearned Benefits Termination Twards as of (Present Value) Benefits 12/31/09 Reason for Payment: Cash Severance...

  • Page 198
    ... termination Termination after change in control - - - - - - - - - - - - 672 - 672 Director Compensation 2009 Compensation We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our board of directors. In setting director...

  • Page 199
    ... in June 2009. FairPoint's employee directors do not receive any compensation for serving on its board of directors. 2009 Summary Director Compensation (a) (f) (g) Change in Pension Non-equity Value and Fees Incentive Nonqualified Earned Tll Other Plan Deferred or Paid Stock Option in Cash Twards...

  • Page 200
    ... and Tuttle were nominated by Verizon and appointed as directors by our board of directors effective as of March 31, 2008. (5) Mr. Hauser was appointed as our Chief Executive Officer effective July 1, 2009, at which time he resigned his position as chair of the compensation committee and ceased to...

  • Page 201
    ...Peter G. Nixon Lisa R. Hood President Senior Vice President and Controller, Interim Chief Financial Officer Jeffrey W. Allen Shirley J. Linn Raymond C. Allieri Kathleen McLean 54 59 50 50 56 49 51 Executive Vice President, Northern New England Operations Executive Vice President, General Counsel...

  • Page 202
    ..., in early 2008, was appointed a Vice President. Mr. Griffin joined us in January 2000 as Assistant Treasurer and served as our General Manager of Wireless Broadband operations from December 2003 through March 2005. Previously, Mr. Griffin was employed by Sealand Service, Inc. as Assistant Treasurer...

  • Page 203
    ... Plan Information." Security Ownership of Certain Beneficial Owners Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own, or are part of a group that owns, more than ten percent of a registered class of our equity securities, to file reports...

  • Page 204
    ... has a right to acquire beneficial ownership within 60 days. All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated. Common Stock Beneficially Owned(1) Name Number Percent of Class Executive Officers and Directors: David L. Hauser(2) Alfred...

  • Page 205
    ... but for which shares of common stock will not be issued until the occurrence of certain events set forth in our 2008 Long Term Incentive Plan. With respect to shares beneficially owned: (i) includes 72,503 shares of our common stock issuable upon exercise of stock options that are either currently...

  • Page 206
    ... Company to construct a new data center in Manchester, New Hampshire and to perform restoration services on a flooded building in Raymond, New Hampshire. Thomas F. Gilbane, Jr., a director of FairPoint, is Chairman and Chief Executive Officer of Gilbane Building Company. Gilbane Building Company...

  • Page 207
    ... advice and tax planning. These services include assistance regarding federal and state tax compliance, return preparation and tax audits. Other Fees consist of fees for professional services for our debt offering, our Form S-8 filing for the FairPoint Inc. 2008 Long Term Incentive Plan, utilities...

  • Page 208
    ...authority is delegated shall report any pre-approval decisions to the audit committee at its next scheduled meeting. The audit committee is prohibited from delegating to management its responsibilities to pre-approve services to be performed by our independent registered public accounting firm. 190

  • Page 209
    ... STTTEMENT SCHEDULES (a) Financial Statements The financial statements filed as part of this Annual Report are listed in the index to the financial statements under "Item 8. Financial Statements and Supplementary Data" in this Annual Report, which index to the financial statements is incorporated...

  • Page 210
    ... duly authorized. FAIRPOINT COMMUNICATIONS, INC. Date: May 27, 2010 By: /s/ DAVID L. HAUSER Name: David L. Hauser Title: Cpief Executive Officer and Cpairman of tpe Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by...

  • Page 211
    ... Verizon Information Technologies LLC, Northern New England Telephone Operations Inc., Enhanced Communications of Northern New England Inc. and FairPoint.(1) 2.14 Amendment No. 1 to the Transition Services Agreement, dated as of March 31, 2008, by and among FairPoint, Northern New England Telephone...

  • Page 212
    ... of January 30, 2009, by and among Verizon Communications Inc., Verizon New England Inc., Verizon Information Technologies LLC, FairPoint, Northern New England Telephone Operations LLC, Telephone Operating Company of Vermont LLC and Enhanced Communications of Northern New England Inc.(11) 3.1 Eighth...

  • Page 213
    ... March 31, 2008, by and among Northern New England Telephone Operations LLC, Telephone Operating Company of Vermont LLC and Lehman Commercial Paper Inc.(6) 10.6 Debtor-in-Possession Credit Agreement, dated as of October 27, 2009, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc...

  • Page 214
    ...-in-Possession Credit Agreement, dated as of April 30, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative agent, and the lenders party thereto.* 10.18 Debtor-in-Possession Subsidiary Guaranty, dated as of October 30, 2009, by and...

  • Page 215
    ... FairPoint Amended and Restated 2000 Employee Stock Incentive Plan.(21) 10.29 FairPoint 2005 Stock Incentive Plan.(12) 10.30 FairPoint Communications, Inc. 2008 Annual Incentive Plan.(22) 10.31 FairPoint Communications, Inc. 2008 Long Term Incentive Plan.(22) 10.32 Nonqualified Deferred Compensation...

  • Page 216
    197

  • Page 217
    ... States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* †99.1 Order of the Maine Public Utilities Commission, dated February 1, 2008.(32) 99.2 Order of the Vermont Public Service Board, dated February 15, 2008.(33) 99.3 Order of the New Hampshire Public...

  • Page 218
    (5) (6) Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on February 27, 2008. Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on April 3, 2008. 198

  • Page 219
    ...31, 2008. Incorporated by reference to the Annual Report on Form 10-K of FairPoint for the year ended December 31, 2004. Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on August 3, 2009. Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on...

  • Page 220
    ... by reference to the Current Report on Form 8-K of FairPoint filed on January 8, 2008. Incorporated by reference to the Annual Report on Form 10-K of FairPoint for the year ended December 31, 2005. Incorporated by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended March...

  • Page 221

  • Page 222
    ... Agreement, dated as of October 27, 2009 (the " Credit Agreement "), by and among FAIRPOIFT COMMUFICATIOFS, IFC., a Delaware corporation and a debtor and debtor-inpossession under Chapter 11 of the Bankruptcy Code (as hereinafter defined)(" FairPoint"), FAIRPOIFT LOGISTICS, IFC., a South Dakota...

  • Page 223
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 224
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTIOF 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 225
    [Signature Pages Omitted]

  • Page 226
    ... as of October 27, 2009 (as amended prior to the date hereof, the " Credit Agreement "), by and among FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter defined) (" FairPoint"), FAIRPOINT LOGISTICS, INC...

  • Page 227
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 228
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 229
    [Signature Pages Omitted]

  • Page 230
    ... as of October 27, 2009 (as amended prior to the date hereof, the " Credit Agreement "), by and among FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter defined) (" FairPoint"), FAIRPOINT LOGISTICS, INC...

  • Page 231
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 232
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 233
    [Signature Pages Omitted]

  • Page 234
    ... as of October 27, 2009 (as amended prior to the date hereof, the " Credit Agreement "), by and among FAIRPOINT COMMUNICATIONJ, INC., a Oelaware corporation and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter defined) (" FairPoint"), FAIRPOINT LOGIJTICJ, INC...

  • Page 235
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 236
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. JECTION 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 237
    JECTION 13. Headings. Jection headings in this Agreement are included for convenience of reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. [The remainder of this page left blank intentionally] 4

  • Page 238
    [Jignature Pages Omitted]

  • Page 239
    ... as of October 27, 2009 (as amended prior to the date hereof, the " Credit Agreement "), by and among FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter defined) (" FairPoint"), FAIRPOINT LOGISTICS, INC...

  • Page 240
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 241
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 242
    [Signature Pages Omitted]

  • Page 243
    ... as of October 27, 2009 (as amended prior to the date hereof, the " Credit Agreement "), by and among FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter defined) (" FairPoint"), FAIRPOINT LOGISTICS, INC...

  • Page 244
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 245
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 246
    [Signature Pages Omitted]

  • Page 247
    ... as of October 27, 2009 (as amended prior to the date hereof, the " Credit Agreement "), by and among FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter defined) (" FairPoint"), FAIRPOINT LOGISTICS, INC...

  • Page 248
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 249
    ... enforceability of the Credit Agreement and the other Credit Documents. (b) This Agreement shall be limited precisely as written and, except as expressly provided herein, shall not be deemed (i) to be a consent granted pursuant to, or a waiver, modification or forbearance of, any term or condition...

  • Page 250
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 251
    [Signature Pages Omitted]

  • Page 252
    ... as of October 27, 2009 (as amended prior to the date hereof, the " Credit Agreement "), by and among FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter defined) (" FairPoint"), FAIRPOINT LOGISTICS, INC...

  • Page 253
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 254
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 255
    SECTION 13. Headings. Section headings in this Agreement are included for convenience of reference only and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. [The remainder of this page left blank intentionally] 4

  • Page 256
    [Signature Pages Omitted]

  • Page 257
    ... as of October 27, 2009 (as amended prior to the date hereof, the " Credit Agreement "), by and among FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter defined) (" FairPoint"), FAIRPOINT LOGISTICS, INC...

  • Page 258
    ...effect to FairPoint's disclosure set forth in its Form 8-K filed with the Securities and Exchange Commission on February 23, 2010. Each of the Credit Parties represents and warrants (which representations and warranties shall survive the execution and delivery hereof) to the Administrative Agent and...

  • Page 259
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 260
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 261
    [Signature Pages Omitted]

  • Page 262
    ... as of October 27, 2009 (as amended prior to the date hereof, the " Credit Agreement "), by and among FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter defined) (" FairPoint"), FAIRPOINT LOGISTICS, INC...

  • Page 263
    ... any such Intercompany Loan made by Logistics are immediately either (i) used by FairPoint to make such Required FairPoint Payment or (ii) deposited by FairPoint into a disbursement account from which a check will be issued or a wire transfer will be made to the applicable payee in respect of such...

  • Page 264
    ... and its 90%-Owned Subsidiaries may incur and hold Intercompany Payables and Receivables and (ii) Subsidiaries of FairPoint may incur intercompany payables and receivables resulting from (x) purchases of goods and services between such Subsidiaries and (y) allocations of payroll and other expenses...

  • Page 265
    ...14 Section 9 of the Credit Agreement is hereby amended by adding the following terms in the correct alphabetical order: "Intercompany Debt Report " shall mean, for any fiscal period, a written report certified by the chief financial officer or controller of FairPoint setting forth (i) the aggregate...

  • Page 266
    ...shall mean, collectively, (i) Northern New England Telephone Operations LLC, (ii) Enhanced Communications of Northern New England Inc., and (iii) Telephone Operating Company of Vermont LLC. "Subsidiary Ordinary Course Payables and Receivables " shall have the meaning set forth in Section 7.06(f). 5

  • Page 267
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 268
    ... enforceability of the Credit Agreement and the other Credit Documents. (b) This Agreement shall be limited precisely as written and, except as expressly provided herein, shall not be deemed (i) to be a consent granted pursuant to, or a waiver, modification or forbearance of, any term or condition...

  • Page 269
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 270
    [Signature Pages Omitted]

  • Page 271
    ... as of October 27, 2009 (as amended prior to the date hereof, the " Credit Agreement "), by and among FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation and a debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter defined) (" FairPoint"), FAIRPOINT LOGISTICS, INC...

  • Page 272
    ... for the quarterly period ended September 30, 2009 filed with the Securities and Exchange Commission on April 30, 2010." 1.3 Section 6.01(b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(b) Quarterly Financial Statements . As soon as available and in...

  • Page 273
    ... by the chief financial officer or controller of FairPoint, subject to normal year-end audit adjustments." 1.5 Section 6.15 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "6.15 Conference Calls . The Borrowers shall conduct a conference call on the second...

  • Page 274
    ... been duly executed and delivered on its behalf by a duly authorized officer, and constitutes its legal, valid and binding obligation enforceable in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium and other similar laws affecting the enforcement of creditors...

  • Page 275
    ... BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. SECTION 12. Miscellaneous . (a) The parties hereto shall, at any time from time to time following the execution of this Agreement, execute and deliver all such further instruments and take all such...

  • Page 276
    [Signature Pages Omitted]

  • Page 277
    ... 2000 Employee htock Incentive Plan; (3) of our report dated May 27, 2010, with respect to the consolidated financial statements of FairPoint Communications, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2008. /s/ Ernst & Young LLP Charlotte, North Carolina May...

  • Page 278
    QuickLinks Exhibit 23.1 Consent of Independent Registered Public Accounting Firm

  • Page 279
    ..., and for, dhe periodv prevended in dhiv repord; 4. The Company'v odher cerdifying officer and I are revponvible for evdablivhing and maindaining divclovure condrolv and procedurev (av defined in dhe Securidiev Exchange Acd of 1934, av amended (dhe "Exchange Acd") Rulev 13a-15(e) and 15d-15(e)) and...

  • Page 280
    QuickLinks Exhibid 31.1 CERTIFICATION

  • Page 281
    ...affect, the Company's internal control over financial reporting; 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or...

  • Page 282
    QuickLinks Exhibit 31.2 CERTIFICATION

  • Page 283
    ...OF 2002 In connection with the Annual Report on Form 10-K of FairPoint Communications, Inc. (the "Company") for the year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David L. Hauser, Chief Executive Officer of the Company, certify...

  • Page 284
    QuickLinks Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

  • Page 285
    ... In connection with the Annual Report on Form 10-K of FairPoint Communications, Inc. (the "Company") for the year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lisa R. Hood, Interim Chief Financial Officer of the Company, certify...

  • Page 286
    QuickLinks Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002