FairPoint Communications 2009 Annual Report Download - page 16

Table of Contents
Notifications
Shortly after the Petition Date, the Company began notifying current or potential creditors of the Chapter 11 Cases. Subject to certain exceptions
under the Bankruptcy Code, the Chapter 11 Cases automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or
other actions against the Company or its property to recover on, collect or secure a claim arising prior to the Petition Date. Thus, for example, most
creditor actions to obtain possession of property from the Company, or to create, perfect or enforce any lien against the property of the Company, or to
collect on monies owed or otherwise exercise rights or remedies with respect to a claim arising prior to the Petition Date are enjoined unless and until
the Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods furnished and services provided after the Petition Date in the ordinary
course of business.
Creditors' Committee
As required by the Bankruptcy Code, the United States Trustee for the Southern District of New York has appointed a statutory committee of
unsecured creditors (the "Creditors' Committee"). The Creditors' Committee and its legal representatives have a right to be heard on all matters that come
before the Bankruptcy Court with respect to the Company.
Executory Contracts—Section 365
Under Section 365 and other relevant sections of the Bankruptcy Code, the Company may assume, assume and assign or reject certain executory
contracts and unexpired leases, including, without limitation, leases of real property, subject to the approval of the Bankruptcy Court and certain other
conditions. Any description of an executory contract or unexpired lease in this Annual Report, including where applicable, the Company's express
termination rights or a quantification of its obligations, must be read in conjunction with, and is qualified by, any overriding rejection rights the
Company has under Section 365 of the Bankruptcy Code. Claims may arise as a result of rejecting any executory contract.
Reorganization Costs
The Company has incurred and will continue to incur significant costs associated with the Chapter 11 Cases. The amount of these costs, which are
being expensed as incurred, are expected to significantly affect the Company's results of operations. For the year ended December 31, 2009, the
Company has incurred $53.0 million of reorganization costs.
Impact on Net Operating Loss Carryforwards
The Company's NOLs must be reduced by certain debt discharged pursuant to the bankruptcy plan of reorganization. Further, the Company's
ability to utilize its NOL carryforwards will be limited by Section 382 of the Internal Revenue Code of 1986, as amended, after the Company
consummates a debt restructuring that results in an ownership change. In general, following an ownership change, a limitation is imposed on the amount
of pre-ownership change NOL carryforwards that may be used to offset taxable income in each year following the ownership change. Under a special
rule that may be elected for an ownership 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 than immediately before, the ownership change. By taking into account the value of FairPoint
Communications' stock immediately after the Chapter 11 reorganization, the limitation is increased as a result of the cancellation of debt that occurs
pursuant to the Chapter 11 reorganization. Because the Company expects to elect this treatment, an annual limitation will be imposed on the amount of
the Company's pre-ownership change NOL carryforwards that can be utilized to offset its taxable income after consummation of the Chapter 11
reorganization. In order to
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