FairPoint Communications 2010 Annual Report Download - page 191

Section 16 Liability — Directors and Officers
Certain officers and all directors of the Company must also comply with the reporting obligations and limitations on short-swing profit transactions set
forth in Section 16 of the Securities Exchange Act of 1934 (the “ Exchange Act”). The practical effect of these provisions is that any officer or director who
purchases and sells the Company’s securities within a six-month period must disgorge all profits to the Company whether or not he or she had knowledge of
any Material Nonpublic Information. Under these provisions, and so long as certain other criteria are met, neither the receipt of stock or stock options under
the Company’s stock plans, nor the exercise of options nor the receipt of stock under the Company’s employee stock purchase plan, dividend reinvestment
plan or the Company’s 401(k) retirement plan is deemed a purchase that can be matched against a sale for Section 16(b) short-swing profit disgorgement
purposes; however, the sale of any such shares so obtained is a sale for these purposes. Moreover, no such officer or director may ever make a short sale of
the Company’s common stock which is unlawful under Section 16(c) of the Exchange Act. The Company will provide separate memoranda and other
appropriate materials to the affected officers and directors regarding compliance with Section 16 and its related rules.
The rules on recovery of short-swing profits are absolute and do not depend on whether a person has Material Nonpublic Information.
Publicly Traded Options
A transaction in options is, in effect, a bet on the short-term movement of the Company’s stock and therefore creates the appearance that the employee,
officer or director is trading based on inside information. Transactions in options also may focus the trader’s attention on short-term performance at the
expense of the Company’s long-term objectives. Accordingly, transactions in puts, calls or other derivative securities, on an exchange or in any other organized
market, are prohibited. Option positions arising from certain types of hedging transactions are governed by the section below captioned “Hedging or
Monetization Transactions.”
Hedging or Monetization Transactions
Certain forms of hedging or monetization transactions, such as zero-cost collars and forward sale contracts, allow an employee, officer or director to lock
in much of the value of his stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock. These transactions would
allow an employee, officer or director to continue to own the covered securities, but without the full risks and rewards of ownership. When that occurs, their
interests and the interests of the Company and its shareholders may be misaligned and may signal a message to the trading market that may not be in the best
interests of the Company and its shareholders at the time it is conveyed. Therefore, any person wishing to enter into such an arrangement must first pre-clear
the proposed transaction with the Board of Directors. Any request for pre-clearance of a hedging or similar arrangement must be submitted to the Board of
Directors and the Company’s Insider Trading Compliance Officer at least two weeks prior to the proposed execution of documents evidencing the proposed
transaction and must set forth a justification for the proposed transaction. This will allow the Company to consider the time and