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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2010.ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from            to


Commission File Number 333-56365



FairPoint Communications, Inc.(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

13-3725229(I.R.S. Employer
Identification No.)521 East Morehead Street, Suite 500
Charlotte, North Carolina(Address of Principal Executive Offices)

28202(Zip Code)


(704) 344-8150(Registrant's telephone number, including area code)



Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).* Yes o    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated filer" and"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.** Yes o    No o

As of October 29, 2010, there were 89,964,144 shares of the registrant's common stock, par value $0.01 per share, outstanding.

Documents
incorporated by reference:None

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INDEX



PagePART I. FINANCIAL INFORMATIONItem 1.

Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and December 31,
2009

5Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010
and 2009 (Unaudited)

6Condensed Consolidated Statement of Stockholders' Deficit for the nine months ended September 30, 2010
(Unaudited)

7Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30,
2010 and 2009 (Unaudited)

8Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009
(Unaudited)

9Notes to Condensed Consolidated Financial Statements (Unaudited)

10Item 2.

Management's Discussion and Analysis of Financial Condition and
Results of Operations

60Item 3.

Quantitative and Qualitative Disclosures About Market
Risk

80Item 4.

Controls and Procedures

81PART II. OTHER INFORMATIONItem 1.

Legal Proceedings

83Item 1A.

Risk Factors

84Item 2.

Unregistered Sales of Equity Securities and Use of
Proceeds

86Item 3.

Defaults Upon Senior Securities

86Item 4.

(Removed and Reserved)

86Item 5.

Other Information

86Item 6.

Exhibits

86Signatures

87


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PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some statements in this Quarterly Report are known as "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements may relate to,
among other things:



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These
forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in this Quarterly
Report that are not historical facts. When used in this Quarterly Report, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally
intended to identify forward-looking statements. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual
results, events or developments to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors
discussed in this Quarterly Report and in "Part IItem 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2009, as
supplemented by our Quarterly Reports on Form 10-Q for the quarterly periods ending March 31, 2010 and June 30, 2010, and "Part IIItem 1A.
Risk Factors" contained in this Quarterly Report. You should not place undue reliance on such forward-looking statements, which are based on the information currently available to us and speak only as
of the date on which this Quarterly Report was filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent reports filed with the SEC on Forms 10-K,
10-Q and 8-K and Schedule 14A.

Except as otherwise required by the context, references in this Quarterly Report to:



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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(Debtors-In-Possession)

Condensed Consolidated Balance Sheets

September 30, 2010 and December 31, 2009

(in thousands, except share data)

September 30,
2010

December 31,
2009(unaudited)AssetsCurrent assets:Cash

$
99,706

$
109,355Restricted cash


1,712


2,558Accounts receivable, net


138,730


154,095Materials and supplies


25,654


18,884Other


30,082


24,042Deferred income tax, net


53,855


75,713Total current assets


349,739


384,647Property, plant, and equipment, net


1,909,735


1,950,435Intangibles assets, net


194,890


211,819Prepaid pension asset


9,818


8,808Debt issue costs, net





680Restricted cash


2,393


1,478Other assets


17,054


19,135Goodwill


595,120


595,120Total assets

$
3,078,749

$
3,172,122Liabilities and Stockholders' DeficitLiabilities not subject to compromise:Current portion of capital lease obligations

$
1,648

$
Accounts payable


67,830


61,681Accrued interest payable


3


36Other accrued liabilities


65,814


44,004Total current liabilities


135,295


105,721Capital lease obligations


4,422


Accrued pension obligation


58,063


51,438Employee benefit obligations


283,022


261,420Deferred income taxes


82,599


115,742Unamortized investment tax credits


4,419


4,788Other long-term liabilities


13,499


15,100Total long-term liabilities


446,024


448,488Total liabilities not subject to compromise


581,319


554,209Liabilities subject to compromise


2,888,714


2,836,340Total liabilities


3,470,033


3,390,549Stockholders' deficit:Common stock, $0.01 par value, 200,000,000 shares authorized, issued and outstanding 89,964,144 and 90,002,026 shares at September 30, 2010 and
December 31, 2009, respectively


900


900Additional paid-in capital


725,583


725,312Retained deficit


(997,948
)

(819,715
)Accumulated other comprehensive loss


(119,819
)

(124,924
)Total stockholders' deficit


(391,284
)

(218,427
)Total liabilities and stockholders' deficit

$
3,078,749

$
3,172,122


See accompanying notes to condensed consolidated financial statements (unaudited).

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES        (Debtors-In-Possession)        Condensed Consolidated Statements of Operations        Three and
nine months ended September 30, 2010 and 2009        (Unaudited)        (in thousands, except per share data)

Three months ended
September 30,

Nine months ended
September 30,2010

2009

2010

2009Revenues

$
258,510

$
268,194

$
806,870

$
848,900Operating expenses:Cost of services and sales, excluding depreciation and amortization


115,914


127,184


360,829


398,209Selling, general and administrative expense, excluding depreciation and amortization


99,523


118,157


292,460


303,905Depreciation and amortization


73,693


68,013


214,597


204,740Total operating expenses


289,130


313,354


867,886


906,854Loss from operations


(30,620
)

(45,160
)

(61,016
)

(57,954
)Other income (expense):Interest expense


(35,358
)

(56,874
)

(105,709
)

(165,162
)Gain (loss) on derivative instruments





(11,536
)




8,595Gain on early retirement of debt











12,357Other


2,207


214


(905
)

6,433Total other expense


(33,151
)

(68,196
)

(106,614
)

(137,777
)Loss before reorganization items and income taxes


(63,771
)

(113,356
)

(167,630
)

(195,731
)Reorganization items


(9,635
)




(24,677
)

Loss before income taxes


(73,406
)

(113,356
)

(192,307
)

(195,731
)Income tax benefit


7,330


38,154


14,074


70,061Net loss

$
(66,076
)
$
(75,202
)
$
(178,233
)
$
(125,670
)Weighted average shares outstanding:Basic


89,424


89,366


89,424


89,235Diluted


89,424


89,366


89,424


89,235Earnings per share:Basic

$
(0.74
)$

(0.84
)
$
(1.99
)$

(1.41
)Diluted


(0.74
)

(0.84
)

(1.99
)

(1.41
)


See
accompanying notes to condensed consolidated financial statements (unaudited).

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES        (Debtors-In-Possession)        Condensed Consolidated Statement of Stockholders' Deficit    
Nine months ended September 30, 2010        (Unaudited)        (in thousands)

Common Stock





Accumulated
other
comprehensive
lossAdditional
paid-in
capital

Retained
deficit

Total
stockholders'
deficitShares

AmountBalance at December 31, 2009


90,002

$
900

$
725,312

$
(819,715
)
$
(124,924
)
$
(218,427
)Net loss











(178,233
)




(178,233
)Restricted stock cancelled for withholding tax


(13
)













Stock based compensation expense








271








271Employee benefit adjustment to comprehensive income














5,105


5,105Balance at September 30, 2010


89,989

$
900

$
725,583

$
(997,948
)
$
(119,819
)
$
(391,284
)


See
accompanying notes to condensed consolidated financial statements (unaudited).

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES        (Debtors-In-Possession)        Condensed Consolidated Statements of Comprehensive Loss    
Three and nine months ended September 30, 2010 and 2009        (Unaudited)        (in thousands, except per share data)

Three months ended
September 30,

Nine months ended
September 30,2010

2009

2010

2009Net loss

$
(66,076
)
$
(75,202
)
$
(178,233
)
$
(125,670
)Other comprehensive income, net of taxes:Defined benefit pension and post-retirement plans (net of $1.4 million $1.3 million, $3.4 million and $3.4 million tax expense,
respectively)


2,101


3,267


5,105


6,553Total other comprehensive income


2,101


3,267


5,105


6,553Comprehensive loss

$
(63,975
)
$
(71,935
)
$
(173,128
)
$
(119,117
)


See
accompanying notes to condensed consolidated financial statements (unaudited).

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES        (Debtors-In-Possession)        Condensed Consolidated Statements of Cash Flows        Nine
months ended September 30, 2010 and 2009        (Unaudited)        (in thousands)

Nine months ended
September 30,2010

2009Cash flows from operating activities:Net loss

$
(178,233
)
$
(125,670
)Adjustments to reconcile net income to net cash provided byoperating activities:Deferred income taxes


(14,375
)

(72,175
)Provision for uncollectible revenue


27,524


34,682Depreciation and amortization


214,597


204,740Non-cash interest expense





31,137Post-retirement accruals


27,653


25,350Gain on derivative instruments





(8,595
)Gain on early retirement of debt, excluding cash fees





(12,477
)Non-cash reorganization costs


(21,110
)

Other non cash items


14,077


11,616Changes in assets and liabilities arising from operations:Accounts receivable


(7,812
)

(4,010
)Prepaid and other assets


(13,350
)

3,243Accounts payable and accrued liabilities


12,468


(49,953
)Accrued interest payable


102,535


20,896Other assets and liabilities, net


(4,457
)

(4,687
)Total adjustments


337,750


179,767Net cash provided by operating activities


159,517


54,097Cash flows from investing activities:Net capital additions


(172,352
)

(130,122
)Net proceeds from sales of investments and other assets


449


1,246Net cash used in investing activities


(171,903
)

(128,876
)Cash flows from financing activities:Loan origination costs


(1,100
)

(2,153
)Proceeds from issuance of long-term debt


5,513


50,000Repayments of long-term debt





(20,848
)Restricted cash


(68
)

65,595Repayment of capital lease obligations


(1,608
)

(1,615
)Dividends paid to stockholders





(22,996
)Net cash provided by financing activities


2,737


67,983Net decrease in cash


(9,649
)

(6,796
)Cash, beginning of period


109,355


70,325Cash, end of period

$
99,706

$
63,529Supplemental disclosure of cash flow information:Non-cash issuance of senior notes





18,911Capital additions included in accounts payable or liabilities subject to compromise at period-end


1,250


16,608Reorganization costs paid


31,152





See accompanying notes to condensed consolidated financial statements (unaudited).

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES        (DEBTORS-IN-POSSESSION)        NOTES TO CONDENSED CONSOLIDATED  FINANCIAL STATEMENTS (Unaudited)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases

Organization and Basis of Financial Reporting

FairPoint is a leading provider of communications services in rural and small urban communities, primarily in northern New England,
offering an array of services, including local and long distance voice, data, Internet and broadband product offerings, to both residential and business customers. FairPoint operates in 18 states with
approximately 1.5 million access line equivalents (including voice access lines and high speed data lines, which include DSL, wireless broadband, cable modem and
fiber-to-the-premises) as of September 30, 2010.

On
March 31, 2008, FairPoint completed the acquisition of Spinco, pursuant to which Spinco merged with and into FairPoint, with FairPoint continuing as the surviving corporation
for legal purposes. Spinco was a wholly-owned subsidiary of Verizon and prior to the Merger the Verizon Group transferred certain specified assets and liabilities of 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 Spinco under the purchase method of accounting because Verizon stockholders owned a majority of the shares of the consolidated
Company following the Merger and, therefore, Spinco was treated as the acquirer for accounting purposes. The financial statements reflect the transaction as if Spinco had issued consideration to
FairPoint stockholders.

In
order to effect the Merger, the Company issued 53,760,623 shares of the Company's common stock, with a par value of $0.01 per share, to Verizon stockholders for their interest in
Spinco.

Financial Reporting in Reorganization

On October 26, 2009 (the "Petition Date"), the Company and substantially all of its direct and indirect subsidiaries
(collectively, the "Debtors") filed voluntary petitions for relief under Chapter 11 of title 11 of the United States Code (the "Bankruptcy Code" or "Chapter 11") in the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). The cases are being jointly administered under the captionIn re FairPoint
Communications, Inc., Case No. 09-16335 (the "Chapter 11 Cases").

The
accompanying Condensed Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and
the satisfaction of liabilities in the normal course of business. The Company's ability to continue as a going concern is contingent upon its ability to (i) comply with the
Debtor-in-Possession Credit Agreement that FairPoint Communications and FairPoint Logistics, Inc. ("Logistics", and together with FairPoint Communications, the "DIP
Borrowers") entered into with certain financial institutions (the "DIP Lenders") and Bank of America, N.A., as the administrative agent for the DIP Lenders (in such capacity, the "DIP Administrative
Agent"), dated as of October 27, 2009 (as amended, the "DIP Credit Agreement"), and, after the actual date of emergence from Chapter 11 protection (the "Effective Date"), a
$1,075,000,000 senior secured credit facility (the "Exit Facility") to be provided to FairPoint Communications and Logistics (collectively, the "Exit Borrowers") by Bank of America, N.A., Banc of
America Securities LLC and a syndicate of lenders (collectively, the "Exit Facility Lenders"), (ii) obtain the necessary approvals of the Plan from the PUCs and the FCC and
(iii) obtain Bankruptcy Court

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

approval
of the Plan and to consummate the Plan, among other things. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to
uncertainty. While
operating as debtors-in-possession under Chapter 11, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of
the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the DIP Credit Agreement), in amounts other than those reflected in the
accompanying Condensed Consolidated Financial Statements. Further, a plan of reorganization could materially change the amounts and classifications in the historical Condensed Consolidated Financial
Statements. The accompanying Condensed Consolidated Financial Statements do not include any direct adjustments related to the recoverability and classification of assets or the amounts and
classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases.

The
Reorganizations Topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "ASC"), which is applicable to companies in Chapter 11,
generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11
Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing 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 pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from
post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser
amounts. In addition, cash provided by and used for reorganization items must be disclosed separately. The Company has applied the Reorganizations Topic of the ASC effective as of the Petition Date
(as defined herein), and has segregated those items as outlined above for all reporting periods subsequent to such date.

Chapter 11 Cases

On the Petition Date, the Debtors filed the Chapter 11 Cases.

For
more information regarding the factors that led to the filing of the Chapter 11 Cases, see "Part I.Item 1. BusinessChapter 11
CasesBackground to the Filing of the Chapter 11 Cases" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2009.

Recent Developments Related to the Chapter 11 Cases



The Company is required as a condition precedent to the effectiveness of the Plan to obtain certain regulatory approvals, which include
approvals from the PUCs in Maine and New Hampshire, and the Vermont Public Service Board (the "Vermont Board"). In connection with the Chapter 11 Cases, the Company has negotiated with
representatives of the state regulatory authorities in each of

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

Maine,
New Hampshire and Vermont with respect to (i) certain necessary approvals relating to the Chapter 11 Cases and the Plan (each a "Bankruptcy Approval," and collectively, the
"Bankruptcy Approvals") and (ii) certain modifications to the requirements imposed by those state regulatory authorities as a condition to approval of the Merger (each a "Merger Order," and
collectively, the "Merger Orders"). The Company has agreed to regulatory settlements with the representatives for each of Maine, New Hampshire and Vermont regarding modification of each state's Merger
Order (each a "Regulatory Settlement," and collectively, the "Regulatory Settlements"). These Regulatory Settlements and the Bankruptcy Approvals require the final approval of the applicable
regulatory authorities in Maine, New Hampshire and Vermont.

On
June 24, 2010, the Maine Public Utilities Commission (the "MPUC") provided its Bankruptcy Approval and approved the Regulatory Settlement for Maine.

On
June 28, 2010, the Vermont Board failed to provide its Bankruptcy Approval and rejected the Regulatory Settlement for Vermont. Specifically, the Vermont Board did not believe
that the Company had demonstrated the financial capability to meet its obligations under Vermont law and questioned certain assumptions made by the Company with respect to its financial capability
after the effectiveness of the Plan. On October 20, 2010, the Company provided supplemental information to the Vermont Board, which information included a financial forecast. The Company
believes that it ultimately should be able to obtain the approval of the Vermont Board. However, if the Company is unable to obtain the approval of the Vermont Board, the Company believes that it
could have the Plan or a modified plan of reorganization that addresses the issues associated with Vermont and modifies the Vermont Merger Order in accordance with the Regulatory Settlement for
Vermont (a "New Plan") confirmed by the Bankruptcy Court without the approval of the Vermont Board. If the Vermont Board approves the Plan or the Company is able to have the Plan or a New Plan
confirmed by the Bankruptcy Court, the
Company believes that the initial rejection of the Plan by the Vermont Board would not have a material adverse effect on the Company's financial condition and results of operations. However, if the
Vermont Board does not ultimately provide its Bankruptcy Approval and approval of the Regulatory Settlement for Vermont and the Company fails to have the Plan or a New Plan confirmed by the Bankruptcy
Court without the approval of the Vermont Board, such failure could have a material adverse effect on the Company's financial condition and results of operations, and it is unclear what, if anything,
holders of claims against us, including holders of the Notes, would ultimately receive with respect to their claims. In addition, if the Plan or a New Plan is confirmed by the Bankruptcy Court without
the approval of the Vermont Board but the Vermont Merger Order is not modified by the Bankruptcy Court in accordance with the Regulatory Settlement for Vermont, the loss of certain relief afforded by
the Regulatory Settlement for Vermont, including the opportunity for relief from certain past service quality penalties and relief from certain future capital expenditure obligations, could have a
material adverse effect on the Company's financial condition and results of operations. Furthermore, the MPUC and the New Hampshire Public Utilities Commission (the "NHPUC"), each of which has
approved its applicable Regulatory Settlement, may object if the Vermont Board does not provide the relief afforded by the Regulatory Settlement for Vermont.

On
July 7, 2010, the NHPUC provided its Bankruptcy Approval and approved the Regulatory Settlement for New Hampshire.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)



On July 8, 2010, the Plan Support Agreement (the "Plan Support Agreement"), which the Company had entered into on
October 25, 2009 with certain secured lenders (the "Consenting Lenders") under the Company's Pre-petition Credit Facility (as defined herein), expired by its terms and was not
renewed or extended. The Plan Support Agreement had obligated the Consenting Lenders to support the Plan, subject to the terms and conditions of the Plan Support Agreement.

On
October 13, 2010, the Company and certain secured lenders holding approximately 48% of the outstanding debt under the Pre-petition Credit Facility (the "New
Consenting Lenders") entered into a letter agreement (the "Letter Agreement"). Pursuant to the Letter Agreement, the New Consenting Lenders have agreed, subject to the terms and conditions contained
in the Letter Agreement, including the non-occurrence of a Termination Event (as defined below), to support the Plan and any supplemental documents, all as modified by and incorporating
terms consistent with, the terms contained in the Term Sheet Regarding Modifications to FairPoint DIP and Exit Facilities and Plan of Reorganization Matters (the "Term Sheet"), which is attached as an
exhibit
to the Letter Agreement. The Letter Agreement (including the Term Sheet) is attached as Exhibit 10.1 to the Company's Current Report on Form 8-K the Company filed with the
SEC on October 19, 2010 and is incorporated herein by reference.

By
their execution of the Letter Agreement, certain of the New Consenting Lenders have agreed to provide the Exit Revolving Loan (as defined herein) substantially on the terms and
conditions set forth in the Exit Facility, subject to (i) the modifications and amendments to the Exit Facility set forth in the Term Sheet, (ii) other modifications and amendments to
the Exit Facility reasonably agreed to by the Company and such lenders (each acting in good faith), and (iii) there not occurring any Termination Event which has not been waived by the New
Consenting Lenders holding the number of claims specified in the Letter Agreement.

Termination
Events under the Letter Agreement include the following events: (i) the Company shall not have obtained on or prior to January 31, 2011 the approval or consent
of each governmental authority, in each case free and clear of any requirement to satisfy additional conditions or modify the Plan as modified by the Term Sheet (the "Modified Plan"); (ii) at
5:00 P.M. Eastern Time on January 31, 2011 if the Modified Plan has not been fully confirmed by an order of the Bankruptcy Court on or before such date; (iii) at 5:00 P.M.
Eastern Time on February 25, 2011 unless on or before such date (x) the confirmation order of the Bankruptcy Court shall not have been stayed, reversed, vacated or otherwise modified
(unless otherwise consented to in writing by the steering committee of its pre-petition secured lenders (the "Steering Committee")), and there shall be no appeal or petition for rehearing
or certiorari pending in respect of the confirmation order and the time to appeal and file any such petition shall have lapsed and (y) the Modified Plan shall have become effective;
(iv) the Bankruptcy Court shall have entered an order pursuant to Section 1104 of the Bankruptcy Code appointing a trustee or an examiner with expanded powers to operate and manage the
Company's business; (v) the Bankruptcy Court shall have entered an order dismissing any of the Chapter 11 Cases or an order pursuant to the Bankruptcy Code converting any of the
Chapter 11 Cases to a case or cases under Chapter 7 of the Bankruptcy Code; (vi) the filing by the Company of any motion or pleading with the Bankruptcy Court that is not
consistent with the Modified Plan, and such motion or

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

pleading
is not withdrawn within five (5) business days of notice thereof by the DIP Administrative Agent or Steering Committee to the Company; (vii) the Company files, proposes or
otherwise supports, or fails to actively oppose, any (x) plan of reorganization containing terms different than those contained herein or in the Modified Plan or (y) amendment or
modification to the Modified Plan unless such amendment or modification is otherwise consented to in writing by the Steering Committee in its sole discretion; (viii) an extraordinary event
occurs that is not contemplated in the Company's forecast presented to the Steering Committee, and such event has a material adverse effect on the business, assets, financial condition or prospects of
the Company; (ix) the material breach by the Company of any of the undertakings, representations, warranties or covenants of the Company set forth in the DIP Credit Agreement and such breach
continues unremedied by the Company for a period of five (5) business days after notice thereof has been given by the DIP Administrative Agent to the Company (after giving effect to applicable
cure periods provided for in the DIP Credit Agreement); (x) the Bankruptcy Court grants relief that is inconsistent with the terms hereof or the Modified Plan and such inconsistent relief is
not dismissed, vacated or modified to be consistent with the Modified Plan within five (5) business days after notice thereof has been given by the DIP Administrative Agent or the
Steering Committee to the Company; (xi) Consolidated EBITDAR (as defined in the DIP Credit Agreement, as amended) of the Company for the period of eleven consecutive fiscal months ended on
November 30, 2010 does not exceed $230,000,000 (after giving effect to any one-time adjustments consented to by the DIP Administrative Agent in its reasonable discretion); or
(xii) there shall occur any of the following events after the date of the Letter Agreement: (x) the revocation or removal of the operating license of the Company or any of its
subsidiaries by any public utility commission or similar regulator or the FCC in a state where the Company has material operations or conducts a material amount of business, (y) the entry of
any order or the taking of any other action by any public utility commission or similar regulator or the FCC that materially impairs the ability of the Company to operate its business in the manner in
which it operates on the date hereof, and in the case of each of clauses (x) and (y), such action by any public utility commission or similar regulator or the FCC is not stayed, reversed or
vacated within fifteen (15) days after the occurrence thereof or (z) the Company or any relevant public utility commission or similar regulator takes any action inconsistent with any
Regulatory Settlement.



The following summary of the Term Sheet is not a complete description of the Term Sheet and is qualified in its entirety by reference
to the full text of the Term Sheet. None of the modifications to the Plan have been set forth in a supplement to the Plan filed with the Bankruptcy Court.

Exit Facility.Among other things, the Term Sheet contemplates the following modifications to the Exit Facility, the form of which was
filed with the
Bankruptcy Court on May 7, 2010:



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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)



Long Term Incentive Plan.Among other things, the Term Sheet contemplates the following modifications to the Long Term Incentive Plan
(as defined
herein), the form of which was filed with the Bankruptcy Court on April 23, 2010:



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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)



Success Bonus Plan.Among other things, the Term Sheet contemplates the following modifications to the Success Bonus Plan (as defined
herein), the
form of which was filed with the Bankruptcy Court on April 23, 2010:



Litigation Trust Agreement.The Term Sheet contemplates the following modifications to the FairPoint Litigation Trust Agreement, the
form of which
was filed with the Bankruptcy Court on May 10, 2010, and the corresponding provisions of the Plan: (i) removal of references to the Litigation Trust Board, (ii) inclusion of
appropriate governance provisions with respect to the litigation trustee, (iii) an extension of the term of the Litigation Trust Agreement to five years and (iv) inclusion of a provision
permitting the litigation trustee to request additional funding for the Litigation Trust from the Company following the Effective Date; provided, that (a) any such additional funding will be
subject to the approval of the New Board in its sole discretion, (b) after giving effect to such additional funding, the Company's cash on hand may not be less than $20,000,000 (after taking
into account the cash distributions to be made pursuant to the Plan as modified) and (c) no proceeds of any borrowings under the Exit Revolving Loan may be used to fund such additional funding.

New Board.The Term Sheet contemplates that the provisions in the Plan relating to the New Board will be modified to provide for an
eight member
board, with Edward D. Horowitz serving as Chair.

Other.The Term Sheet contemplates a 50% reduction in the aggregate amount of equity interests of the Company to be issued in connection
with the
Chapter 11 Cases, including shares of New Common Stock, New Warrants (as defined herein) and shares of New Common Stock to be issued under the Long Term Incentive Plan.

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(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

Amendment to DIP Credit Agreement.On August 30, 2010, the DIP Borrowers, the DIP Lenders and the DIP Administrative Agent entered
into the
Fourteenth Amendment to the DIP Credit Agreement, pursuant to which the maturity date of the DIP Credit Agreement (the "DIP Maturity Date") was extended to October 26, 2010.

On
October 22, 2010, the DIP Borrowers, the DIP Lenders and the DIP Administrative Agent entered into the Fifteenth Amendment to the DIP Credit Agreement (the "Fifteenth
Amendment"), pursuant to which the DIP Credit Agreement was amended to reflect the applicable terms of the Term Sheet, including the extension of the DIP Maturity Date from October 26, 2010
until January 31, 2011. The Fifteenth Amendment also provides for a further extension of the DIP Maturity Date for up to an additional two months with the consent of the Required Lenders (as
defined in the DIP Credit Agreement) for no additional fee and the immediate elimination of the minimum EBITDAR maintenance covenant and the maximum capital expenditures incurrence covenant contained
in the DIP Credit Agreement for the remaining term of the DIP Credit Agreement, subject to further negotiation if the term of the DIP Credit Agreement is extended beyond January 31, 2011. In
addition, the Company paid a fee of $0.4 million, equal to 0.5% of the total commitment under the DIP Credit Agreement, on October 26, 2010 relating to the extension of the DIP Maturity
Date and related amendments.

The
Company is continuing to seek both Bankruptcy Approval and approval of the Vermont Regulatory Settlement from the Vermont Board. Upon the Vermont Board taking action, the Company
intends to seek confirmation of the Modified Plan by the Bankruptcy Court.



On August 24, 2010, the Bankruptcy Court approved (i) the Company's proposed consulting agreement (the "Consulting
Agreement") with David L. Hauser and (ii) the Company's proposed employment agreement (the "Sunu Employment Agreement") with Paul H. Sunu. Accordingly, effective as of August 24, 2010,
Mr. Hauser resigned as the Company's Chairman of the Board of Directors and Chief Executive Officer and as a director and became a consultant to the Company pursuant to the Consulting
Agreement. In addition, effective as of August 24, 2010, the Board appointed Mr. Sunu to serve as the Company's Chief Executive Officer and as a director of the Company and
Mr. Sunu and the Company entered into the Sunu Employment Agreement. The Board also appointed Jane E. Newman to serve as the Chairperson of the Company's Board of Directors and Robert S. Lilien
to serve as the Chairperson of the newly formed Bankruptcy Oversight Committee of the Board of Directors. Ms. Newman and Mr. Lilien are both existing members of the Company's Board of
Directors.

The Plan

The Plan contemplates the reorganization of the Company and the discharge of all outstanding claims against and interests in the
Company.

Following
the Petition Date, an ad hoc committee of the holders of the Notes (as defined herein) raised certain concerns regarding the proposed treatment of holders of unsecured claims
against

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(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

FairPoint
Communications ("FairPoint Communications Unsecured Claims"). In an effort to resolve these concerns, and after extensive negotiations, certain changes were made to the terms of the proposed
financial restructuring contained in the Plan. In addition, the Plan is the result of extensive negotiations among the Company, the Steering Committee, certain unions and certain representatives of
regulatory authorities 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 initial version of the Plan, together with an accompanying Disclosure Statement, with the Bankruptcy Court. The Plan and accompanying
Disclosure Statement were subsequently amended on February 11, 2010 and March 10, 2010 and the Plan was modified further on May 11, 2010. On March 11, 2010, the Bankruptcy
Court approved the adequacy of the Disclosure Statement, the solicitation and notice procedures with respect to confirmation of the Plan and the form of various ballots and notices in connection
therewith. On April 23, 2010, the Company filed a supplement to the Plan (as modified, supplemented or amended, the "Plan Supplement"), which Plan Supplement was subsequently amended on
May 7, 2010 and May 24, 2010. The voting deadline with respect to the Plan occurred on April 28, 2010. The vote tabulation has concluded and the Company has obtained the approval
of the classes of creditors entitled to vote to accept or reject the Plan.

The
Plan will become effective only if it is confirmed by the Bankruptcy Court and upon the fulfillment of certain other conditions contained in the Plan. These conditions precedent
include, but are not limited to, the following:



The
conditions precedent to the Plan may be waived by the Company, except with respect to certain conditions, which waiver requires the consent of the Steering Committee. The Company
cannot make any assurances as to when, or ultimately if, the Plan will become effective.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

The
confirmation hearing to determine whether to confirm the Plan in the Bankruptcy Court commenced on May 11, 2010. The Bankruptcy Court continued the hearing, pending approvals
of the PUCs in Maine and New Hampshire and the Vermont Board and the resolution of any potential dispute with respect to the litigation trust contemplated by the Plan. For a description of the status
of certain regulatory approvals, see "Chapter 11 CasesRecent Developments Related to the Chapter 11 Cases" in this note. In addition, the Plan was filed and accepted within
the period in which we hold the exclusive right to file and seek confirmation of a plan of reorganization. Accordingly, no party in interest may file or solicit acceptances of a competing plan at this
time. We also had the exclusive right to file a new plan until October 22, 2010 (the "Exclusivity Period Expiration Date"). FairPoint has filed a motion with the Bankruptcy Court to
extend the Exclusivity Period Expiration Date to a later date in light of the fact that the Bankruptcy Court did not confirm the Plan prior to the Exclusivity Period Expiration Date. However, we
cannot make any assurances as to whether the Bankruptcy Court will grant our motion to extend the Exclusivity Period Expiration Date, or, if the Exclusivity Period Expiration Date is extended, whether
we will be able to obtain confirmation of the Plan prior to the ultimate expiration of the Exclusivity Period Expiration Date. If we do not have the exclusive right to file and seek confirmation of a
plan of reorganization, any party in interest would be able to file or support a competing plan of reorganization.

The
summary of the provisions of the Plan and our related capital structure contained herein highlights certain substantive provisions of the Plan and our resulting capital structure and
is not a complete description of the Plan or its provisions or our proposed post-petition capital structure. The summary is qualified in its entirety by reference to the full text of the
Plan, which is available at www.fprestructuring.com under the "Court Filings" link.The Plan and the information on, or accessible through this website, are not part of or
incorporated by reference herein.The following summary of the Plan has not been updated to reflect the terms of the Term Sheet described under
"Chapter 11 CasesRecent Developments Related to the Chapter 11 CasesTerm Sheet" in this note 1.



Currently the Plan contemplates that all outstanding equity interests of 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 Effective Date.

Under
the Plan, claims of (i) the lenders under a $2.03 billion credit facility, as subsequently amended, among the Company and Spinco (the "Pre-petition Credit
Facility"), (ii) the administrative agent under the Pre-petition Credit Facility (the "Pre-petition Administrative Agent") and (iii) any other claims against the
Company arising under the Pre-petition Credit Facility (collectively, "Pre-petition
Credit Agreement Claims") will receive the following in full and complete satisfaction of such Pre-petition Credit Agreement Claims: (i) a pro rata share of the Exit Term Loan (as
defined below), (ii) a pro rata share of certain cash payments, (iii) a pro rata share of 47,241,436 shares of the reorganized Company's new common stock, par value $0.01 per share (the
"New Common Stock") and (iv) a pro rata share of a 55% interest in a litigation trust.

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(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

In
addition, claims of holders of FairPoint Communications Unsecured Claims will receive the following in full and complete satisfaction of such FairPoint Communications Unsecured
Claims: (i) a pro rata share of 4,203,352 shares of New Common Stock, (ii) a pro rata share of a 45% interest in a litigation trust and (iii) a pro rata share of warrants to
purchase up to 7,164,804 shares of New Common Stock (the "New Warrants"), the terms of which are more fully described in the form of Warrant Agreement which is attached to the Plan Supplement, which
is available at www.fprestructuring.com under the "Court Filings" link.

Finally,
claims of holders of unsecured claims against FairPoint Communications' subsidiaries, unless otherwise agreed, will receive payment in full in cash in the amount of their
allowed claims.

The
classification and treatment of all claims and equity interests in the Company are described in Sections IV and V of the Plan.



The Plan provides for the Company to incur indebtedness upon the Effective Date consisting of the Exit Facility. The Exit Facility is
expected to be comprised of the Exit Revolving Loan and a $1,000,000,000 term loan facility (the "Exit Term Loan" and together with the Exit Revolving Loan, collectively, the "Exit Facility Loans").
The Exit Revolving Loan will have a $30,000,000 sublimit available for the issuance of letters of credit. Interest on Eurodollar loans under the Exit Facility will accrue at an annual rate equal to
the British Bankers Association LIBOR Rate ("LIBOR") plus 4.50%, with a 2.00% LIBOR floor for the Exit Term Loans, and interest on base rate loans under the Exit Facility will accrue at an annual rate
equal to 3.50% plus the highest of (i) the federal funds rate plus 0.5%, (ii) the "prime rate" publicly announced by Bank of America, N.A. from time to time, and (iii) applicable
LIBOR plus 1.00%. A 0.75% commitment fee on the average daily unused portion of the Exit Revolving Loan will also accrue and be payable on a quarterly basis. The outstanding principal amount of the
Exit Facility will be due and payable five years after the Effective Date (the "Exit Maturity Date"). The loan agreement governing the Exit Facility (the "Exit Facility
Loan Agreement") will require quarterly repayments of principal of the Exit Term Loan in an amount equal to $2,500,000 during the first two fiscal years following the Effective Date, $12,500,000
during the third fiscal year following the Effective Date, $37,500,000 during the fourth fiscal year following the Effective Date and $50,000,000 for each of the first three fiscal quarters of the
fifth fiscal year following the Effective Date, with all remaining outstanding principal of the Exit Term Loan being due and payable on the Exit Maturity Date. The Exit Facility Loan Agreement will
also contain requirements that the Company prepay the Exit Facility Loans upon certain events as more specifically provided therein.

The
Exit Facility will be guaranteed by subsidiaries of the Company to be set forth on a schedule to the Exit Facility Loan Agreement, in addition to each future direct and indirect
domestic subsidiary of the Company other than (x) any subsidiary of the Company that is a controlled foreign corporation or a subsidiary that is held directly or indirectly by a controlled
foreign corporation or (y) any subsidiary that is prohibited by applicable law from guaranteeing the obligations under the Exit Facility and/or providing any security therefor without the
consent of a PUC (together with the Exit Borrowers, collectively, the "Exit Financing Loan Parties"). The Exit Facility will be secured by first priority liens

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(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

upon
substantially all existing and after-acquired assets of the Exit Financing Loan Parties, subject to permitted exceptions.

The
Exit Facility Loan Agreement will contain certain representations, warranties and affirmative covenants. In addition, the Exit Facility Loan Agreement will contain restrictive
covenants that limit, among other things, the ability of the Exit Financing Loan Parties to incur indebtedness, create liens, engage in mergers, consolidations and other fundamental changes, make
investments or loans, engage in transactions with affiliates, pay dividends, make capital expenditures and repurchase capital stock. The Exit Facility Loan Agreement will also contain minimum interest
coverage and maximum total leverage maintenance covenants and a maximum senior leverage incurrence covenant. The Exit Facility Loan Agreement will contain certain events of default, including failure
to make payments, breaches of covenants and representations, cross defaults to other material indebtedness, unpaid and uninsured judgments, changes of control and bankruptcy events of default. The
Exit Facility Lenders' commitments to fund amounts under the Exit Facility on or following the Effective Date will be subject to certain customary conditions as well as confirmation of the Plan.

A
copy of the form of the Exit Facility Loan Agreement is attached to the Plan Supplement, which is available at www.fprestructuring.com under the "Court Filings" link.



In connection with the Plan, the Company is expected to adopt a Ninth Amended and Restated Certificate of Incorporation of FairPoint
Communications, Inc. (the "Amended Charter"), which is expected to become effective on the Effective Date. The Amended Charter will authorize the Company to issue up to 5,000,000 shares of
preferred stock and up to 75,000,000 shares of New Common Stock. In addition, in connection with the Plan, the Company is expected to adopt Second Amended and Restated By-Laws (the
"Amended By-Laws").

A
copy of the form of Amended Charter and Amended By-Laws are attached to the Plan Supplement, which is available at www.fprestructuring.com under the "Court Filings" link.



As contemplated by the Plan, on the Effective Date, the reorganized Company is expected to have a newly appointed seven person board of
directors (the "New Board"). Selected biographical information for each of the seven proposed new board members, including Paul H. Sunu, who replaced David L. Hauser as Chief Executive Officer, is
attached to the Plan Supplement, which is available at www.fprestructuring.com under the "Court Filings" link. In accordance with the Amended By-Laws, the initial members of the New Board
are expected to hold office until the first annual meeting of stockholders which will be held following the one year anniversary of the Effective Date. Thereafter, members of the board of directors of
the Company are expected to have one-year terms so that their terms will expire at each annual meeting of stockholders.

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(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)



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 "Long
Term Incentive Plan") and the FairPoint Communications, Inc. 2010 Success Bonus Plan (the "Success Bonus Plan") without any further action by the Company. Each of the Long Term Incentive Plan
and the Success Bonus Plan was attached to the Plan Supplement, and may be accessed at www.fprestructuring.com under the "Court Filings" link.

On
the Effective Date, in accordance with the Plan, (i) certain employees are expected to receive (a) certain cash bonuses (the "Success Bonuses") pursuant to the terms of
the Success Bonus Plan and/or (b) New Common Stock awards, consisting of restricted shares of New Common Stock and/or options to purchase shares of New Common Stock, pursuant to the terms of
the Long Term Incentive Plan, and (ii) members of the New Board are expected to receive options to purchase New Common Stock pursuant to the terms of the Long Term Incentive Plan. The Success
Bonuses are expected to be earned based upon certain performance measures, subject to upward or downward adjustments to reflect the timing of the Effective Date. 6,269,206 shares of New Common Stock
are expected to be reserved for awards under the Long Term Incentive Plan that are expected to consist of stock options and restricted stock awards, which will be granted to certain employees of the
Company and members of the New Board. On the Effective Date, (i)(a) 1,018,746 shares of restricted New Common Stock are expected to be granted to certain employees of the Company under the Long Term
Incentive Plan and (b) at the sole discretion of the New Board, an additional 78,365 shares of restricted New Common Stock may be granted to certain employees of the Company and (ii)(a)
1,724,032 options to purchase shares of New Common Stock are expected to be granted to certain employees of the Company, (b) 264,030 options to purchase shares of New Common Stock are expected
to be granted to members of the New Board and (c) at the sole discretion of the New Board, an additional 313,460 options to purchase shares of New Common Stock may be granted to certain
employees of the Company, in each case pursuant to the Long Term Incentive Plan. These awards are expected to vest 25% on the Effective Date, and the remainder of these awards are expected to vest in
three equal annual installments, commencing on the first anniversary of the Effective Date, with accelerated vesting on a change in control or a termination of an award holder's employment without
cause. In addition, 2,870,573 shares of New Common Stock are expected to be available for future distribution under the Long Term Incentive Plan. However, if the aggregate enterprise value of the
Company does not equal or exceed $2.3 billion on or prior to the expiration date of the New Warrants, the aggregate amount of options to purchase New Common Stock that are available for future
distribution under the Long Term Incentive Plan will be automatically reduced by 620,651 shares.

Debtor-in-Possession Financing



In connection with the Chapter 11 Cases, the DIP Borrowers entered into the DIP Credit Agreement with the DIP Lenders and the
DIP Administrative Agent. The DIP Credit Agreement provides for a revolving facility in an aggregate principal amount of up to $75 million, of which up to $30 million is also available
in the form of one or more letters of credit that may be issued to third

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NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

parties
for the account of the Company and its subsidiaries (the "DIP Financing"). Pursuant to an Order of the Bankruptcy Court, dated October 28, 2009 (the "Interim Order"), the DIP Borrowers
were authorized to enter into and immediately draw upon the DIP Credit Agreement on an interim basis in an aggregate amount of $20 million, pending a final hearing before the Bankruptcy Court.
Pursuant to a final order of the Bankruptcy Court, dated March 11, 2010, (the "Final DIP Order"), the DIP Borrowers were permitted access to the total $75 million of the DIP Financing,
subject to the terms and conditions of the DIP Credit Agreement and related orders of the Bankruptcy Court. As of September 30, 2010 and December, 31, 2009, the Company had not borrowed any
amounts under the DIP Credit Agreement and letters of credit totaling $18.6 million and $1.6 million, respectively, had been issued and were outstanding under the DIP Credit Agreement.

The
DIP Financing matures and is repayable in full on the earlier to occur of (i) January 31, 2011, which date can be extended for up to an additional two months with the
consent of the Required Lenders (as defined in the DIP Credit Agreement) for no additional fee, (ii) the Effective Date, (iii) the voluntary reduction by the DIP Borrowers to zero of all
commitments to lend under the DIP Credit Agreement, or (iv) the date on which the obligations under the DIP Financing are accelerated by the non-defaulting DIP Lenders holding a
majority of the aggregate principal amount of the outstanding loans and letters of credit plus unutilized commitments under the DIP Financing upon the occurrence and during the continuance of certain
events of default.

Other
material provisions of the DIP Credit Agreement include 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 month.

Interest
accrues from and including the date of any borrowing up to but excluding the date of any repayment thereof and is payable (i) in respect of each base rate loan, monthly
in arrears on the last
business day of each month, (ii) in respect of each Eurodollar loan, on the last day of each interest period applicable thereto (which shall be a period of one month) and (iii) in
respect of each such loan, on any prepayment or conversion (on the amount prepaid or converted), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. The DIP Credit
Agreement provides for the payment to the DIP Administrative Agent, for the pro rata benefit of the DIP Lenders, of an upfront fee in the aggregate principal amount of $1.5 million, which
upfront fee was payable in two installments: (1) the first installment of $400,000 was due and paid on October 28, 2009, the date on which the Interim Order was entered by the Bankruptcy
Court, and (2) the remainder of the upfront fee was due and paid on March 11, 2010, the date the Final DIP Order was entered by the Bankruptcy Court. The DIP Credit Agreement also
provides for an unused line fee of 0.50% on the unused revolving commitment, payable monthly in arrears on the last business day of each month (or on the date of maturity, whether by acceleration or
otherwise), and a letter of credit facing fee of 0.25% per annum calculated daily on the stated amount of all outstanding letters of credit, payable monthly in arrears on the last business day of each
month (or on the date of maturity, whether by acceleration or otherwise), as well as certain other fees.

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(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

Voluntary Prepayments.Voluntary prepayments of borrowings and optional reductions of the unutilized portion of the commitments are
permitted without
premium or penalty (subject to payment of breakage costs in the event Eurodollar loans are prepaid prior to the end of an applicable interest period).

Covenants.Prior to the Fifteenth Amendment, under the DIP Credit Agreement, the DIP Borrowers were required to maintain compliance
with certain
covenants, including maintaining minimum EBITDAR (earnings before interest, taxes, depreciation, amortization, restructuring charges and certain other non-cash costs and charges, as set
forth in the DIP Credit Agreement) and not exceeding maximum permitted capital expenditure amounts. The DIP Credit Agreement also contains customary affirmative and negative covenants and
restrictions, including, among others, with respect to investments, additional indebtedness, liens, changes in the nature of the business, mergers, acquisitions, asset sales and transactions with
affiliates. As of September 30, 2010, the DIP Borrowers were in compliance with all covenants under the DIP Credit Agreement. Pursuant to the Fifteenth Amendment, effective October 22,
2010, the minimum EBITDAR and maximum permitted capital expenditure covenants in the DIP Credit Agreement were eliminated.

Events of Default.The DIP Credit Agreement contains customary events of default, including, but not limited to, failure to pay
principal, interest
or other amounts when due, breach of covenants, failure of any representations to have been true in all material respects when made, cross-defaults to certain
other indebtedness in excess of specific amounts (other than obligations and indebtedness created or incurred prior to the filing of the Chapter 11 Cases), judgment defaults in excess of
specified amounts, certain defaults under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the failure of any guaranty or security document supporting the DIP Credit
Agreement to be in full force and effect, the occurrence of a change of control and certain matters related to the Interim Order, the Final DIP Order and other matters related to the Chapter 11
Cases.



The DIP Borrowers and certain of FairPoint Communications' subsidiaries (collectively, the "DIP Pledgors") entered into the DIP Pledge
Agreement with Bank of America N.A., as collateral agent (in such capacity, the "DIP Collateral Agent"), dated as of October 30, 2009 (the "DIP Pledge Agreement"), as required under the terms
of the DIP Credit Agreement. Pursuant to the DIP Pledge Agreement, the DIP Pledgors provided to the DIP Collateral Agent for the secured parties identified therein, a security interest in 100% of the
equity interests and promissory notes owned by the DIP Pledgors and all proceeds arising therefrom, including cash dividends and distributions, subject to certain exceptions and qualifications (the
"Pledge Agreement Collateral").



Certain of FairPoint Communications' subsidiaries (collectively, the "DIP Guarantors") entered into the DIP Subsidiary Guaranty with
the DIP Administrative Agent, dated as of October 30, 2009 (the "DIP Subsidiary Guaranty"), as required under the terms of the DIP Credit Agreement. Pursuant to the DIP Subsidiary Guaranty, the
DIP Guarantors agreed to jointly and severally guarantee the full

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(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

and
prompt payment of all fees, obligations, liabilities and indebtedness of the DIP Borrowers, as borrowers under the DIP Financing. Pursuant to the terms of the DIP Subsidiary Guaranty, the DIP
Guarantors further agreed to subordinate any indebtedness of the DIP Borrowers held by such DIP Guarantor to the indebtedness of the DIP Borrowers held by the secured parties under the DIP Financing.



The DIP Borrowers and the DIP Guarantors (collectively, the "DIP Grantors") entered into the DIP Security Agreement with the DIP
Collateral Agent, dated as of October 30, 2009 (the "DIP Security Agreement"), as required under the terms of the DIP Credit Agreement. Pursuant to the DIP Security Agreement, the DIP Grantors
provided to the DIP Collateral Agent for the benefit of the secured parties identified therein, a security interest in all assets other than the DIP Pledge Agreement Collateral, any equity interests
in an Excluded Entity (as defined in the DIP Pledge Agreement), any causes of action arising under Chapter 5 of the Bankruptcy Code and FCC licenses and authorizations by state regulatory
authorities to the extent that any DIP Grantor 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 statements of financial affairs, schedules of assets and liabilities, and monthly operating reports in forms prescribed by federal bankruptcy
law. Such materials have been and will be prepared according to requirements of the Bankruptcy Code. While these materials accurately provide then-current information required under the
Bankruptcy Code, they are nonetheless unaudited, are prepared in a format different from that used in the Company's consolidated financial statements filed under the securities laws and certain of
this financial information may be prepared on an unconsolidated basis. Accordingly, the Company believes that the substance and format of these materials do not allow meaningful comparison with its
regular publicly-disclosed consolidated financial statements. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision
relating to the Company's securities, or for comparison with other financial information filed with the SEC.

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

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NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

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 Quarterly 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.

Impact on Net Operating Loss Carryforwards

The Company's NOLs must be reduced by certain debt discharged pursuant to the Plan. 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 Internal Revenue Service (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 prevent an ownership change that limits the Company's NOL carryforwards prior to the Effective Date,

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(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

the
Bankruptcy Court has put in place notification procedures and potential restrictions on the trading of FairPoint Communications' common stock.

Any
portion of the annual limitation that is not used in a particular year may be carried forward and used in subsequent years. The annual limitation is increased by certain
built-in gains recognized (or treated as recognized) during the five years following the ownership change (up to the total amount of built-in gain that existed at the time of
the ownership change). The Company expects any NOL limitation for the five years following an ownership change will be increased by built-in gains. The Company also projects that all
available NOL carryforwards after giving effect to the reduction for debt discharged will be utilized to offset future
income within the NOL carryforward periods. Therefore, the Company does not expect to have NOL carryforwards after such time.

Defaults Under Outstanding Debt Instruments

The filing of the Chapter 11 Cases constituted an event of default under each of the following debt
instruments:



Under
the terms of the New Indenture, as a result of the filing of the Chapter 11 Cases, all of the outstanding New Notes became due and payable without further action or notice.
Under the terms of the Pre-petition Credit Facility, upon the filing of the Chapter 11 Cases, all commitments under the Pre-petition Credit Facility were terminated and
all loans (with accrued interest thereon) and all other amounts outstanding under the Pre-petition Credit Facility (including, without limitation, all amounts under any letters of credit)
became immediately due and payable. In addition, as a result of the filing of the Chapter 11 Cases, an early termination event occurred under the Swaps. The Company believes that any efforts to
enforce payment obligations under such debt instruments are stayed as a result of the filing of the Chapter 11 Cases.

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 five days of the due date constituted events of default under the
Pre-petition Credit Facility. An event of default under the Pre-petition Credit Facility permits the lenders under the Pre-petition Credit Facility to accelerate
the maturity of the loans outstanding thereunder, seek foreclosure upon any collateral securing such loans

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(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

and
terminate any remaining commitments to lend to the Company. The occurrence of an event of default under the Pre-petition Credit Facility constituted an event of default under the
Swaps. In addition, the Company failed to make payments 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.

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 the Notes upon the expiration of a thirty day grace period. An event of default under the Notes permits the holders of the Notes to accelerate the
maturity of the Notes. In addition, the filing of the Chapter 11 Cases constituted an event of default under the New Notes.

In
addition, as a result of the restatement of the Company's condensed consolidated financial statements for the quarterly period ended June 30, 2009, as set forth in a Quarterly
Report on Form 10-Q/A dated April 30, 2010, the Company determined that it was not in compliance with the interest coverage ratio maintenance covenant and the leverage ratio
maintenance covenant under the Pre-petition Credit Facility for the measurement period ended June 30, 2009, which constituted an event of default under each of the
Pre-petition Credit Facility and the Swaps, and may have constituted an event of default under the Notes, in each case at June 30, 2009.

NYSE Delisting

As a result of the filing of the Chapter 11 Cases, on October 26, 2009, the New York Stock Exchange (the "NYSE") notified
us that it had determined that the listing of the Company's common stock should be suspended immediately.

The
last day that the Company's common stock traded on the NYSE was October 23, 2009. On November 16, 2009, the NYSE completed its application to the SEC to delist the
Company's common stock.

The
Company's common stock is currently trading under the symbol "FRCMQ" on the Pink Sheets.

Risks and Uncertainties

The ability of the Company, both during and after the Bankruptcy Court proceedings, to continue as a going concern, is dependent upon,
among other things, the ability of the Company to confirm the Plan. Uncertainty as to the outcome of these factors raises substantial doubt about the Company's ability to continue as a going concern.
The Condensed Consolidated Financial Statements contained in this Quarterly Report do not include any adjustments to reflect or provide for the consequences of the bankruptcy proceedings. See
"Organization and Basis of Financial ReportingFinancial Reporting in Reorganization" for additional information. In particular, such financial statements do not purport to show
(i) as to assets, their realization value on a liquidation basis or their availability to satisfy liabilities, (ii) as to liabilities arising prior to the Petition Date, the amounts that
may be allowed for claims or contingencies, or the status and priority thereof, (iii) as to stockholder accounts, the effect of any changes that may be made in the capitalization of the Company
or (iv) as to operations, the effects

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NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(1) Organization and Basis of Financial Reporting; Chapter 11 Cases (Continued)

of
any changes that may be made in the underlying business. A confirmed plan of reorganization would likely cause material changes to the amounts currently disclosed in our Condensed Consolidated
Financial Statements.

As
a result of the Chapter 11 Cases, realization of assets and liquidation of liabilities are subject to uncertainty. While operating as
debtors-in-possession under the protection of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, the
Company may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the Condensed Consolidated Financial Statements. Further, the Plan could
materially change the amounts and classifications reported in the consolidated historical financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts
of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.

Negative
events associated with the Chapter 11 Cases could adversely affect revenues and the Company's relationship with customers, as well as with vendors and employees, which in
turn could adversely affect the Company's operations and financial condition, particularly if the Bankruptcy Court proceedings are protracted. Also, transactions outside of the ordinary course of
business are subject to the prior approval of the Bankruptcy Court, which may limit the Company's ability to respond timely to certain events or take advantage of certain opportunities. Due to the
risks and uncertainties associated with the Bankruptcy Court proceedings, the ultimate impact that events that occur during these
proceedings will have on the Company's business, financial condition and results of operations cannot be accurately predicted or quantified, and until such issues are resolved, there remains
substantial doubt about the Company's ability to continue as a going concern.

(2) Reorganization

The Reorganizations Topic of the ASC, which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it
does require that the financial statements for periods subsequent to the filing of the Chapter 11 Cases distinguish transactions and events that are directly associated with the reorganization
from the ongoing 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 pre-petition liabilities subject to compromise from both those
pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at
the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by and used for reorganization items must be disclosed separately.

The
accompanying Condensed Consolidated Financial Statements have been prepared in accordance with the Reorganizations Topic of the ASC. All pre-petition liabilities subject
to compromise have been segregated in the condensed consolidated balance sheets and classified as liabilities subject to compromise at the estimated amount of the allowable claims. Liabilities not
subject to compromise are separately classified as current or noncurrent. The Company's condensed consolidated statements of operations for the three and nine months ended September 30, 2010
include

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NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(2) Reorganization (Continued)

the
results of operations during the Chapter 11 Cases. As such, any revenues, expenses, and gains and losses realized or incurred that are directly related to the bankruptcy case are reported
separately as reorganization items due to the bankruptcy.

The
Company received approval from the Bankruptcy Court to pay or otherwise honor certain of its pre-petition obligations, including employee related obligations such as
accrued vacation and pension related benefits. As such, these obligations have been excluded from liabilities subject to compromise as of September 30, 2010 and December 31, 2009.

Reorganization Items

Reorganization items represent (expense) or income amounts that have been recognized as a direct result of the Chapter 11 Cases
and are presented separately in the condensed consolidated statements of operations pursuant to the Reorganizations Topic of the ASC. Such items consist of the following (amounts in thousands):

Three months ended
September 30, 2010

Nine months ended
September 30, 2010Professional fees(a)


(11,814
)

(44,922
)Success bonus(b)


1,210


(725
)Non-cash allowed claim adjustments(c)





(977
)Cancellation of debt income, net(d)


969


21,947Total reorganization items

$
(9,635
)
$
(24,677
)


(a)Professional
fees relate to legal, financial advisory and other professional costs directly associated with the reorganization process.(b)Success
bonus represents charges incurred relating to the Success Bonus Plan in accordance with the plan of reorganization and terms of the Term Sheet.(c)The
carrying values of certain liabilities subject to compromise were adjusted to the value of the claim allowed by the Bankruptcy Court.(d)Net
gains (losses) associated with the settlement of liabilities subject to compromise.


Liabilities Subject to Compromise

Liabilities subject to compromise refer to liabilities incurred prior to the Petition Date for which the Company has not received
approval from the Bankruptcy Court to pay or otherwise honor. These amounts represent management's estimate of known or potential pre-Petition Date claims that are likely to be resolved in
connection with the Chapter 11 Cases. Such claims remain subject to future adjustments. Adjustments may result from negotiations, actions of the Bankruptcy Court, rejection of the executory
contracts and unexpired leases, the determination of the value securing claims, proofs of claim or other events.

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NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(2) Reorganization (Continued)

Liabilities subject to compromise at September 30, 2010 and December 31, 2009 consisted of the following (amounts in thousands):

September 30,
2010

December 31,
2009Senior secured credit facility

$
1,970,963

$
1,965,450Senior Notes


549,996


549,996Interest rate swap


98,833


98,833Accrued interest


176,974


74,406Accounts payable


60,590


93,049Other accrued liabilities


30,583


42,461Capital lease obligations





7,627Other long-term liabilities


775


787Employee benefit obligations





3,731Liabilities subject to compromise

$
2,888,714

$
2,836,340


Liabilities
not subject to compromise include: (1) liabilities incurred after the Petition Date; (2) pre-Petition Date liabilities that the Company expects to
pay in full such as medical or retirement benefits; and (3) pre-Petition Date liabilities that have been approved for payment by the Bankruptcy Court and that the Company expects to
pay (in advance of a plan of reorganization) in the ordinary course of business, including certain employee-related items such as salaries and vacation pay.

The
classification of liabilities not subject to compromise versus liabilities subject to compromise is based on currently available information and management's estimate of the amounts
expected to be allowed. As the Chapter 11 Cases proceed and additional information and analysis is completed, or as the Bankruptcy Court rules on relevant matters, the classification and
amounts within these two categories may change. The amount of any such change could be significant.

Magnitude of Potential Claims

The Company has filed with the Bankruptcy Court schedules and statements of financial affairs setting forth, among other things, the
Company's assets and liabilities, subject to the assumptions filed in connection therewith. All of the schedules are subject to amendment or modification.

Bankruptcy
Rule 3003(c)(3) requires the Bankruptcy Court to set the time within which proofs of claim must be filed in a Chapter 11 case. The Bankruptcy Court established
March 18, 2010 at 5:00 p.m. Eastern Time (the "General Bar Date") as the last date and time for all non-governmental entities to file a proof of claim against the
Debtors and April 26, 2010 at 5:00 p.m. Eastern Time (the "Governmental Bar Date", and together with the General Bar Date, the "Bar Dates") as the last date and time for all governmental
entities to file a proof of claim against the Company. Subject to certain exceptions, the Bar Dates apply to all claims against the Debtors that arose prior to the Petition Date.

As
of October 15, 2010, claims totaling $4.9 billion have been filed with the Bankruptcy Court against the Company, $4.0 million of which have been withdrawn. The
Company expects new and amended claims to be filed in the future, including claims amended to assign values to claims originally filed with no designated value. The Company has identified, and expects
to continue to identify, many

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NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(2) Reorganization (Continued)

claims
that the Company believes should be disallowed by the Bankruptcy Court because they are duplicative, have been later amended or superseded, are without merit, are overstated or for other
reasons. As of October 15, 2010, the Bankruptcy Court has disallowed $1.1 billion of these claims and has not yet ruled on the Company's other objections to claims, the disputed portions
of which aggregate to an additional $25.6 million. The Company expects to continue to file objections in the future. Because the process of analyzing and objecting to claims will be ongoing,
the amount of disallowed claims may increase significantly in the future.

Through
the claims resolution process, differences in amounts scheduled by the Company and claims filed by creditors will be investigated and resolved, including through the filing of
objections with the Bankruptcy Court, where appropriate. In light of the substantial number and amount of claims filed, the claims resolution process may take considerable time to complete, and the
Company expects that this process will continue after the Company's emergence from Chapter 11. Accordingly, the ultimate number and amount of allowed claims is not presently known, nor is the
exact recovery with respect to allowed claims presently known.

(3) Accounting Policies

(a) Use of Estimates

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting
principles, or GAAP, which require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The Condensed
Consolidated Financial Statements reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal
recurring accruals and other items. The Company has reclassified certain prior period amounts in the Condensed Consolidated Financial Statements to be consistent with current period presentation.
These reclassifications were made to correct the classification of PAP penalties from selling, general and administrative expenses to contra-revenue and to correct the allocation of certain employee
and general computer expenses between cost of services and selling, general and administrative expenses. Correction of these classification errors resulted in decreases of $2.3 million and
$5.6 million to revenue, a decrease of $1.5 million and an increase of $1.3 million to cost of services, and decreases of $0.8 million and $6.9 million to selling,
general and administrative expenses for the three months and nine months ended September 30, 2009, respectively. Correction of these classification errors had no impact on loss from operations
or net loss.

Examples
of significant estimates include the allowance for doubtful accounts, the recoverability of plant, property and equipment, valuation of intangible assets, pension and
post-retirement benefit assumptions and income taxes. In addition, estimates have been made in determining the amounts and classification of certain liabilities subject to compromise.

(b) Revenue Recognition

Revenues are recognized as services are rendered and are primarily derived from the usage of the Company's networks and facilities or
under revenue-sharing arrangements with other communications carriers. Revenues are primarily derived from: access, pooling, local calling services, Universal Service

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NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(3) Accounting Policies (Continued)

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's
public utilities commission. Access revenues are derived for the intrastate jurisdiction by billing access charges to interexchange carriers and to other local exchange carriers ("LECs"). These
charges are billed based on toll or access tariffs approved by the local state's public utilities commission. Access charges for the interstate jurisdiction are billed in accordance with tariffs filed
by the National Exchange Carrier Association or by the individual company and approved by the FCC.

Revenues
are determined on a bill-and-keep basis or a pooling basis. If on a bill-and-keep basis, the Company bills the charges to either
the access provider or the end user and keeps the revenue. If the Company participates in a pooling environment (interstate or intrastate), the toll or access billed is contributed to a revenue pool.
The revenue is then distributed to individual companies based on their company-specific revenue requirement. This distribution is based on individual state public utilities commissions' rates for
intrastate revenues or the FCC's approved separation rules and rates of return for interstate revenues. Distribution from these pools can change relative to changes made to expenses, plant investment,
or rate of return. Some companies participate in federal and certain state universal service programs that are pooling in nature but are regulated by rules separate from those described above. These
rules vary by state. Revenues earned through the various pooling arrangements are initially recorded based on the Company's estimates.

Long
distance retail and wholesale services are usage sensitive and are billed in arrears and recognized when earned. Internet and data services revenues are substantially all recurring
revenues and are billed one month in advance and deferred until earned. The majority of the Company's miscellaneous revenue is provided from billing and collection and directory services. The Company
earns revenue from 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 and certain other services are recognized in the month the service is provided.

Non-recurring
customer activation fees, along with the related costs up to, but not exceeding the activation fees, are deferred and amortized over the customer relationship
period.

Revenue
is recognized net of tax collected from customers and remitted to governmental authorities.

Management
makes estimated adjustments, as necessary, to revenue or accounts receivable for known billing errors. At September 30, 2010 and December 31, 2009, the Company
recorded revenue reserves of $10.6 million and $22.6 million, respectively. The decrease in revenue reserves during the nine months ended September 30, 2010 is primarily the
result of credits that have been issued to customers.

(c) Maintenance and Repairs

The cost of maintenance and repairs, including the cost of replacing minor items not constituting substantial betterments, is charged
primarily to cost of services and sales as these costs are incurred.

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NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(3) Accounting Policies (Continued)

(d) Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

(e) Restricted Cash

As of March 31, 2008, the closing date of the Merger, the Company had $80.9 million of restricted cash (the "Merger
Restricted Cash"). The Company is required to use these funds to (i) pay for the removal of double poles in Vermont, as required by the Vermont Board, which at the time was estimated to cost
$6.7 million, (ii) pay for certain service quality improvements under a performance enhancement plan in Vermont totaling $25.0 million, and (iii) pay for network
improvements in New Hampshire totaling $49.2 million (the "New Hampshire Funds"). During the three months ended June 30, 2009, the Company requested that the New Hampshire Funds be made
available for general working capital purposes. By letter dated May 12, 2009, the NHPUC approved the Company's request, conditioned upon the Company's commitment to invest funds on certain
NHPUC approved network improvements in New Hampshire on the following schedule: $15 million by the end of 2010, an additional $20 million by the end of 2011 and an additional
$30 million by the end of 2012 (the "NH Investment Commitment"). The NH Investment Commitment is inclusive of the $50 million previously required by the NHPUC. In addition, if the
Regulatory Settlement (as defined below) with the state regulatory authority in New Hampshire is approved in connection with the Plan, the NH Investment Commitment will be reduced by
$10 million, with such funds being reallocated to recurring maintenance capital expenditures to be spent on or before March 31, 2013.

As
of September 30, 2010, the Company had released $79.6 million of the restricted cash for approved expenditures under the required projects, including $1.4 million
in interest earned on such restricted cash. As of September 30, 2010, $2.7 million of the Merger Restricted Cash remains for removal of double poles in Vermont. In addition, the Company
also had $1.4 million of cash restricted for other purposes.

In
total, the Company had $4.1 million of restricted cash at September 30, 2010 of which $1.7 million is shown in current assets and $2.4 million is shown as
a non-current asset on the condensed consolidated balance sheet.

The
Company expects that the Merger Orders will be amended by the Regulatory Settlements. The MPUC and NHPUC have approved the Regulatory Settlements for Maine and New Hampshire.
However, the Vermont Board has rejected the Regulatory Settlement for Vermont. As described in note 1, on October 20, 2010, the Company provided supplemental information to the Vermont
Board. If the Company is unable to obtain the Vermont Board's approval of the Regulatory Settlement for Vermont, it is unclear what effect the filing of the Chapter 11 Cases will have on the
Vermont Merger Order and whether the requirements of the Vermont Merger Order would be enforceable against the Company in the future.

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(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(3) Accounting Policies (Continued)

(f) Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's
best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company establishes an allowance for doubtful accounts based upon factors surrounding the
credit risk of specific customers, historical trends, and other information. Receivable balances are reviewed on an aged basis and account balances are written off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote.

As
of September 30, 2010 and December 31, 2009, the Company's allowance for doubtful accounts totaled $52.1 million and $58.4 million, respectively.

(g) Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and trade
receivables. The Company places its cash with high-quality financial institutions. Concentrations of credit risk with respect to trade receivables are principally related to receivables
from other interexchange carriers and are otherwise limited to the Company's geographic concentration in Maine, New Hampshire and Vermont.

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 for investment purposes. The value of these plan assets is dependent on the financial condition of those entities issuing the debt and equity securities. A significant decline in the
fair value of plan assets could result in additional contributions to the plans by the Company in order to meet funding requirements under ERISA.

(h) Materials and Supplies

Materials and supplies include new and reusable supplies and network equipment, which are stated principally at average original cost,
except that specific costs are used in the case of large individual items.

(i) Property, Plant, and Equipment

Property, plant and equipment is recorded at cost. Depreciation expense is principally based on the composite group remaining life
method and straight-line composite rates. This method provides for the recognition of the cost of the remaining net investment in telephone plant, property and equipment less anticipated
positive net salvage value, over the remaining asset lives. This method requires the periodic revision of depreciation rates.

At
September 30, 2010 and December 31, 2009, accumulated depreciation for property, plant and equipment was $4.4 billion and $4.2 billion, respectively.

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NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(3) Accounting Policies (Continued)

The
estimated asset lives used to depreciate the Company's property, plant and equipment are presented in the following table:

Average Lives

YearsBuildings

45Central office equipment

5 - 11Outside communications plantCopper cable

15 - 18Fiber cable

25Poles and conduit

30 - 50Furniture, vehicles and other

3 - 15


The
Company believes that current estimated useful asset lives are reasonable. Such useful lives are subject to regular review and analysis. In the evaluation of asset lives, multiple
factors are considered, including, but not limited to, the ongoing network deployment, technology upgrades and enhancements, planned retirements and the adequacy of reserves.

When
depreciable telephone plant used in the Company's wireline network is replaced or retired, the carrying amount of such plant is deducted from the respective accounts and charged to
accumulated depreciation. No gain or loss is recognized on disposition of assets.

(j) Long-Lived Assets

Property, plant and equipment and intangible assets subject to amortization are reviewed for impairment as required by the Property,
Plant, and Equipment Topic of the ASC. These assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. An impairment
charge is recognized for the amount, if any, by which the carrying value of the asset exceeds its fair value.

The
Company determined as of December 31, 2009 that a possible impairment of long-lived assets was indicated by the filing of the Chapter 11 Cases as well as a
significant decline in the fair value of the Company's common stock. In accordance with the Property, Plant, and Equipment Topic of the ASC, the Company performed a recoverability test, based on
undiscounted projected future cash flows associated with its long-lived assets, and determined that long-lived assets were not impaired at that time.

While
no impairment charges resulted from the analysis performed at December 31, 2009, asset values may be adjusted in the future due to the outcome of the Chapter 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 year in accordance with the Intangibles-Goodwill and Other Topic of the ASC. Capitalized costs include direct development costs associated with internal use software, including direct
labor costs and external costs of materials and services.

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(3) Accounting Policies (Continued)

Subsequent
additions, modifications or upgrades to internal-use software are capitalized only to the extent that they increase the functionality of the software. Software
maintenance and training costs are expensed in the period in which they are incurred.

In
addition, the Company capitalizes the interest cost associated with the period of time over which the Company's internal use software is developed or obtained in accordance with the
Interest Topic of the 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 "MSA"), with Capgemini U.S. LLC. Through the MSA, the Company replicated and/or replaced
certain existing Verizon systems during a phased period through January 2009. As of June 30, 2009, the Company had completed the application development stage of the project and was no longer
capitalizing costs in accordance with the Intangibles-Goodwill and Other Topic of the ASC. The Company has recognized both external and internal service costs associated with the MSA based on total
labor incurred through the completion of the application development stage. As of September 30, 2010, the Company had capitalized $107.0 million of MSA costs and an additional
$6.9 million of interest costs.

In
addition to the MSA, the Company has other agreements and projects for which costs are capitalized in accordance with the IntangiblesGoodwill and Other Topic and the
Interest Topic of the ASC. During the three and nine months ended September 30, 2010, the Company capitalized $2.8 million and $10.2 million, respectively, in software costs and
did not capitalize any interest costs.

As
of December 31, 2009, the Company had capitalized $126.4 million of costs under the IntangiblesGoodwill and Other Topic of the ASC and $9.4 million
of interest costs under the Interest Topic of the ASC.

(l) Debt Issue Costs

On March 31, 2008, immediately prior to the Merger, Legacy FairPoint and Spinco entered into the Pre-petition Credit
Facility, consisting of a non-amortizing revolving facility in an aggregate principal amount of $200 million (the "Revolving Credit Facility"), a senior secured term loan A facility
in an aggregate principal amount of $500 million (the "Term Loan A Facility"), a senior secured term loan B facility in the aggregate principal amount of $1,130 million (the "Term Loan B
Facility" and, together with the Term Loan A Facility, the "Term Loan") and a delayed draw term loan facility in an aggregate principal amount of $200 million (the "Delayed Draw Term Loan").
The Company incurred $29.2 million of debt issue costs associated with these credit facilities and began to amortize these costs over the life of the related debt, ranging from 6 to
7 years using the effective interest method.

On
January 21, 2009, the Company entered into an amendment to the Pre-petition Credit Facility (the "Pre-petition Credit Facility Amendment") under which,
among other things, the administrative agent under the Pre-petition Credit Facility (the "administrative agent") resigned and was replaced by a new Pre-petition Administrative
Agent. In addition, the resigning administrative agent's undrawn loan commitments under the Revolving Credit Facility, totaling $30.0 million, were terminated and are no longer available to the
Company. The Company incurred $0.5 million of debt issue costs associated

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(3) Accounting Policies (Continued)

with
the Pre-petition Credit Facility Amendment and began to amortize these costs over the remaining life of the loan.

Concurrent
with the Pre-petition Credit Facility Amendment, the Company wrote off $0.8 million of the unamortized debt issue costs associated with the original
Pre-petition Credit Facility, in accordance with the DebtModifications and Extinguishments Topic of the ASC.

In
connection with the Exchange Offer, the Company paid a cash consent fee of $1.6 million in the aggregate to holders of Old Notes who validly delivered and did not revoke
consents in the related consent solicitation 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. 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 the Company wrote off all remaining debt issue and offering costs related to its
pre-petition debt in accordance with the Reorganizations Topic of the ASC.

The
Company entered into the DIP Credit Agreement on October 27, 2009. The Company incurred $0.9 million of debt issue costs associated with the DIP Credit Agreement and
began to amortize these costs over the nine month life of the DIP Credit Agreement using the effective interest method. Concurrent with the Final DIP Order, on March 11, 2010, the Company
incurred an additional $1.1 million of debt issue costs associated with the DIP Credit Agreement and began to amortize these costs over the remaining life of the DIP Credit Agreement using the
effective interest method.

As
of September 30, 2010, all capitalized debt issue costs had been fully amortized. As of December 31, 2009, the Company had $0.7 million of capitalized debt issue
costs, net of amortization.

(m) Advertising Costs

Advertising costs are expensed as they are incurred.

(n) Goodwill and Other Intangible Assets

Goodwill consists of the difference between the purchase price incurred in the acquisition of Legacy FairPoint using the purchase
method of accounting and the fair value of net assets acquired. In accordance with the IntangiblesGoodwill and Other Topic of the ASC, goodwill is no longer amortized, but instead is
assessed for impairment at least annually. During this assessment, management relies on a number of factors, including operating results, business plans, and anticipated future cash flows.

Goodwill
impairment is determined using a two-step process. Step one compares the estimated fair value of the Company's single wireline reporting unit (calculated using both
the market approach and the income approach) to its carrying amount, including goodwill. The market approach compares the fair value of the Company, as measured by its market capitalization, to the
carrying amount of the Company, which represents its stockholders' equity balance. As of September 30, 2010, stockholders' deficit totaled $391.3 million.

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(3) Accounting Policies (Continued)

Step
two compares the implied fair value of the Company's goodwill (i.e., the fair value of the Company less the fair value of the Company's assets and liabilities, including
identifiable intangible assets) to its goodwill carrying amount. If the carrying amount of the Company's goodwill exceeds the implied fair value of the goodwill, the excess is required to be recorded
as an impairment.

The
Company performed step one of its annual goodwill impairment assessment as of October 1, 2009 and concluded that there was no impairment at that time. In light of the
Chapter 11 Cases, the Company performed an interim goodwill impairment assessment as of December 31, 2009 and determined that goodwill was not impaired.

As
of September 30, 2010 and December 31, 2009, the Company had goodwill of $595.1 million.

The
Company's intangible assets consist of customer lists and trade names as follows (in thousands):

At
September 30, 2010

At
December 31, 2009Customer lists (weighted average 9.7 years):Gross carrying amount

$
208,504

$
208,504Less accumulated amortization


(56,430
)

(39,501
)Net customer lists


152,074


169,003Trade names (indefinite life):Gross carrying amount


42,816


42,816Total intangible assets, net

$
194,890

$
211,819


The
Company's only non-amortizable intangible asset is the trade name of Legacy FairPoint acquired in the Merger. Consistent with the valuation methodology used to value the
trade name at the time of the Merger, the Company assesses the fair value of the trade name based on the relief from royalty method. If the carrying amount of the trade name exceeds its estimated fair
value, the asset is considered impaired. The Company performed its annual non-amortizable intangible asset impairment assessment as of October 1, 2009 and concluded that there was
no indication of impairment at that time. In light of the Chapter 11 Cases, the Company performed an interim non-amortizable intangible asset impairment assessment as of
December 31, 2009 and determined that the trade name was not impaired.

For
its non-amortizable intangible asset impairment assessments at October 1, and December 31, 2009, the Company made certain assumptions including an estimated
royalty rate, an effective tax rate and a discount rate, and applied these assumptions to projected future cash flows of
the consolidated FairPoint Communications, Inc. business, exclusive of cash flows associated with wholesale revenues as these revenues are not generated through brand recognition. Changes in
one or more of these assumptions may have resulted in the recognition of an impairment loss.

While
no impairment charges resulted from the analyses performed at October 1, and December 31, 2009, asset values may be adjusted in the future due to the outcome of the
Chapter 11 Cases or the application of "fresh start" accounting upon the Company's emergence from Chapter 11.

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(3) Accounting Policies (Continued)

The Company's amortizable intangible assets consist of customer lists. Amortizable intangible assets must be reviewed for impairment whenever indicators of impairment exist. See
note 3(j) above.

The
estimated weighted average useful lives of the intangible assets are 9.7 years for the customer relationships and an indefinite useful life for trade names. Amortization
expense was $5.6 million and $5.6 million for the three months, and $16.9 million and $17.0 million for the nine months, ended September 30, 2010 and 2009,
respectively, and is expected to be approximately $22.6 million per year.

(o) Accounting for Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The
Company files a consolidated income tax return with its subsidiaries. The Company has a tax-sharing agreement in which all subsidiaries are participants. All
intercompany tax transactions and accounts have been eliminated in consolidation.

The
Income Taxes Topic of the ASC requires applying a "more likely than not" threshold to the recognition and de-recognition of tax positions. The Company's unrecognized tax
benefits totaled $5.4 million as of September 30, 2010, of which $2.0 million would impact its effective tax rate, if recognized.

In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management determines its estimates of future
taxable income based upon the scheduled reversal of deferred tax liabilities, projected future taxable income exclusive of reversing temporary differences, and tax planning strategies. The Company
establishes valuation allowances for deferred tax assets when it is estimated to be more likely than not that the tax assets will not be realized.

(p) Stock-based Compensation Plans

The Company accounts for its stock-based compensation plans in accordance with the Compensation-Stock Compensation Topic of the ASC,
which establishes accounting for stock-based awards granted in exchange for employee services. Accordingly, for employee awards which are expected to vest, stock-based compensation cost is measured at
the grant date, based on the fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period, which generally begins on the date the award
is granted through the date the award vests. The Company elected to adopt the provisions of the Compensation-Stock Compensation Topic of the ASC

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(3) Accounting Policies (Continued)

using
the prospective application method for awards granted prior to becoming a public company and valued using the minimum value method, and using the modified prospective application method for
awards granted subsequent to becoming a public company.

(q) Employee Benefit Plans

The Company accounts for pensions and other post-retirement benefit plans in accordance with the
CompensationRetirement Benefits Topic of the ASC. This Topic requires the recognition of a defined benefit post-retirement plan's funded status as either an asset or liability
on the balance sheet. This Topic also requires the immediate recognition of the unrecognized actuarial gains and losses and prior service costs and credits that arise during the period as a component
of other accumulated comprehensive income, net of applicable income taxes. Additionally, a company must determine the fair value of plan assets as of the company's year end.

(r) Business Segments

Management views its business of providing video, data and voice communication services to residential and business customers as one
business segment as defined in the Segment Reporting Topic of the ASC. The Company consists of retail and wholesale telecommunications services, including local telephone, high speed Internet, long
distance and other services in 18 states. The Company's chief operating decision maker assesses operating performance and allocates resources based on the consolidated results.

(s) Purchase Accounting

Prior to the adoption of the Business Combinations Topic of the ASC, the Company recognized the acquisition of companies in accordance
with SFAS No. 141,Accounting for Business Combinations("SFAS 141"). The cost of an acquisition was allocated to the assets acquired and
liabilities assumed based on their fair values as of the close of the acquisition, with amounts exceeding the fair value being recorded as goodwill. All future business combinations will be recognized
in accordance with the Business Combinations Topic of the ASC.

(4) Recent Accounting Pronouncements

On January 1, 2010, the Company adopted the accounting standard update regarding fair value measurements and disclosures, which requires additional disclosures regarding assets
and liabilities measured at fair value. The adoption of this accounting standard update had no impact on the Company's consolidated results of operations and financial position.

On
June 15, 2009, the Company adopted the accounting standard relating to subsequent events. This standard establishes principles and requirements for identifying, recognizing and
disclosing subsequent events. This standard requires that an entity identify the type of subsequent event as either recognized or unrecognized, and disclose the date through which the entity has
evaluated subsequent events. This standard was revised by FASB Accounting Standard Update 2010-09, effective June 15,

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(4) Recent Accounting Pronouncements (Continued)

2010,
to remove the requirement to disclose the date through which subsequent events have been evaluated. This standard is effective for interim or annual financial periods ending after
June 15, 2009. The adoption of this standard had no impact on the Company's consolidated results of operations and financial position.

(5) Dividends

On December 5, 2008, the Company declared a dividend of $0.2575 per share of common stock, which was paid on January 16, 2009 to holders of record as of December 31,
2008.

On
March 4, 2009, the Company's board of directors voted to suspend the quarterly dividend on the Company's common stock. The Company currently does not expect to reinstate the
payment of dividends.

(6) Income Taxes

For the three months and nine months ended September 30, 2010, the Company recorded income tax benefit of $7.3 million and $14.1 million, respectively. This resulted
in an effective tax rate of 10.0% benefit and 7.3% benefit for the three months and nine months ended September 30, 2010, respectively, compared to an effective tax rate of 33.7% benefit and
35.8% benefit for the three months and nine months ended September 30, 2009, respectively. The 7.3% effective tax rate for the nine months ended September 30, 2010 was impacted by a
one-time, non-cash income tax charge of $6.8 million during the first quarter of 2010, as a result of the enactment of the Patient Protection and Affordable Care Act and
the Health Care and Education Reconciliation Act of 2010, both of which became law in March 2010 (collectively, the "Health Care Act"). Under the Health Care Act, beginning in 2013, the Company will
no longer receive a federal income tax deduction for the expenses incurred in connection with providing the subsidized coverage under Medicare Part D for retiree prescription drug coverage to
the extent of the subsidy the Company receives for providing that coverage. Because future anticipated retiree prescription drug plan liabilities and related subsidies are already reflected in the
Company's financial statements, this change required the Company to reduce the value of the related tax benefits recognized in its financial statements in the period during which the Health Care Act
was enacted.

The
effective tax rate for the three months and nine months ended September 30, 2010 was also impacted by (i) post-petition interest on debt that is not
expected to be paid and, therefore, not expected to result in a future tax deduction, and (ii) non-deductible costs incurred related to the Chapter 11 Cases. In addition, tax
benefits from the reported loss during the period were partially offset by an increase in the valuation allowance on the Company's deferred tax assets.

At
September 30, 2010, the Company had federal and state net operating loss carryforwards of $519.3 million that will expire from 2019 to 2030. At September 30,
2010, the Company had alternative minimum tax credits of $3.8 million that may be carried forward indefinitely. Legacy FairPoint completed an initial public offering on February 4, 2005,
which resulted in an "ownership change" within the meaning of the U.S. federal income tax laws addressing net operating loss carryforwards, alternative minimum tax credits, and other similar tax
attributes. The Merger also resulted in an

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(6) Income Taxes (Continued)

ownership
change as of March 31, 2008. As a result of these ownership changes, there are specific limitations on the Company's ability to use its net operating loss carryfowards and other tax
attributes. It is the Company's belief that it can use the net operating losses even with these restrictions in place.

During
the three months and nine months ended September 30, 2010, the Company excluded from taxable income $0.4 million and $22.0 million, respectively, of income
from the discharge of indebtedness as defined under Internal Revenue Code ("IRC") Section 108. IRC Section 108 excludes from taxable income the amount of indebtedness discharged under a
Chapter 11 case. IRC Section 108 also requires a reduction of tax attributes equal to the amount of excluded taxable income to be made on the first day of the tax year following the
emergence from bankruptcy. These tax attributes will primarily consist of a reduction to the NOL carryforward and tax basis of other assets. Accordingly, the Company has recorded a full valuation
allowance of $8.4 million against the future reduction of $22.0 million in tax attributes.

In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
determines its estimates of future taxable income based upon the scheduled reversal of deferred tax liabilities, projected future taxable income exclusive of reversing temporary differences, and tax
planning strategies. The Company establishes valuation allowances for deferred tax assets when it is estimated to be more likely than not that the tax assets will not be realized.

Based
upon the level of projections for future taxable income at December 31, 2008, management believed it was more likely than not that the Company would realize the full
benefits of these deductible differences. However, as a result of the change in facts and circumstances during 2009, specifically that the Company filed the Chapter 11 Cases, the Company
reassessed the likelihood that its deferred tax assets will be realized as of December 31, 2009. Based upon this analysis, management believes it can support the realizability of its deferred
tax asset only by the scheduled reversal of its deferred tax liabilities and can no longer rely upon the projection of future taxable income. At September 30, 2010, the Company has recorded a
valuation allowance of $46.3 million against its deferred tax assets which consists of a $38.4 million federal allowance and a $7.9 million state allowance.

The
Income Taxes Topic of the ASC requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and
disclosures regarding uncertainties in income tax positions. The unrecognized tax benefits under the Income Taxes Topic of the ASC are similar to the income tax reserves reflected prior to adoption
under SFAS No. 5,Accounting for Contingencies,whereby reserves were established for probable loss contingencies that could be reasonably
estimated. The Company's unrecognized tax benefits totaled $5.4 million as of September 30, 2010 and December 31, 2009. Of the $5.4 million of unrecognized tax benefits at
September 30, 2010, $2.0 million would impact the Company's effective rate, if recognized. The remaining unrecognized tax benefits relate to temporary items and tax reserves recorded in
a business

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(6) Income Taxes (Continued)

combination.
Furthermore, the Company does not anticipate any significant increase or decrease to the unrecognized tax benefits within the next twelve months.

The
Company recognizes any interest and penalties accrued related to unrecognized tax benefits in income tax expense. For the nine months ended September 30, 2010, there was a
$0.1 million increase in interest and penalties. As of September 30, 2010, cumulative interest and penalties totaled $0.9 million, net of tax.

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 subject to U.S.
federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004. During the quarter ending June 30, 2009, Verizon received notification from
the IRS that a tax position taken on their returns for the years 2000 through 2003 relating to the Company's Northern New England operations was settled through acceptance of the filing position.
During the quarter ending June 30, 2008, Verizon effectively settled the IRS examination for fiscal years 2000 through 2003. Due to the executed tax sharing agreement dated January 15,
2007 between the Company and Verizon covering prior period tax liabilities, current period tax liabilities, tax payments and tax returns (the "Tax Sharing Agreement"), the settlement of the IRS audit
resulted in an amount due to Verizon from the Company in the amount of $1.5 million relating to adjustments of temporary differences and $0.1 million of interest. As of
September 30, 2010, the Company does not have any significant additional jurisdictional tax audits.

Prior
to the Merger, Verizon and its domestic subsidiaries, including the operations 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
included in a Tax Sharing Agreement with Verizon and were allocated tax payments based on the respective tax liability as if they were filing on a separate company basis. Current and deferred tax
expense was determined by applying the provisions of the Income Taxes Topic of the ASC to each company as if it were a separate taxpayer.

The
Verizon Northern New England business used the deferral method of accounting for investment tax credits earned prior to the repeal of investment tax credits by the Tax Reform Act of
1986. The Verizon Northern New England business also deferred certain transitional credits earned after the repeal and amortized these credits over the estimated service lives of the related assets as
a reduction to the provision for income taxes.

(7) Interest Rate Swap Agreements

The Company assesses interest rate related cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash
flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate cash flow risk attributable to both the Company's outstanding and
forecasted debt obligations. The risk management control systems involve the use of analytical techniques, including

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(7) Interest Rate Swap Agreements (Continued)

cash
flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the Company's future cash flows.

The
Company uses variable and fixed-rate debt to finance its operations, capital expenditures and acquisitions. The variable-rate debt obligations expose the
Company to variability in interest payments due to changes in interest rates. The Company believed it was prudent to limit the variability of a portion of its interest payments. To meet this
objective, from time to time, the Company entered into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk. The Swaps effectively changed the variable
rate on the debt obligations to a fixed rate. Under the terms of the Swaps, the Company was required to make a payment if the variable rate was below the fixed rate, or it received a payment if the
variable rate was above 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.

In
addition, as a result of the restatement of the Company's interim financial statements filed with the Securities Exchange Commission on April 30, 2010 (the "Restatement"), the
Company determined that the Company was not in compliance with the interest coverage ratio maintenance covenant and the leverage ratio maintenance covenant under the Pre-petition Credit
Facility for the measurement period ended June 30, 2009, which constituted an event of default under each of the Pre-petition Credit Facility and the Swaps, and may have constituted
an event of default under the Notes, in each case at June 30, 2009.

The
filing of the Chapter 11 Cases constituted a termination event under the Swaps. Subsequent to the filing of the Chapter 11 Cases, the Company received notification from
the counterparties to the Swaps that the Swaps had been terminated. However, the Company believes that any efforts to enforce payment obligations under such debt instruments are stayed as a result of
the filing of the Chapter 11 Cases. See note 1.

As
a result of the Merger, the Company reassessed the accounting treatment of the Swaps and determined that, beginning on April 1, 2008, the Swaps did not meet the criteria for
hedge accounting. Therefore, the changes in fair value of the Swaps subsequent to the Merger have been recorded as other income (expense) on the consolidated statement of operations. At
September 30, 2010 and December 31, 2009, the carrying value of the Swaps was a net liability of approximately $98.8 million, all of which has been included in liabilities subject
to compromise as a result of the filing of the Chapter 11 Cases. The carrying value of the Swaps at September 30, 2010 and December 31, 2009 represents the termination value of
the Swaps as determined by the respective counterparties following the termination event described above. The Company has recognized no gain or loss on derivative instruments on the condensed
consolidated statement of operations during the three months and nine months ended September 30, 2010. For the three months and nine months ended September 30, 2009, the Company
recognized a loss on derivative instruments totaling $11.5 million and a gain on derivative instruments totaling $8.6 million, respectively.

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(8) Long Term Debt

Long term debt for the Company at September 30, 2010 and December 31, 2009 is shown below (in thousands):

September 30,
2010

December 31,
2009Senior secured credit facility, variable rates ranging from 6.75% to 7.00% (weighted average rate of 6.94%) at September 30, 2010, due 2014 to
2015

$
1,970,963

$
1,965,450Senior notes, 13.125%, due 2018


549,996


549,996Total outstanding long-term debt


2,520,959


2,515,446Less amounts subject to compromise


(2,520,959
)

(2,515,446
)Total long-term debt, net of amounts subject to compromise

$


$



As
a result of the filing of the Chapter 11 Cases (see note 1), all pre-petition debts owed by the Company under the Pre-petition Credit Facility,
the Notes and the Swaps have been classified as liabilities subject to compromise in the condensed consolidated balance sheet as of September 30, 2010 and December 31, 2009.

The
estimated fair value of the Company's long-term debt at September 30, 2010 was approximately $1,365.0 million based on market prices of the Company's debt
securities at the balance sheet date.

The
Company failed to make the September 30, 2009 principal and interest payments required under the Pre-petition Credit Facility. Failure to make the principal
payment on the due date and failure to make the interest payment within five days of the due date constituted events of default under the Pre-petition Credit Facility, which permits the
lenders to accelerate the maturity of the loans outstanding thereunder, seek foreclosure upon any collateral securing such loans
and terminate any remaining commitments to lend to the Company. In addition, the incurrence of an event of default on the Pre-petition Credit Facility constituted an event of default under
the Swaps at September 30, 2009, which failure resulted in an event of default under the Swaps upon the expiration of a three business day grace period. Also, the failure to make the
October 1, 2009 interest payment on the Notes within thirty days of the due date constituted an event of default under the Notes. An event of default under the Notes permits the holders of the
Notes to accelerate the maturity of the Notes. Filing of the Chapter 11 Cases constituted an event of default on the New Notes. In addition, as a result of the Restatement (as defined herein),
the Company determined that the Company was not in compliance with the interest coverage ratio maintenance covenant and the leverage ratio maintenance covenant under the Pre-petition
Credit Facility for the measurement period ended June 30, 2009, which constituted an event of default under each of the Pre-petition Credit Facility and the Swaps, and may have
constituted an event of default under the Notes, in each case at June 30, 2009.

On
September 25, 2009, the Company entered into forbearance agreements with the lenders under the Pre-petition Credit Facility and the Swaps under which the lenders
agreed to forbear from exercising their rights and remedies under the respective agreements with respect to any events of default through October 30, 2009. On October 26, 2009, the
Company filed the Chapter 11 Cases. The filing of the Chapter 11 Cases constituted an event of default under each of the Pre-petition Credit

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Table of Contents

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(8) Long Term Debt (Continued)

Facility,
the New Notes and the Swaps. However, the Company believes that any efforts to enforce payment obligations under these agreements are stayed as a result of the filing of the
Chapter 11 Cases. For additional information about the impact of the Chapter 11 Cases, see note 1.

The
approximate aggregate maturities of long-term debt for each of the five years subsequent to September 30, 2010 are as follows (in thousands):

Quarter ending September 30,2011

$
54,1502012


63,3002013


213,3002014


214,0252015


1,426,188Thereafter


549,996$
2,520,959


Pursuant
to the Plan, the Company does not expect to make any principal or interest payments on its pre-petition debt during the pendency of the Chapter 11 Cases. In
accordance with the Reorganizations Topic of the ASC, as interest on the Notes subsequent to the Petition Date is not expected to be an allowed claim, the Company has not accrued interest expense on
the Notes subsequent to the Petition Date. Accordingly, $18.0 million and $54.1 million of interest on unsecured debts, at the stated contractual rates, was not accrued during the three
months and nine months ended September 30, 2010. The Company has continued to accrue interest expense on the Pre-petition Credit Facility, as such interest is considered an allowed
claim according to the Plan.

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 the Delayed Draw Term Loan. Spinco drew $1,160 million under the Term Loan immediately prior to being spun off by
Verizon, and then the Company drew $470 million under the
Term Loan and $5.5 million under the Delayed Draw Term Loan concurrently with the closing of the Merger. Subsequent to the Merger, the Company has drawn an additional $194.5 million
under the Delayed Draw Term Loan. These funds were used for certain capital expenditures and other expenses associated with the Merger.

On
October 5, 2008 the administrative agent under the Pre-petition Credit Facility filed for bankruptcy. The administrative agent accounted for thirty percent of the
loan commitments under the Revolving Credit Facility. On January 21, 2009, the Company entered into the Pre-petition Credit Facility Amendment under which, among other things, the
administrative agent resigned and was replaced by a new Pre-petition Administrative Agent. In addition, the resigning administrative agent's undrawn loan commitments under the Revolving
Credit Facility, totaling $30.0 million, were terminated and are no longer available to the Company.

The
Revolving Credit Facility has a swingline sub-facility in the amount of $10 million and a letter of credit sub-facility in the amount of
$30 million, which allows issuances of standby letters of credit by

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(8) Long Term Debt (Continued)

the
Company. The Pre-petition Credit Facility also permits interest rate and currency exchange swaps and similar arrangements that the Company may enter into with the lenders under the
Pre-petition Credit Facility and/or their affiliates.

As
of September 30, 2010, the Company had borrowed $155.5 million under the Revolving Credit Facility, including $5.5 million of funds drawn down under letters of
credit during the nine months ended September 30, 2010, and there were no outstanding letters of credit. Upon the event of default under the Pre-petition Credit Facility relating to
the Chapter 11 Cases described herein, the commitments under the Revolving Credit Facility were automatically terminated. Accordingly, as of September 30, 2010, no funds remained
available under the Revolving Credit Facility.

The
Term Loan B Facility and the Delayed Draw Term Loan will mature in March 2015 and the Revolving Credit Facility and the Term Loan A Facility will mature in March 2014. Each of the
Term Loan A Facility, the Term Loan B Facility and the Delayed Draw Term Loan, collectively referred to as the Term Loans, are repayable in quarterly installments in the manner set forth in the
Pre-petition Credit Facility beginning June 30, 2009.

Borrowings
under our Pre-petition Credit Facility bear interest at variable interest rates. Interest rates for borrowings under the Pre-petition Credit Facility
are, at the Company's option, for the Revolving Credit Facility and for the Term Loans at either (a) the Eurodollar rate, as defined in the Pre-petition Credit Facility, plus an
applicable margin or (b) the base rate, as defined in the Pre-petition Credit Facility, plus an applicable margin.

The
Company's Term Loan B Facility debt is subject to a LIBOR floor of 3.00%. As a 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 on the last business day of each calendar quarter and on the date upon which the commitment is terminated. The Pre-petition Credit Facility also provides for
payment to the lenders of a commitment fee from the closing date of the Pre-petition Credit Facility up through and including the twelve month anniversary thereof on the unused portion of
the Delayed Draw Term Loan, payable quarterly in arrears, and on the date upon which the Delayed Draw Term Loan is terminated, as well as other fees.

The
Pre-petition Credit Facility requires the Company first to prepay outstanding Term Loan A Facility loans in full, including any applicable fees, interest and expenses
and, to the extent that no Term Loan A Facility loans remain outstanding, Term Loan B Facility loans, including any applicable fees, interest and expenses, with, subject to certain conditions and
exceptions, 100% of the net cash proceeds the Company receives from any sale, transfer or other disposition of any assets, subject to certain reinvestment rights, 100% of net casualty insurance
proceeds, subject to certain reinvestment rights and 100% of the net cash proceeds the Company receives from the issuance of debt obligations and preferred stock. In addition, the
Pre-petition Credit Facility requires it to prepay outstanding Term Loans on the date the Company delivers a compliance certificate pursuant to the Pre-petition Credit Facility
beginning with the fiscal quarter ended June 30, 2009 demonstrating that the Company's leverage ratio for the preceding quarter is greater than 3.50 to 1.00, with an amount equal to the greater
of (i) $11,250,000 or (ii) 90% of the Company's excess cash flow calculated after its permitted

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Table of Contents

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(8) Long Term Debt (Continued)

dividend
payment and less its amortization payments made on the Term Loans pursuant to the Pre-petition Credit Facility. Notwithstanding the foregoing, the Company may designate the type
of loans which are to be prepaid and the specific borrowings under the affected facility pursuant to which any amounts mandatorily prepaid will be applied in forward order of maturity of the remaining
amortization payments.

Voluntary
prepayments of borrowings under the Term Loan facilities and optional reductions of the unutilized portion of the revolving facility commitments will be permitted upon payment
of an applicable payment fee, which shall only be applicable to certain prepayments of borrowings as described in the Pre-petition Credit Facility.

Under
the Pre-petition Credit Facility, the Company is required to meet certain financial tests, including a minimum cash interest coverage ratio and a maximum total leverage
ratio. The Pre-petition Credit Facility contains customary affirmative covenants. The
Pre-petition Credit Facility also contains negative covenants and restrictions, including, among others, with respect to redeeming and repurchasing the Company's other indebtedness, loans
and investments, additional indebtedness, liens, capital expenditures, changes in the nature of the Company's business, mergers, acquisitions, asset sales and transactions with affiliates. The
Pre-petition Credit Facility contains customary events of default, including, but not limited to, failure to pay principal, interest or other amounts when due (subject to customary grace
periods), breach of covenants or representations, cross-defaults to certain other indebtedness in excess of specified amounts, judgment defaults in excess of specified amounts, certain ERISA defaults,
the failure of any guaranty or security document supporting the Pre-petition Credit Facility and certain events of bankruptcy and insolvency.

The
Pre-petition Credit Facility also contains restrictions on the Company's ability to pay dividends on its common stock.

Scheduled
amortization payments on the Company's 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 not expect to make any additional principal or interest payments on its pre-petition debt.

The
Pre-petition Credit Facility is guaranteed, jointly and severally, by all existing and subsequently acquired or organized wholly owned first-tier domestic
subsidiaries of the Company that are holding companies. No guarantee is required of a subsidiary that is an operating company. Northern New England Telephone Operations LLC, Telephone Operating
Company of Vermont LLC and Enhanced Communications of Northern New England Inc. are regulated operating subsidiaries and, accordingly, are not guarantors under the
Pre-petition Credit Facility.

The
Pre-petition Credit Facility is secured by a first priority perfected security interest in all of the stock, equity interests, promissory notes, partnership interests and
membership interests owned by the Company.

Old Notes

On March 31, 2008, Spinco issued $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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(8) Long Term Debt (Continued)

April 1,
2013. Interest is payable on the Old Notes semi-annually in cash on April 1 and October 1 of each year. The Old Notes bear interest at a fixed rate of
131/8% and principal is due at maturity. The Old Notes were issued at a discount and, accordingly, at the date of their distribution, the Old Notes had a carrying value of
$539.8 million (principal amount at maturity of $551.0 million less discount of $11.2 million). Following the filing of the Chapter 11 Cases, the remaining
$9.9 million of discount on the Notes was written off in order to adjust the carrying amount of the Company's pre-petition debt to the Bankruptcy Court approved amount of the
allowed claims for the Company's pre-petition debt. In accordance with the Reorganizations Topic of the ASC, as interest on the Notes subsequent to the Petition Date is not expected to be
an allowed claim, the Company has not accrued interest expense on the Notes subsequent to the Petition Date.

Upon
the consummation of the Exchange Offer and the corresponding consent solicitation, substantially all of the restrictive covenants in the indenture governing the Old Notes were
deleted or eliminated and certain of the events of default and various other provisions contained therein were modified.

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
Notes constituted an event of default under the Notes upon the expiration of a thirty day grace period. An event of default under the Notes permits the holders of the Notes to accelerate the maturity
of the Notes.

In
addition, as a result of the Restatement, the Company determined that the Company was not in compliance with the interest coverage ratio maintenance covenant and the leverage ratio
maintenance covenant under the Pre-petition Credit Facility for the measurement period ended June 30, 2009, which constituted an event of default under each of the
Pre-petition Credit Facility and the Swaps, and may have constituted an event of default under the Notes, in each case at June 30, 2009.

Issuance of New Notes and Payment of Consent Fee

On July 29, 2009, the Company successfully consummated the Exchange Offer. On the July 29, 2009 settlement date of the
Exchange Offer (the "Settlement Date"), the Proposed Amendments became operative and $439.6 million in aggregate principal amount of the Old Notes (which amount was equal to approximately 83%
of the then outstanding Old Notes) were exchanged for $439.6 million in aggregate principal amount of the New Notes. In addition, pursuant to the terms of the Exchange Offer, an additional
$18.9 million in aggregate principal amount of New Notes was issued to holders who tendered 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 Settlement Date.

The
New Notes mature on April 2, 2018 and bear interest at a fixed rate of 131/8%, payable in cash, except that the New Notes bore interest at a rate of 15% for the
period from July 29, 2009 through and including September 30, 2009. In addition, the Company was permitted to pay the interest payable on the New Notes for the period from
July 29, 2009 through and including September 30, 2009 (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 its option. The Company intended to make the interest payments due on October 1, 2009 on the New Notes by
capitalizing such interest and adding it to the principal amount of the New Notes.

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Table of Contents

FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Unaudited) (Continued)

(8) Long Term Debt (Continued)

As
such, interest payable of $12.2 million at September 30, 2009 was reflected as interest payable in kind on the condensed consolidated balance sheet. As the Notes have been classified
as subject to compromise as of September 30, 2010, the Company has classified the accrued interest on the exchanged Old Notes as of September 30, 2010 of $12.2 million as subject
to compromise on the condensed consolidated balance sheet. In accordance with the Reorganizations Topic of the ASC, as interest on the Notes subsequent to the Petition Date is not expected to be an
allowed claim, the Company has not accrued interest expense on the Notes subsequent to the Petition Date.

The
New Indenture limits, among other things, the Company's ability to incur additional indebtedness, issue certain preferred stock, repurchase its capital stock or subordinated debt,
make certain investments, create certain liens, sell certain assets or merge or consolidate with or into other companies, incur restrictions on the ability of the Company's subsidiaries to make
distributions or transfer assets to the Company and enter into transactions with affiliates.

The
New Indenture also restricts the Company's ability to pay dividends on or repurchase its common stock under certain circumstances.

In
connection with the Exchange Offer and the corresponding consent solicitation, the Company also paid a cash consent fee of $1.6 million in the aggregate to holders of Old Notes
who validly delivered and did not revoke consents in the consent solicitation 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.

Debtor-in-Possession Financing



In connection with the Chapter 11 Cases, the DIP Borrowers entered into the DIP Credit Agreement with the DIP Lenders and the
DIP Administrative Agent. The DIP Credit Agreement provides for the DIP Financing. Pursuant to the Interim Order, the DIP Borrowers were authorized to enter into and immediately draw upon the DIP
Credit Agreement on an interim basis, pending a final hearing before the Bankruptcy Court, in an aggregate amount of $20 million. On March 11, 2010 the Bankruptcy Court entered the Final
DIP Order, permitting the DIP Borrowers access to the total $75 million of the DIP Financing, subject to the terms and conditions of the DIP Credit Agreement and related orders of the
Bankruptcy Court. As of September 30, 2010 and December 31, 2009, the Company had not borrowed any amounts under the DIP Credit Agreement and letters of credit totaling
$18.6 million and $1.6 million, respectively, had been issued and were outstanding under the DIP Credit Agreement. Accordingly, as of September 30, 2010, the amount available
under the DIP Credit Agreement was approximately $56.4 million of the $75.0 million made available pursuant to the Final DIP Order.

The
DIP Financing matures and is repayable in full on the earlier to occur of (i) January 31, 2011, which date can be extended for up to an additional two months with the
consent of the Required Lenders (as defined in the DIP Credit Agreement) for no additional fee, (ii) the Effective Date, (iii) the voluntary reduction by the DIP Borrowers to zero of all
commitments to lend under the DIP Credit Agreement, or (iv) the date on which the obligations under the DIP Financing are accelerated by the non-defaulting DIP Lenders holding a
majority of the aggregate principal amount of the outstanding loans and letters of credit plus unutilized commitments under the DIP Financing upon the occurrence and during the continuance of certain
events of default.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(8) Long Term Debt (Continued)

Other material provisions of the DIP Credit Agreement include 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 month.

Interest
accrues from and including the date of any borrowing up to but excluding the date of any repayment thereof and is payable (i) in respect of each base rate loan, monthly
in arrears on the last business day of each month, (ii) in respect of each Eurodollar loan, on the last day of each interest period applicable thereto (which shall be a period of one month) and
(iii) in respect of each such loan, on any prepayment or conversion (on the amount prepaid or converted), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand.
The DIP Credit Agreement provides for the payment to the DIP Administrative Agent, for the pro rata benefit of the DIP Lenders, of an upfront fee in the aggregate principal amount of
$1.5 million, which upfront fee was payable in two installments: (1) the first installment of $400,000 was due and paid on October 28, 2009, the date on which the Interim Order
was entered by the Bankruptcy Court, and (2) the remainder of the upfront fee was due and paid on March 11, 2010, the date the Final DIP Order was entered by the Bankruptcy Court. The
DIP Credit Agreement also provides for an unused line fee of 0.50% on the unused revolving commitment, payable monthly in arrears on the last business day of each month (or on the date of maturity,
whether by acceleration or otherwise), and a letter of credit facing fee of 0.25% per annum calculated daily on the stated amount of all outstanding letters of credit, payable monthly in arrears on
the last business day of each month (or on the date of maturity, whether by acceleration or otherwise), as well as certain other fees.

Voluntary Prepayments.Voluntary prepayments of borrowings and optional reductions of the unutilized portion of the commitments are
permitted without
premium or penalty (subject to payment of breakage costs in the event Eurodollar loans are prepaid prior to the end of an applicable interest period).

Covenants.Prior to the Fifteenth Amendment, under the DIP Credit Agreement, the DIP Borrowers were required to maintain compliance with
certain
covenants, including maintaining minimum EBITDAR (earnings before interest, taxes, depreciation, amortization, restructuring charges and certain other non-cash costs and charges, as set
forth in the DIP Credit Agreement) and not exceeding maximum permitted capital expenditure amounts. The DIP Credit Agreement also contains customary affirmative and negative covenants and
restrictions, including, among others, with respect to investments, additional indebtedness, liens, changes in the nature of the business, mergers, acquisitions, asset sales and transactions with
affiliates. As of September 30, 2010, the DIP Borrowers are in compliance with all covenants under the DIP Credit Agreement. Pursuant to the Fifteenth Amendment, effective October 22,
2010, the minimum EBITDAR and maximum permitted capital expenditure covenants in the DIP Credit Agreement were eliminated.

Events of Default.The DIP Credit Agreement contains customary events of default, including, but not limited to, failure to pay
principal, interest
or other amounts when due, breach of covenants, failure of any representations to have been true in all material respects when made, cross-defaults to certain

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(8) Long Term Debt (Continued)

other
indebtedness in excess of specific amounts (other than obligations and indebtedness created or incurred prior to the filing of the Chapter 11 Cases), judgment defaults in excess of
specified amounts, certain ERISA defaults and the failure of any guaranty or security document supporting the DIP Credit Agreement to be in full force and effect, the occurrence of a change of control
and certain matters related to the Interim Order, the Final DIP Order and other matters related to the Chapter 11 Cases.



The DIP Borrowers and the DIP Pledgors entered into the DIP Pledge Agreement with Bank of America N.A., as the DIP Collateral Agent, as
required under the terms of the DIP Credit Agreement. Pursuant to the DIP Pledge Agreement, the DIP Pledgors provided the DIP Pledge Agreement Collateral to the DIP Collateral Agent for the secured
parties identified therein.



The DIP Guarantors entered into the DIP Subsidiary Guaranty with the DIP Administrative Agent, as required under the terms of the DIP
Credit Agreement. Pursuant to the DIP Subsidiary Guaranty, the DIP Guarantors agreed to jointly and severally guarantee the full and prompt payment of all fees, obligations, liabilities and
indebtedness of the DIP Borrowers, as borrowers under the DIP Financing. Pursuant to the terms of the DIP Subsidiary Guaranty, the DIP Guarantors further agreed to subordinate any indebtedness of the
DIP Borrowers held by such DIP Guarantor to the indebtedness of the DIP Borrowers held by the secured parties under the DIP Financing.



The DIP Grantors entered into the DIP Security Agreement with the DIP Collateral Agent, as required under the terms of the DIP Credit
Agreement. Pursuant to the DIP Security Agreement, the DIP Grantors provided to the DIP Collateral Agent for the benefit of the secured parties identified therein, a security interest in all assets
other than the DIP Pledge Agreement Collateral, any equity interests in an Excluded Entity (as defined in the DIP Pledge Agreement), any causes of action arising under Chapter 5 of the
Bankruptcy Code and FCC licenses and authorizations by state regulatory authorities to the extent that any DIP Grantor is prohibited from granting a lien and security interest therein pursuant to
applicable law.

(9) Employee Benefit Plans

The Company remeasured its pension and other post-employment benefit assets and liabilities as of December 31, 2009, in accordance with the
CompensationRetirement Benefits Topic of the ASC. This measurement is based on a 6.07% weighted average discount rate, as well as certain other valuation assumption modifications.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(9) Employee Benefit Plans (Continued)

Components
of the net periodic benefit (income) cost related to the Company's pension and post-retirement healthcare plans for the three months and nine months ended
September 30, 2010 are presented below (in thousands).

Three Months ended
September 30, 2010

Nine Months ended
September 30, 2010Qualified
Pension

Post-
retirement
Health

Qualified
Pension

Post-
retirement
HealthService cost

$
2,628

$
3,835

$
8,390

$
10,741Interest cost


3,699


4,299


9,722


12,260Expected return on plan assets


(4,202
)

(2
)

(12,498
)

(2
)Amortization of prior service cost


381


1,072


1,143


3,217Amortization of actuarial (gain) loss


1,008


1,050


1,566


2,605Net periodic benefit cost

$
3,514

$
10,254

$
8,323

$
28,821


Components
of the net periodic benefit (income) cost related to the Company's pension and post-retirement healthcare plans for the three and nine months ended
September 30, 2009 are presented below (in thousands).

Three Months ended
September 30, 2009

Nine Months ended
September 30, 2009Qualified
Pension

Post-
retirement
Health

Qualified
Pension

Post-
retirement
HealthService cost

$
2,721

$
3,413

$
8,192

$
9,764Interest cost


3,453


3,794


10,013


10,362Expected return on plan assets


(5,153
)




(15,511
)

Amortization of prior service cost


363


1,073


1,089


3,219Amortization of actuarial (gain) loss


286


1,214


598


2,542Settlement loss


1,627





2,514


Net periodic benefit cost

$
3,297

$
9,494

$
6,895

$
25,887


The
Company has no required contributions to its defined benefit pension plans during fiscal year 2010. The Company's pension plan funding requirements are based on the Pension
Protection Act of 2006 and subsequent funding relief passed by Congress and regulations published by the IRS.

The
Company expects to contribute approximately $1.9 million to its post-retirement healthcare plans in 2010 for benefit payments to current retirees.

For
the three months and nine months ended September 30, 2010, the actual gain on the pension plan assets was approximately 6.5% and 6.0%, respectively. Net periodic benefit cost
for 2010 assumes a weighted average annualized expected return on plan assets of approximately 8.3%. Should the Company's actual return on plan assets continue to be lower than the expected return
assumption, the

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(9) Employee Benefit Plans (Continued)

net
periodic benefit cost may increase in future periods and the Company may be required to contribute additional funds to its pension plans after 2010.

During
the three months ended March 31, 2010, $33.3 million was transferred from Verizon's defined benefit pension plans' trusts to the Company's pension plan trust. As of
June 30, 2010, a disputed amount was pending final validation by a third-party actuary of the census information and related actuarial calculations in accordance with relevant statutory and
regulatory guidelines and the Employee Matters Agreement, dated January 15, 2007 between Verizon and the Company (the "Employee Matters Agreement"). The disputed amount was not included in the
Company's pension plan assets at June 30, 2010 or December 31, 2009. By letter dated July 29, 2010, the third-party actuary appointed to perform
the review and validation determined that an additional $2.5 million, adjusted for gains or losses since the date of the original transfer, should be transferred from Verizon's defined benefit
plans' trusts to the Company's represented employees pension plan trust. This transfer was received in the amount of $2.4 million on September 1, 2010, at which time the Company's net
pension obligation was decreased by this amount.

The
Company and its subsidiaries sponsor four voluntary 401(k) savings plans that, in the aggregate, cover substantially all eligible Legacy FairPoint employees, and two voluntary 401(k)
savings plans that cover in the aggregate substantially all eligible Northern New England operations employees (collectively, "the 401(k) Plans"). Each 401(k) Plan year, the Company contributes to the
401(k) Plans an amount of matching contributions determined by the Company at its discretion. For the three and nine months ended September 30, 2010 and for the 401(k) Plan year ended
December 31, 2009, the Company matched 100% of each employee's contribution up to 5% of compensation. Total Company contributions to all 401(k) Plans were $2.7 million and
$2.3 million for the three months and $7.7 million and $7.2 million for the nine months ended September 30, 2010 and 2009, respectively.

(10) Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows (in thousands):

September 30,
2010

December 31,
2009Accumulated other comprehensive loss, net of taxes:Defined benefit pension and post-retirement plans

$
(119,819
)
$
(124,924
)Total accumulated other comprehensive loss

$
(119,819
)
$
(124,924
)


Other
comprehensive loss for the three months and nine months ended September 30, 2010 and 2009 includes amortization of defined benefit pension and post-retirement
plan related prior service costs and actuarial gains and losses included in accumulated other comprehensive loss.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(11) Earnings Per Share

Earnings per share has been computed in accordance with the Earnings Per Share Topic of the ASC.
Basic earnings per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding for the period. Except when the effect would be
anti-dilutive, the diluted earnings per share calculation calculated using the treasury stock method includes the impact of stock units, shares of non-vested common stock and
shares that could be issued under outstanding stock options. The weighted average number of common shares outstanding for all periods presented has been restated to reflect the issuance of 53,760,623
shares to the stockholders of Spinco in connection with the Merger.

The
following table provides a reconciliation of the common shares used for basic earnings per share and diluted earnings per share (in thousands):

Three months ended
September 30,

Nine months ended
September 30,2010

2009

2010

2009Weighted average number of common shares used for basic earnings per share


89,424


89,366


89,424


89,235Effect of potential dilutive shares











Weighted average number of common shares and potential dilutive shares used for diluted earnings per share


89,424


89,366


89,424


89,235Anti-dilutive shares excluded from the above reconciliation


2,524


2,674


2,510


2,312


Weighted
average number of common shares used for basic earnings per share excludes 540,476 and 640,475 shares of non-vested restricted stock as of September 30, 2010
and 2009, respectively. Since the Company incurred a loss for the three months and nine months ended September 30, 2010 and 2009, all potentially dilutive securities are
anti-dilutive and are, therefore, excluded from the determination of diluted earnings per share.

(12) Stockholders' Equity

On March 31, 2008, FairPoint completed the Merger, pursuant to 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 the
Merger, Legacy FairPoint had 35,264,945 shares of common stock outstanding. Upon consummation of the Merger, the combined Company had 89,025,568 shares of common stock outstanding. At
September 30, 2010, there were 89,964,144 shares of common stock outstanding and 200,000,000 shares of common stock were authorized.

(13) Fair Value Measurements

The Fair Value Measurements and Disclosures Topic of the ASC (formerly SFAS 157,Fair Value Measurements("SFAS 157"))
defines fair value, establishes a framework for measuring fair value and

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(13) Fair Value Measurements (Continued)

establishes
a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value. The Fair Value Measurements and Disclosures Topic of the ASC also expands financial statement
disclosures about fair value measurements. On February 12, 2008, the FASB issued FASB Staff Position ("FSP") 157-2, which delayed the effective date of SFAS 157 for one year
for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The impact of adopting
SFAS 157 and FSB 157-2 was not material to the Company's financial statements.

The
filing of the Chapter 11 Cases constituted a termination event under the Swaps. Subsequent to the filing of the Chapter 11 Cases, the Company received notification from
the counterparties to the Swaps that the Swaps had been terminated. Therefore, the carrying value of the Swaps at September 30, 2010 and December 31, 2009 represents the termination
value of the swaps as determined by the respective counterparties following the termination event described herein. See note 7 for more information.

The
Company does not carry any assets or liabilities at fair value as of September 30, 2010 and December 31, 2009.

(14) Commitments and Contingencies

Future
minimum lease payments under capital leases and non-cancelable operating leases as of September 30, 2010 are as follows (in thousands):

Capital
Leases

Operating
LeasesTwelve months ending September 30:2011

$
2,305

$
10,1452012


1,801


9,0532013


1,604


7,8222014


1,534


5,7832015


489


3,011Thereafter





4,254Total minimum lease payments

$
7,733

$
40,068Less interest and executory cost


(1,663
)Present value of minimum lease payments


6,070Less current installments


(1,648
)Long-term obligations at September 30, 2010

$
4,422


The
Company does not have any leases with contingent rental payments or any leases with contingency renewal, purchase options, or escalation clauses.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(14) Commitments and Contingencies (Continued)

From
time to time, the Company is involved in litigation and regulatory proceedings arising out of its operations. With the exception of the Chapter 11 Cases, the Company's
management believes that it is not currently a party to any legal or regulatory proceedings, the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on the
Company's financial position or results of operations. To the extent the Company is currently involved in any litigation and/or regulatory proceedings, such proceedings have been stayed as a result of
the filing of the Chapter 11 Cases. For a discussion of the Chapter 11 Cases, see note 1.

The
Company is subject to certain service quality requirements in the states of Maine, New Hampshire and Vermont. Failure to meet these requirements in any of these states may result in
penalties being assessed by the respective state regulatory body. As of September 30, 2010, the Company has recognized an estimated liability for service quality penalties based on metrics
defined by the state regulatory authorities in Maine, New Hampshire and Vermont. The Merger Orders provide that any penalties assessed by the states be paid by the Company in the form of credits
applied to customer bills. Based
on the Company's current estimate of its service quality penalties in these states, increases of $7.2 million and $10.8 million in the estimated liability were recorded as a reduction to
revenue for the three months and nine months ended September 30, 2010, respectively. The amounts recorded during the three months and nine months ended September 30, 2010 include
$4.8 million and $2.1 million, respectively, related to prior periods. During the three months and nine months ended September 30, 2010, the Company paid out $1.8 million
and $3.9 million, respectively, of service quality index ("SQI") penalties in the form of customer rebates, all of which were related to Maine fiscal 2008 and 2009 penalties. The Company has
recorded a total liability of $34.4 million on the condensed consolidated balance sheet at September 30, 2010. Additional penalties may be assessed as a result of service quality issues
related to transitioning certain back-office functions from Verizon's integrated systems to newly created systems of the Company, which occurred in January 2009 (the "Cutover"), which
could have a material adverse effect on the Company's financial position, results of operations and liquidity.

During
February 2010, the Company entered into the Regulatory Settlements with representatives of the state regulatory authorities in each of Maine, New Hampshire and Vermont, which were
made subject to the approval of the regulatory authorities in these states. The Regulatory Settlements in New Hampshire and Vermont defer fiscal 2008 and 2009 SQI penalties until December 31,
2010 and include a clause whereby such penalties may be forgiven in part or in whole if the Company meets certain metrics for the twelve-month period ending December 31, 2010. As this clause
represents a contingent gain, the Company has not recognized such gain as of September 30, 2010. As of September 30, 2010, the Company has accrued fiscal 2008 and 2009 liabilities of
$6.0 million for New Hampshire and approximately $11.4 million for Vermont. In addition, the Regulatory Settlement for Maine deferred the Company's fiscal 2008 and 2009 SQI penalties
until March 2010. Beginning in March 2010, the Company began to issue SQI rebates related to the Maine 2008 and 2009 SQI penalties to customers over a twelve month period.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) (Continued)

(14) Commitments and Contingencies (Continued)

The
MPUC and NHPUC have approved the Regulatory Settlements for Maine and New Hampshire. However, the Vermont Board has rejected the Regulatory Settlement for Vermont. As described in
note 1, on October 20, 2010, the Company provided supplemental information to the Vermont Board, which information included a financial forecast. If the Company is unable to obtain the
Vermont Board's approval of the Regulatory Settlement for Vermont, it is unclear what effect the filing of the Chapter 11 Cases will have on the requirements, including SQI penalties, imposed
by the Vermont Merger Order and whether the requirements of the Vermont Merger Order would be enforceable against the Company in the future.

As
part of the Merger Orders, the Company adopted certain performance assurance plans ("PAP") in the states of Maine, New Hampshire and Vermont. Failure to meet specified performance
standards in any of these states may result in performance credits being assessed in accordance with the provisions of the PAP in each state. As of September 30, 2010, the Company has reduced
its accounts receivable balance for the estimated amount of PAP credits based on metrics defined by the PAP. Credits assessed in Maine and New Hampshire are paid by the Company in the form of credits
applied to competitive local exchange carrier ("CLEC") bills. Certain credits assessed in Vermont are paid to the Vermont Universal Service Fund, while the remaining credits assessed in Vermont are
paid by the Company in the form of credits applied to CLEC bills. Based on the Company's current estimate of its PAP credits in these states, increases of $1.3 million and $5.2 million
in the estimated reserve were recorded as a reduction to revenue for the three months and nine months ended September 30, 2010, respectively. During the three months and nine months ended
September 30, 2010, the Company paid out $0.9 million and $4.9 million, respectively, of PAP credits. The Company has recorded a total reduction of accounts receivable of
$13.9 million on the condensed consolidated balance sheet at September 30, 2010.

On
June 1, 2010, the Bankruptcy Court approved the Company's motion to assume an amended volume product purchase and sale agreement with Occam Networks, Inc ("Occam"). This motion
includes a commitment by the Company to purchase at least $12.0 million worth of products from Occam during the initial five-year term of the amended agreement, which term ends on
April 1, 2013.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the financial statements of the Company and the notes thereto included
elsewhere in this Quarterly Report. The following discussion includes certain forward-looking statements. For a discussion of important factors, which could cause actual results to differ materially
from the results referred to in the forward-looking statements, see "Part IItem 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended
December 31, 2009, "Part IIItem 1A. Risk Factors" of our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2010 and
June 30, 2010 and "Part IIItem 1A. Risk Factors" and "Cautionary Note Concerning Forward-Looking Statements" contained in this Quarterly Report.

Overview

We are a leading provider of communications services in rural and small urban communities, offering an array of services, including
local and long distance voice, data, Internet, video and broadband product offerings. We operate in 18 states with 1.5 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-the-premises) in service as of
September 30, 2010.

We
were incorporated in Delaware in February 1991 for the purpose of acquiring and operating incumbent telephone companies in rural and small urban markets. Many of our telephone
companies have served their respective communities for over 75 years.

As
our primary source of revenues, access lines are an important element of our business. Over the past several years, communications companies, including FairPoint, have experienced a
decline in access lines due to increased competition, including competition from wireless carriers and cable television operators, the introduction of DSL services (resulting in customers substituting
DSL for a second line) and challenging economic conditions. In addition, while we were operating under the Transition Services Agreement, we had limited ability to change current product offerings.
Upon completion of the Cutover from the Verizon systems to the new FairPoint systems, we expected to be able to modify bundles and prices to be more competitive in the marketplace. However, due to
certain systems functionality issues (as described herein), we had limited ability during 2009 to make changes to our product offerings. In late June 2009, we began actively marketing and promoting
our DSL product for the first time since the Cutover. While voice access lines are expected to continue to decline, we expect to offset a portion of this lost revenue with growth in high speed data
revenue as we continue to build-out our network to provide high speed data products to customers who did not previously have access to such products and to offer more competitive services
to existing customers. Overall, high speed data services are expected to be a key element of our operations in the future. We also expect to implement cost reductions as we gain efficiencies in our
business over time.

We
are also a large provider of wholesale telecommunications services in our markets. Our ability to provide wholesale service is dependent on our network. We are in the process of
making significant investments in an advanced Next Generation Network for our Northern New England operations. The Next Generation Network is an IP / Multiple Protocol Label Switched (IP/MPLS) network
that is fully fiber optic based. We believe that this network architecture will enable us to expand our provision of wholesale services, especially to wireless carriers.

We
are subject to regulation primarily by federal and state governmental agencies. At the federal level, the FCC generally exercises jurisdiction over the facilities and services of
communications common carriers, such as FairPoint, to the extent those facilities are used to provide, originate or terminate interstate or international communications. State regulatory commissions
generally exercise jurisdiction over common carriers' facilities and services to the extent those facilities are used to provide, originate or terminate intrastate communications. In addition,
pursuant to the 1996 Act, which

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amended
the Communications Act of 1934, state and federal regulators share responsibility for implementing and enforcing the domestic pro-competitive policies introduced by that
legislation.

Legacy
FairPoint's operations and our Northern New England operations operate under different regulatory regimes in certain respects. For example, concerning interstate access, all of
the pre-Merger regulated interstate services of FairPoint were regulated under a rate-of-return model, while all of the rate-regulated interstate
services provided by the Verizon Northern New England business were regulated under a price cap model. On May 10, 2010, we received FCC approval to convert our Legacy FairPoint operations in
Maine and Vermont to the price cap model. Our Legacy FairPoint operations in Maine and Vermont converted to price cap regulation on July 1, 2010. We have obtained permission to continue to
operate our Legacy FairPoint incumbent LECs outside of Maine and Vermont under the rate-of-return regime until the FCC completes its general review of whether to modify or
eliminate the "all-or-nothing" rule. Without this permission, the all-or-nothing rule would require that all of our regulated operations be operated
under the price cap model for federal regulatory purposes. In addition, while all of our operations generally are subject to obligations that apply to all LECs, our non-rural operations
are subject to additional requirements concerning interconnection, non-discriminatory network access for competitive communications providers and other matters, subject to substantial
oversight by state regulatory commissions. In addition, the FCC has ruled that our Northern New England operations must comply with the regulations applicable to the Bell Operating Companies. Our
rural and non-rural operations are also subject to different regimes concerning universal service.

From
2007 through January 2009, we were in the process of developing and deploying new systems, processes and personnel to replace 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 Cutover, and on February 9, 2009, we began operating our new platform of systems independently from the
Verizon systems, processes and personnel. During the period from January 23, 2009 until January 30, 2009, all retail orders were taken manually and following the Cutover were entered
into the new systems. From February 2, 2009 through February 9, 2009, we manually processed only emergency orders, although we continued to provide repair and maintenance services to all
customers.

Following
the Cutover, many of these systems functioned without significant problems, but a number of the key back-office systems, such as order entry, order management and
billing, experienced certain functionality issues as well as issues with communication between the systems. As a result of these systems functionality issues, as well as work force inexperience on the
new systems, we experienced increased handle time by customer service representatives for new orders, reduced levels of order flow-through across the systems, which caused delays in
provisioning and installation, and delays in the processing of bill cycles and collection treatment efforts. These issues impacted customer satisfaction and resulted in large increases in customer
call volumes into our customer service centers. While many of these issues were anticipated, the magnitude of difficulties experienced was beyond our expectations.

In
the months following the Cutover, we worked diligently to remedy these issues. The order backlog was reduced significantly and order handle times returned to normal levels.
Provisioning of new orders steadily improved and call volumes into the customer service centers returned to pre-Cutover levels. However, certain systems functionality supporting our
collection efforts was not fully operational until 2010. While billing systems functionality and collection efforts continue to improve, invoicing has yet to return to normal. As a result of these
functionality issues and past billing issues, our efforts to collect past due amounts continue to be hampered. During the third quarter of 2009, we revised the methodology of calculating the allowance
for doubtful accounts based on recent collections experience. The issues discussed above and the change in methodology resulted in a significant increase in our

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allowance
for doubtful accounts during the third quarter of 2009. Overall, delays in implementing the collections software functionality, together with other Cutover issues, caused an increase in
accounts receivable, which adversely impacted our liquidity.

Due
to these Cutover issues, during the three months and nine months ended September 30, 2009 we incurred $2.5 million and $28.8 million, respectively, of
incremental expenses in order to operate our business, including third-party contractor costs and internal labor costs in the form of overtime pay. The Cutover issues also required significant staff
and senior management attention, diverting their focus from other efforts.

In
addition to the significant incremental expenses we incurred as a result of these Cutover issues, we were unable to fully implement our operating plan for 2009 and effectively compete
in the marketplace, which we believe had an adverse effect on our business, financial condition, results of operations and liquidity.

On
April 30, 2010, we filed amendments to our 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 and other adjustments. For the nine months ended September 30, 2009, the accounting error and the billing and other
adjustments resulted in a $25.0 million overstatement of revenues, a $0.2 million understatement of operating expenses and a $9.6 million overstatement of other income in the
financial data originally reported in our Quarterly Report on Form 10-Q for the nine months ended September 30, 2009, which was originally filed with the SEC on
November 20, 2009. The Restatement, which accounts for the foregoing overstatements and understatement, resulted in a reduction in net income of $21.8 million, net of income taxes, for
the nine months ended September 30, 2009.

The
accounting error and the billing and other adjustments resulted in a $2.2 million understatement of revenues for the three months ended September 30, 2009 and a
$1.9 million overstatement of operating expenses for the three months ended September 30, 2009 in the financial data originally reported in our Quarterly Report on
Form 10-Q for the three months and nine months ended September 30, 2009, which was originally filed with the SEC on November 20, 2009. The Restatement resulted in an
increase in net income of $2.1 million, net of income taxes, for the three months ended September 30, 2009. For more information, see the Amendments as filed with the SEC.

As
a result of the Restatement, we determined that we were not in compliance with the interest coverage ratio maintenance covenant and the leverage ratio maintenance covenant under the
Pre-petition Credit Facility for the measurement period ended June 30, 2009, which constituted an event of default under each of the Pre-petition Credit Facility and the
Swaps, and may have constituted an event of default under the Notes, in each case at June 30, 2009.

Basis of Presentation

On March 31, 2008, the Merger between Spinco and Legacy FairPoint was completed. In connection with the Merger and in accordance
with the terms of an agreement and plan of merger with Verizon and Spinco pursuant to which we committed to purchase and assume Verizon's landline operations in Maine, New Hampshire and Vermont,
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 Spinco and the entities that became Spinco's subsidiaries. Spinco was then spun off from Verizon immediately prior to
the Merger. While FairPoint was the surviving entity in the Merger, for accounting purposes Spinco was deemed to be the acquirer. For more information, see note 1 to the Condensed Consolidated
Financial Statements.

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We
view our business of providing voice, data and communication services to residential and business customers as one business segment as defined in the Segment Reporting Topic of the
ASC.

The
accompanying Condensed Consolidated Financial Statements have been prepared assuming that we will continue as a going concern and contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business. For further discussion, see note 1 to the Condensed Consolidated Financial Statements.

We
have reclassified certain prior period amounts in the Condensed Consolidated Financial Statements to be consistent with current period presentation. These reclassifications were made
to correct the classification of PAP penalties from selling, general and administrative expenses to contra-revenue and to correct the allocation of certain employee and general computer expenses
between cost of services and selling, general and administrative expenses. Correction of these classification errors resulted in decreases of $2.3 million and $5.6 million to revenue, a
decrease of $1.5 million and an increase of $1.3 million to cost of services, and decreases of $0.8 million and $6.9 million to selling, general and administrative expenses
for the three months and nine months ended September 30, 2009, respectively. Correction of these classification errors had no impact on loss from operations or net loss.

Revenues

We derive our revenues from:



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The
following table summarizes revenues and the percentage of revenues from the listed sources (in thousands, except for percentage of revenues data):

Revenues

% of RevenuesThree months
ended
September 30,

Nine months
ended
September 30,

Three months
ended
September 30,

Nine months
ended
September 30,2010

2009

2010

2009

2010

2009

2010

2009Revenue Source:Local calling services

$
93,521

$
97,728

$
307,405

$
332,304


36
%

36
%

38
%

39
%Access


96,374


93,980


291,033


281,609


37
%

35
%

36
%

33
%Long distance services


30,037


36,751


91,167


115,847


12
%

14
%

12
%

14
%Data and Internet services


26,691


27,456


82,719


83,869


10
%

10
%

10
%

10
%Other services


11,887


12,279


34,546


35,271


5
%

5
%

4
%

4
%Total

$
258,510

$
268,194

$
806,870

$
848,900


100
%

100
%

100
%

100
%


The following table summarizes access line equivalents (including voice access lines and high speed data lines, which include DSL, wireless
broadband, cable modem and fiber-to-the-premises) as of the end of each of the five most recently completed quarters:

September 30,
2010

June 30,
2010

March 31,
2010

December 31,
2009

September 30,
2009Access Line Equivalents:Residential access lines


734,260


758,005


776,254


802,668


837,138Business access lines


342,626


348,280


356,471


364,897


373,661Wholesale access lines


89,035


91,138


93,827


97,161


98,758Total switched access lines


1,165,921


1,197,423


1,226,552


1,264,726


1,309,557High speed data subscribers


288,891


289,609


283,806


288,542


293,984Total access line equivalents


1,454,812


1,487,032


1,510,358


1,553,268


1,603,541


Operating Expenses

Our operating expenses consist of cost of services and sales, selling, general and administrative expenses, and depreciation and
amortization.



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Through
January 30, 2009, we operated under the Transition Services Agreement, under which we incurred $15.9 million of expenses during the nine months ended
September 30, 2009. As of January 30, 2009, we began performing these services internally or obtaining them from third-party service providers and not from Verizon.

In
New Hampshire, all structures, poles, towers and conduits employed in the transmission of telecommunication, cable or commercial mobile radio services are taxed as real estate in the
town in which such property or any part of such property is situated. Prior to July 1, 2010, the Company had an exemption from the payment of this tax. However, that exemption has been repealed
effective as of July 1, 2010. The tax is calculated based upon the valuation of such property as real estate on a municipality-by-municipality basis. As the Company has
been exempt from this tax in the past, we have not yet determined our exposure to such taxes. Therefore, we cannot provide an estimate of the financial impact relating to the repeal of this exemption
at this time. If the impact is determined to be material, we will disclose the estimated impact in our future filings.

Results of Operations

Three Months Ended September 30, 2010 Compared with Three Months Ended September 30, 2009

The following table sets forth the percentages of revenues represented by selected items reflected in the consolidated statements of
operations. The year-to-year comparisons of financial results are not necessarily indicative of future results (in thousands, except percentage of revenues data):

2010

% of
Revenues

2009

% of
RevenuesRevenues

$
258,510


100
%
$
268,194


100
%Operating expensesCost of services and sales


115,914


45


127,184


48Selling, general and administrative


99,523


39


118,157


44Depreciation and amortization


73,693


28


68,013


25Total operating expenses


289,130


112


313,354


117Loss from operations


(30,620
)

(12
)

(45,160
)

(17
)Interest expense


(35,358
)

(14
)

(56,874
)

(21
)Loss on derivative instruments








(11,536
)

(4
)Other income


2,207


1


214


Loss before reorganization items and income taxes


(63,771
)

(25
)

(113,356
)

(42
)Reorganization items


(9,635
)

(4
)




Loss before income taxes


(73,406
)

(29
)

(113,356
)

(42
)Income tax benefit


7,330


3


38,154


14Net loss

$
(66,076
)

(26
)%
$
(75,202
)

(28
)%


Revenues
decreased $9.7 million to $258.5 million in the third quarter of 2010 compared to the same period in 2009. Revenues for the third quarter of 2010
include corrections in the August 2009 through June 2010 calculations of SQI penalties totaling $4.8 million. In total, we recorded $7.2 million in SQI penalties during the third quarter
of 2010 compared to $19.4 million recorded in the same period in 2009. Also, we recorded $1.3 million in PAP penalties during the third quarter of 2010 compared to $6.0 million
recorded in the same period in 2009. Excluding the impact of these penalties,

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revenues
decreased $26.6 million which primarily reflects the adverse impact of competition and technology substitution. We derive our revenues from the following sources:

Local calling services.Local calling services revenues decreased $4.2 million to $93.5 million during the third quarter of
2010
compared to the same period in 2009. This decrease is primarily due to the impact of an 11.0% decline in total voice access lines in service at September 30, 2010 compared to
September 30, 2009, largely offset by a $12.2 million decline in SQI penalties and a $4.7 million decrease in PAP penalties recorded during the third quarter of 2010 as compared
to the third quarter of 2009.

Access.Access revenues increased $2.4 million to $96.4 million during the third quarter of 2010 compared to the same period
in 2009.
Of this increase, $7.5 million is attributable to an increase in interstate access revenues, partially offset by a $5.1 million decrease in intrastate access revenues.

Long distance services.Long distance services revenues decreased $6.7 million to $30.0 million in the third quarter of 2010
compared
to the same period in 2009. The decrease was primarily attributable to a 5.9% decrease in the number of subscribers from September 30, 2009 to September 30, 2010 coupled with a decrease
in average revenue per subscriber ("ARPU").

Data and Internet services.Data and Internet services revenues decreased $0.8 million to $26.7 million in the third quarter
of 2010
compared to the same period in 2009. The decrease was primarily attributable to a 1.7% decrease in the number of subscribers from September 30, 2009 to September 30, 2010.

Other services.Other services revenues decreased $0.4 million to $11.9 million in the third quarter of 2010 compared to the
same
period in 2009.

Operating Expenses

Cost of services and sales.Cost of services and sales decreased $11.3 million to $115.9 million in the third quarter of 2010
compared
to the same period in 2009. This decrease is mainly attributable to significant reductions in access expenses associated with providing long distance and data and internet services and certain
employee expenses.

Selling, general and administrative.Selling, general and administrative expenses decreased $18.6 million to $99.5 million in
the third
quarter of 2010 compared to the same period in 2009. The decrease is primarily attributable to a $11.3 million reduction in bad debt expense. Additionally, prior to the Petition Date, all
expenses related to restructuring activities were classified as selling, general and administrative expenses. During the Chapter 11 Cases, such expenses have been classified as reorganization
items. Accordingly, the three months ended September 30, 2009 included $6.1 million in restructuring expenses as compared to zero in the same period of 2010.

Depreciation and amortization.Depreciation and amortization expense increased $5.7 million to $73.7 million in the third
quarter of
2010 compared to the same period in 2009, due primarily to higher gross plant asset balances, including capitalized software placed into service upon termination of the Transition Services Agreement.

Other Results

Interest expense.Interest expense decreased $21.5 million to $35.4 million in the third quarter of 2010 compared to the same
period in
2009. Upon the filing of the Chapter 11 Cases, in accordance with the Reorganizations Topic of the ASC, we ceased the accrual of interest expense on the Notes and the Swaps as it is unlikely
that such interest expense will be paid or will become an allowed priority

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secured
or unsecured claim. We have continued to accrue interest expense on the Pre-petition Credit Facility, as such interest is considered an allowed claim pursuant to the Plan.

Loss on derivative instruments.Loss on derivative instruments represents net gains and losses recognized on the change in fair market
value of
interest rate swap derivatives. During the three months ended September 30, 2009, we recognized non-cash losses of $11.5 million related to our derivative financial
instruments. In connection with the filing of the Chapter 11 Cases, the Swaps were terminated by the counterparties and have been recorded on the consolidated balance sheet at the termination
values provided by the counterparties. Accordingly, we recognized no gain or loss on derivative instruments during the three months ended September 30, 2010.

Other income (expense).Other expense includes non-operating gains and losses. Other income was $2.2 million in the third quarter
of 2010 compared with $0.2 million in the same period in 2009. This increase is primarily attributable to a $3.0 million lease contract settlement with a vendor that occurred during the
third quarter of 2010.

Reorganization items.Reorganization items represent expense or income amounts that have been recognized as a direct result of the
Chapter 11
Cases. For more information, see note 2 to the Condensed Consolidated Financial Statements.

Incometaxes. The effective income tax rate is the provision for income taxes stated as a percentage of income before the provision for
income taxes. The effective income tax rate for the three months ended September 30, 2010 and 2009 was 10.0% benefit and 33.7% benefit, respectively. The decrease in the effective tax rate is
primarily due to non-deductible restructuring charges and post-petition interest.

Net loss.Net loss for the three months ended September 30, 2010 was $66.1 million compared to net loss of $75.2 million
for the
same period in 2009. The difference in net loss between 2010 and 2009 is a result of the factors discussed above.

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Nine Months Ended September 30, 2010 Compared with Nine Months Ended September 30, 2009

The following table sets forth the percentages of revenues represented by selected items reflected in the consolidated statements of
operations. The year-to-year comparisons of financial results are not necessarily indicative of future results (in thousands, except percentage of revenues data):

2010

% of
Revenues

2009

% of
RevenuesRevenues

$
806,870


100
%
$
848,900


100
%Operating expensesCost of services and sales


360,829


45


398,209


47Selling, general and administrative


292,460


36


303,905


36Depreciation and amortization


214,597


27


204,740


24Total operating expenses


867,886


108


906,854


107Loss from operations


(61,016
)

(8
)

(57,954
)

(7
)Interest expense


(105,709
)

(13
)

(165,162
)

(19
)Gain on derivative instruments








8,595


1Gain on early retirement of debt








12,357


1Other income (expense)


(905
)




6,433


1Loss before reorganization items and income taxes


(167,630
)

(21
)

(195,731
)

(23
)Reorganization items


(24,677
)

(3
)




Loss before income taxes


(192,307
)

(24
)

(195,731
)

(23
)Income tax benefit


14,074


2


70,061


8Net loss

$
(178,233
)

(22
)%
$
(125,670
)

(15
)%


Revenues
decreased $42.0 million to $806.9 million in the nine months ended September 30, 2010 compared to the same period in 2009. Revenues for the nine months
ended September 30, 2010 include corrections in the August 2009 through December 2009 calculations of SQI penalties totaling $2.1 million. In total, we recorded $10.8 million in
SQI penalties in the nine months ended September 30, 2010 compared to $21.0 million recorded in the same period in 2009. Also, we recorded $5.2 million in PAP penalties during the
nine months ended September 30, 2010 compared to $16.1 million recorded in the same period in 2009. Excluding the impact of these penalties, revenues decreased $63.2 million which
primarily reflects the adverse impact of competition and technology substitution. We derive our revenues from the following sources:

Local calling services.Local calling services revenues decreased $24.9 million to $307.4 million during the nine months
ended
September 30, 2010 compared to the same period in 2009. This decrease is primarily due to an 11.0% decline in total voice access lines in service at September 30, 2010 compared to
September 30, 2009, largely offset by a $10.2 million decline in SQI penalties and an $11.0 million decline in PAP penalties recorded during the nine months ended
September 30, 2010 as compared to the same period in 2009.

Access.Access revenues increased $9.4 million to $291.0 million during the nine months ended September 30, 2010
compared to the
same period in 2009. Of this increase, $19.1 million is attributable to an increase in interstate access revenues, partially offset by a $9.7 million decrease in intrastate access
revenues.

Long distance services.Long distance services revenues decreased $24.7 million to $91.2 million in the nine months ended
September 30, 2010 compared to the same period in 2009. The decrease was

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primarily
attributable to a 5.9% decrease in the number of subscribers from September 30, 2009 to September 30, 2010 coupled with a decrease in average revenue per subscriber ("ARPU").

Data and Internet services.Data and Internet services revenues decreased $1.2 million to $82.7 million in the first nine
months of
2010 compared to the same period in 2009. The decrease was primarily attributable to a 1.7% decrease in the number of subscribers from September 30, 2009 to September 30, 2010.

Other services.Other services revenues decreased $0.7 million to $34.5 million during the nine months ended
September 30, 2010
compared to the same period in 2009.

Operating Expenses

Cost of services and sales.Cost of services and sales decreased $37.4 million to $360.8 million during the nine months ended
September 30, 2010 compared to the same period in 2009. This decrease is mainly attributable to significant reductions in access expenses associated with providing long distance and data and
internet services and certain employee expenses.

Selling, general and administrative.Selling, general and administrative expenses decreased $11.4 million to $292.5 million
during the
nine months ended September 30, 2010 compared to the same period in 2009. The decrease is primarily attributable to a $7.2 million reduction in bad debt expense. Additionally,
prior to the Petition Date, all expenses related to restructuring activities were classified as selling, general and administrative expenses. During the Chapter 11 Cases, such expenses have
been classified as reorganization items. Accordingly, the nine months ended September 30, 2009 included $7.3 million in restructuring expenses as compared to zero in same period of 2010.

Depreciation and amortization.Depreciation and amortization expense increased $9.9 million to $214.6 million during the nine
months
ended September 30, 2010 compared to the same period in 2009, due primarily to higher gross plant asset balances, including capitalized software placed into service upon termination of the
Transition Services Agreement.

Other Results

Interest expense.Interest expense decreased $59.5 million to $105.7 million during the nine months ended September 30,
2010
compared to the same period in 2009. Upon the filing of the Chapter 11 Cases, in accordance with the Reorganizations Topic of the ASC, we ceased the accrual of interest expense on the Notes and
the Swaps in accordance with the Reorganizations Topic of the ASC as it is unlikely that such interest expense will be paid or will become an allowed priority secured or unsecured claim. We have
continued to accrue interest expense on the Pre-petition Credit Facility, as such interest is considered an allowed claim pursuant to the Plan.

Gain on derivative instruments.Gain on derivative instruments represents net gains and losses recognized on the change in fair market
value of
interest rate swap derivatives. During the nine months ended September 30, 2009, we recognized non-cash gains of $8.6 million related to our derivative financial instruments.
In connection with the filing of the Chapter 11 Cases, the Swaps were terminated by the counterparties and have been recorded on the consolidated balance sheet at the termination values
provided by the counterparties. Accordingly, we recognized no gain or loss on derivative instruments during the nine months ended September 30, 2010.

Gain on early retirement of debt.Gain on early retirement of debt represents a $13.2 million net gain recognized on the
repurchase of
$19.9 million aggregate principal amount of the Old Notes during the nine months ended September 30, 2009, partially offset by a loss of $0.8 million attributable to writing off a
portion of the unamortized debt issue costs associated with our Pre-petition Credit

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Facility.
We did not retire any debt during the nine months ended September 30, 2010 and thus did not recognize any gain or loss on early retirement of debt during such period.

Other income (expense).Other income (expense) includes non-operating gains and losses such as those incurred on sale or disposal of
equipment. Other expense was ($0.9) million during the nine months ended September 30, 2010, compared with other income of $6.4 million during the nine months ended September 30,
2009. We recognized a one-time gain of $5.4 million during the nine months ended September 30, 2009 related to the settlement under a transition agreement (the "Transition
Agreement") we entered into with Verizon on January 30, 2009, in connection with the Cutover, as contemplated by the Transition Services Agreement.

Reorganization items.Reorganization items represent expense or income amounts that have been recognized as a direct result of the
Chapter 11
Cases. For more information, see note 2 to the Condensed Consolidated Financial Statements.

Income taxes.The effective income tax rate is the provision for income taxes stated as a percentage of income before the provision for
income taxes. The effective income tax rate for the nine months ended September 30, 2010 and 2009 was 7.3% benefit and 35.8% benefit, respectively. The effective tax rate for the nine months
ended September 30, 2010 was impacted by a one-time, non-cash income tax charge of $6.8 million, as a result of the enactment of the Health Care Act. The decrease
in our income tax benefit was also impacted by non-deductible restructuring charges and post-petition interest.

Net loss.Net loss for the nine months ended September 30, 2010 was $178.2 million compared to net loss of
$125.7 million for
the same period in 2009. The difference in net loss between 2010 and 2009 is a result of the factors discussed above.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies

Our critical accounting policies are as follows:



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 the month the service is provided. Revenue from other services that are not fixed fee or that exceed
contracted amounts is recognized when those services are provided. Non-recurring customer activation fees, along with the related costs up to, but not exceeding, the activation fees, are
deferred and amortized over the customer relationship period. We make estimated adjustments, as necessary, to revenue or accounts receivable for known billing errors. At

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September 30,
2010 and December 31, 2009, we recorded revenue reserves of $10.6 million and $22.6 million, respectively. The decrease in revenue reserves during the nine
months ended September 30, 2010 is primarily the result of credits that have been issued to customers.

Allowance for Doubtful Accounts.In evaluating the collectability of our accounts receivable, we assess a number of factors,
including a specific
customer's or carrier's ability to meet its financial obligations to us, the length of time the receivable has been past due and historical collection experience. Based on these assessments, we record
both specific and general reserves for uncollectible accounts receivable to reduce the related accounts receivable to the amount we ultimately expect to collect from customers and carriers. If
circumstances change or economic conditions worsen such that our past collection experience is no longer relevant, our estimate of the recoverability of our accounts receivable could be further
reduced from the levels reflected in our accompanying condensed consolidated balance sheet.

Accounting for Pension and Other Post-retirement Benefits.Some of our employees participate in our pension plans and other
post-retirement benefit plans. In the aggregate, the pension plan benefit obligations exceed the fair value of pension plan assets, resulting in expense. Other post-retirement
benefit plans have larger benefit obligations than plan
assets, resulting in expense. 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 Income Taxes.Our current and deferred income taxes are affected by events and transactions arising in the normal
course of business,
as well as in connection with the adoption of new accounting standards and non-recurring items. Assessment of the appropriate amount and classification of income taxes is dependent on
several factors, including estimates of the timing and realization of deferred income tax assets and the timing of income tax payments. Actual payments may differ from these estimates as a result of
changes in tax laws, as well as unanticipated future transactions affecting related income tax balances. We account for tax benefits taken or expected to be taken in our tax returns in accordance with
the Income Taxes Topic of the ASC, which requires the use of a two step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding
uncertainties in income tax positions.

Depreciation of Property, Plant and Equipment.We recognize depreciation on property, plant and equipment principally on the
composite group
remaining life method and straight-line composite rates over estimated useful lives ranging from three to 50 years. This method provides for the recognition of the cost of the
remaining net investment in telephone plant, less anticipated net salvage value (if any), over the remaining asset lives. This method requires the periodic revision of depreciation rates. Changes in
the estimated useful lives of property, plant and equipment or depreciation methods could have a material effect on our results of operations.

Valuation of Long-lived Assets, Including Goodwill.We review our long-lived assets, including goodwill, for impairment
whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In addition, we review goodwill and non-amortizable intangible assets for impairment on
an annual basis. Several factors could trigger an impairment review such as:



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Goodwill
was $595.1 million at September 30, 2010. We have recorded intangible assets related to the acquired companies' customer relationships and trade names of
$251.3 million as of September 30, 2010. As of September 30, 2010, there was $56.4 million of accumulated amortization recorded. The customer relationships are being
amortized over a weighted average life of approximately 9.7 years. The trade name has an indefinite life and is, therefore, not amortized. The intangible assets are included in intangible
assets on our condensed consolidated balance sheet.

We
are required to perform an impairment review of goodwill and non-amortizable intangible assets as required by the Intangibles-Goodwill and Other Topic of the ASC annually
or when impairment indicators are noted. Goodwill impairment is determined using a two-step process. Step one compares the estimated fair value of our single wireline reporting unit
(calculated using the market approach and the income approach) to its carrying amount, including goodwill. The market approach compares our fair value, as measured by our market capitalization, to our
carrying amount, which represents our stockholders' equity balance. As of September 30, 2010, stockholders' deficit totaled $391.3 million. The income approach compares our fair value,
as measured by discounted expected future cash flows, to our carrying amount. If our carrying amount exceeds our estimated fair value, there is a potential impairment and step two must be performed.

Step
two compares the implied fair value of our goodwill (i.e., our fair value less the fair value of our assets and liabilities, including identifiable intangible assets) to our
goodwill carrying amount. If the carrying amount of our goodwill exceeds the implied fair value of our goodwill, the excess is required to be recorded as an impairment.

We
performed step one of our annual goodwill impairment assessment as of October 1, 2009 and concluded that there was no indication of impairment at that time. In light of the
Chapter 11 Cases, we performed an interim goodwill impairment assessment as of December 31, 2009 and determined that goodwill was not impaired.

Our
only non-amortizable intangible asset is the trade name of Legacy FairPoint acquired in the Merger. Consistent with the valuation methodology used to value the trade name
at the Merger, we assess the fair value of the trade name based on the relief from royalty method. If the carrying amount of our trade name exceeds its estimated fair value, the asset is considered
impaired. We performed our annual non-amortizable intangible asset impairment assessment as of October 1, 2009 and concluded that there was no indication of impairment at that time.
In light of the Chapter 11 Cases, we performed an interim non-amortizable intangible asset impairment assessment as of December 31, 2009 and determined that our trade name
was not impaired.

For
our non-amortizable intangible asset impairment assessments at October 1, and December 31, 2009, we made certain assumptions including an estimated royalty
rate, an effective tax rate and a discount rate, and applied these assumptions to projected future cash flows of our consolidated FairPoint Communications, Inc. business, exclusive of cash
flows associated with wholesale revenues as these revenues are not generated through brand recognition. Changes in one or more of these assumptions may have resulted in the recognition of an
impairment loss.

We
determined as of December 31, 2009 that a possible impairment of long-lived assets was indicated by the filing of the Chapter 11 Cases as well as a
significant decline in the fair value of our common stock. In accordance with the Property, Plant, and Equipment Topic of the ASC, we performed a recoverability test, based on undiscounted projected
future cash flows associated with our long-lived assets, and determined that long-lived assets were not impaired at that time.

While
no impairment charges resulted from the analyses performed at October 1, and December 31, 2009, asset values may be adjusted in the future due to the outcome of the
Chapter 11 Cases or the application of "fresh start" accounting upon the Company's emergence from Chapter 11.

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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 Other Topic of the ASC. Capitalized costs include direct development costs associated with internal use software, including direct labor costs and external
costs of materials and services. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.

Purchase Accounting.Prior to the adoption of the ASC we recognized the acquisition of companies in accordance with
SFAS 141. The cost of an
acquisition is allocated to the assets acquired and liabilities assumed based on their fair values as of the close of the acquisition, with amounts exceeding the fair value being recorded as goodwill.
All future business combinations will be recognized in accordance with the Business Combinations Topic of the ASC.

New Accounting Standards

On January 1, 2010, we adopted the accounting standard update regarding fair value measurements and disclosures, which requires
additional disclosures regarding assets and liabilities measured at fair value. The adoption of this accounting standard update had no impact on our consolidated results of operations and financial
position.

On
June 15, 2009, we adopted the accounting standard relating to subsequent events. This standard establishes principles and requirements for identifying, recognizing and
disclosing subsequent events. This standard requires that an entity identify the type of subsequent event as either recognized or unrecognized, and disclose the date through which the entity has
evaluated subsequent events. This standard was revised by FASB Accounting Standard Update 2010-09, effective June 15, 2010, to remove the requirement to disclose the date through
which subsequent events have been evaluated. This standard is effective for interim or annual financial periods ending after June 15, 2009. The adoption of this standard had no impact on the
Company's consolidated results of operations and financial position.

Inflation

We do not believe inflation has a significant effect on our operations.

Liquidity and Capital Resources

On October 26, 2009, we filed the Chapter 11 Cases. The matters described herein, to the extent that they relate to
future events or expectations, may be significantly affected by the Chapter 11 Cases. The Chapter 11 Cases involve various restrictions on our activities, limitations on
financing, the need to obtain Bankruptcy Court approval for various matters and uncertainty as to relationships with others with whom we may conduct or seek to conduct business. As a result of the
risks and uncertainties associated with the Chapter 11 Cases, the value of our securities and how our liabilities will ultimately be treated is highly speculative. We urge that appropriate
caution be exercised with respect to existing and future investments in any of the liabilities and/or securities of the Company. See note 1 to the Condensed Consolidated Financial Statements
for a further description of the Chapter 11 Cases, the impact of the Chapter 11 Cases, the proceedings in Bankruptcy Court and our status as a going concern. In addition, see
"Part IItem 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2009 and
"Part IIItem 1A. Risk Factors" contained in our Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 2010 and March 31,
2010 and in this Quarterly Report.

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 on our liquidity, including the stay of
payments on our indebtedness, our current and future

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liquidity
is greatly dependent upon our operating results. We expect that our primary sources of liquidity during the pendency of the Chapter 11 Cases will be cash flow from operations, cash on
hand and funds available under the DIP Credit Agreement. We expect that after the Effective Date, our short term and long term liquidity needs will continue to 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. We
expect that our 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.

The
Chapter 11 Cases were filed to gain liquidity for our continuing operations while we restructure our balance sheet to allow us to be a viable going concern. Our continuation
as a going concern is contingent upon, among other things, our ability: (i) to comply with the DIP Credit Agreement; (ii) to obtain the necessary approvals of the Plan from the PUCs and
the FCC; (iii) to obtain Bankruptcy Court approval of the Plan and to consummate the Plan; (iv) to generate sufficient cash flow from operations; and (v) to obtain financing
sources to meet our future obligations. We believe the consummation of a successful restructuring under the Bankruptcy Code is critical to our continued viability and long-term liquidity.
While we believe we will be able to achieve these objectives through the Chapter 11 reorganization process, there can be no certainty that we will be successful in doing so.

In
connection with the Chapter 11 Cases, the DIP Borrowers entered into the DIP Credit Agreement. The DIP Credit Agreement provides for a revolving facility in an aggregate
principal amount of up to $75 million, of which up to $30 million is also available in the form of one or more letters of credit that may be issued to third parties for the account of
the Company and its subsidiaries. Pursuant to the Interim Order, the DIP Borrowers were authorized to enter into and immediately draw upon the DIP Credit Agreement on an interim basis, pending a final
hearing before the Bankruptcy Court on
November 18, 2009, in an aggregate amount of $20 million. On March 11, 2010 the Bankruptcy Court entered a final order in connection with the DIP Credit Agreement, permitting the
DIP Borrowers access to the total $75 million of the DIP Financing, subject to the terms and conditions of the DIP Credit Agreement and related orders of the Bankruptcy Court. For a further
description of the DIP Credit Agreement and the terms thereof, see note 1 to the Condensed Consolidated Financial Statements. Upon satisfaction of certain conditions precedent, including the
Company successfully exiting from the Chapter 11 Cases, the DIP Financing will roll into a new revolving credit facility with a five-year term. As of September 30, 2010, the
Company had not borrowed any amounts under the DIP Credit Agreement and letters of credit totaling $18.6 million had been issued and were outstanding under the DIP Credit Agreement.

Cash
and cash equivalents at September 30, 2010 totaled $99.7 million compared to $109.4 million at December 31, 2009, excluding restricted cash of
$4.1 million and $4.0 million, respectively.

Net
cash provided by operating activities was $159.5 million and $54.1 million for the nine months ended September 30, 2010 and 2009, respectively. The significant
increase in net cash provided by operating activities is primarily attributable to the non-payment of interest and other pre-petition liabilities subject to compromise during
the pendency of the Chapter 11 Cases.

Net
cash used in investing activities was $171.9 million and $128.9 million for the nine months ended September 30, 2010 and 2009, respectively. These cash flows
primarily reflect capital expenditures of $172.4 million and $130.1 million for the nine months ended September 30, 2010 and 2009, respectively.

Net
cash provided by financing activities was $2.7 million and $68.0 million for the nine months ended September 30, 2010 and 2009, respectively. For the nine months
ended September 30, 2010, we drew down $5.5 million on letters of credit under the Pre-petition Credit Facility and incurred $1.1 million of loan origination costs on
the DIP Credit Agreement. For the nine months ended

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September 30,
2009, net proceeds from FairPoint's issuance of long-term debt were $50.0 million, repayment of long-term debt was $20.8 million and
dividends paid to stockholders was $23.0 million.

We
applied for stimulus funding under the American Recovery and Reinvestment Act of 2009 (the "Recovery Act"), which, among other programs, provides funding for broadband development in
unserved and underserved areas of the United States. We were not granted any such funding. There have recently been several grants of stimulus funding under the Recovery Act in our Northern New
England and other service areas. Any networks built with these funds in such areas will at some point provide competition for our products and services.

We
expect our capital expenditures will be approximately $190 million to $210 million in 2010. However, this expectation does not take into account the effect that the
filing of the Chapter 11 Cases will have on the capital expenditure requirements imposed by the PUCs in Maine and New Hampshire and by the Vermont Board as a condition to the approval of the
Merger and whether such requirements will be enforceable against us in the future if the Plan is not consummated. We anticipate that we will fund these expenditures through cash flows from operations,
cash on hand and funds available under the DIP Credit Agreement and, after the Effective Date, the Exit Facility.

We
expect our cash contributions to our Company sponsored employee pension plans and post-retirement medical plans will be approximately $1.9 million in 2010.

Our Pre-petition Credit Facility

Our $2,030 million Pre-petition Credit Facility consists of the Revolving Credit Facility, the Term Loan and the
Delayed Draw Term Loan. Spinco drew $1,160 million under the Term Loan immediately prior to being spun off by Verizon, and then FairPoint drew $470 million under the Term Loan and
$5.5 million under the Delayed Draw Term Loan concurrently with the closing of the Merger.

Subsequent
to the Merger, we borrowed the remaining $194.5 million available under the Delayed Draw Term Loan. These funds were used for certain capital expenditures and other
expenses associated with the Merger.

On
October 5, 2008, the administrative agent under our Pre-petition Credit Facility filed for bankruptcy. The administrative agent accounted for thirty percent of the
loan commitments under the Revolving Credit Facility. On January 21, 2009, we entered into the Pre-petition Credit Facility Amendment under which, among other things, the
administrative agent resigned and was replaced by a new Pre-petition Administrative Agent. In addition, the resigning administrative agent's undrawn commitments under the Revolving Credit
Facility, totaling $30.0 million, were terminated and are no longer available to us.

The
Revolving Credit Facility has a swingline sub-facility in the amount of $10.0 million and a letter of credit sub-facility in the amount of
$30.0 million, which allows for issuances of standby letters of credit for our account. Our Pre-petition Credit Facility also permits interest rate and currency exchange swaps and
similar arrangements that we may enter into with the lenders under our Pre-petition Credit Facility and/or their affiliates.

As
of September 30, 2010, we had borrowed $155.5 million under the Revolving Credit Facility, including $5.5 million of funds drawn down under letters of credit
during the nine months ended September 30, 2010, and there were no outstanding letters of credit. Upon the event of default under the Pre-petition Credit Facility relating to the
Chapter 11 Cases described herein, the commitments under the Revolving Credit Facility were automatically terminated. Accordingly, as of September 30, 2010, no funds remained available
under the Revolving Credit Facility.

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The Term Loan B Facility and the Delayed Draw Term Loan will mature in March 2015 and the Revolving Credit Facility and the Term Loan A Facility will mature in
March 2014. Each of the Term Loan A Facility, the Term Loan B Facility and the Delayed Draw Term Loan are repayable in quarterly installments in the manner set forth in our Pre-petition
Credit Facility.

Borrowings
under our Pre-petition Credit Facility bear interest at variable interest rates. Interest rates for borrowings under our Pre-petition Credit Facility
are, at our option, for the Revolving Credit Facility and for the Term Loans at either (i) the Eurodollar rate, as defined in the Pre-petition Credit Facility, plus an applicable
margin or (ii) the base rate, as defined in the Pre-petition Credit Facility, plus an applicable margin.

Our
Pre-petition Credit Facility contains customary affirmative covenants and also contains negative covenants and restrictions, including, among others, with respect to the
redemption or repurchase of our other indebtedness, loans and investments, additional indebtedness, liens, capital expenditures, changes in the nature of our business, mergers, acquisitions, asset
sales and transactions with affiliates.

Scheduled
amortization payments on our 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,
we do not expect to make any additional principal or interest payments on our pre-petition debt.

Following
the filing of the Chapter 11 Cases, we have made no payments on our pre-petition debt. During the three months and nine months ended September 30,
2009, we repaid $2.2 million and $8.4 million, respectively, of principal under the Term Loan A Facility, and during the nine months ended September 30, 2009, we repaid
$6.1 million of principal 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 five days of the due date constituted events of default under our Pre-petition
Credit Facility. An event of default under our Pre-petition Credit Facility permits the lenders under our Pre-petition Credit Facility to accelerate the maturity of the loans
outstanding thereunder, seek foreclosure upon any collateral securing such loans and terminate any remaining commitments to lend to us. The occurrence of an event of default under the
Pre-petition Credit Facility constituted an event of default under the Swaps. In addition, we failed to make payments 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.

In
addition, as a result of the Restatement, we determined that we were not in compliance with the interest coverage ratio maintenance covenant and the leverage ratio maintenance
covenant under our Pre-petition Credit Facility for the measurement period ended June 30, 2009, which constituted an event of default under each of the Pre-petition
Credit Facility and the Swaps, and may have constituted an event of default under the Notes, in each case at June 30, 2009.

Our Pre-petition Notes

Spinco issued, and we 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 our option prior to April 1, 2013. Interest is payable on the Old Notes semi-annually, in cash, on April 1 and
October 1. The Old Notes bear interest at a fixed rate of 131/8% and principal is due at maturity. The Old Notes were issued at a discount and, accordingly, at the date of their
distribution, the Old Notes had a carrying value of $539.8 million (principal amount at maturity of $551.0 million less discount of $11.2 million). Following the filing of the
Chapter 11 Cases, the remaining $9.9 million of discount on the Notes was written off in order to adjust the carrying amount of our pre-petition debt to the Bankruptcy Court
approved amount of the allowed claims for our pre-petition debt.

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Upon
the consummation of the Exchange Offer and the corresponding consent solicitation, substantially all of the restrictive covenants in the indenture governing the Old Notes were
deleted or eliminated and certain of the events of default and various other provisions contained therein were modified.

Pursuant
to the Exchange Offer, on July 29, 2009, we exchanged $439.6 million in aggregate principal amount of the Old Notes (which amount was equal to approximately 83% of
the then outstanding Old Notes) for $458.5 million in aggregate principal amount of the New Notes (which amount includes New Notes issued to tendering noteholders as payment for accrued and
unpaid interest on the exchanged Old Notes up to, but not including, the Settlement Date). The New Notes mature on April 2, 2018 and bear interest at a fixed rate of 131/8%,
payable in cash, except that the New Notes bore interest at a rate of 15% for the period from July 29, 2009 through and including September 30, 2009. In addition, we were permitted to
pay the 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 and the corresponding consent solicitation, we also paid a cash consent fee of $1.6 million in the aggregate to holders of Old Notes who
validly delivered and did not revoke consents in the consent solicitation prior to a specified early consent deadline.

The
New Indenture limits, among other things, our ability to incur additional indebtedness, issue certain preferred stock, repurchase our capital stock or subordinated debt, make certain
investments, create certain liens, sell certain assets or merge or consolidate with or into other companies, incur restrictions on the ability of our subsidiaries to make distributions or transfer
assets to us and enter into transactions with affiliates.

The
New Indenture also restricts our ability to pay dividends on or repurchase our common stock under certain circumstances.

Following
the filing of the Chapter 11 Cases, we have made no payments on our pre-petition debt. During the nine months ended September 30, 2009, we repurchased
$19.9 million in aggregate principal amount of the Old Notes for an aggregate purchase price of $6.3 million in cash. In total, including amounts repaid under the Term Loan A Facility
and Term Loan B Facility, we retired $2.2 million and $34.5 million of outstanding debt during the three months and nine months ended September 30, 2009, respectively.

Prior
to the filing of the Chapter 11 Cases, we 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 the Notes upon the expiration of a thirty day grace period. An event of default under the Notes permits the holders of the Notes to accelerate the maturity of the
Notes. In addition, the filing of the Chapter 11 Cases constituted an event of default under the New Notes. See note 1 to the Condensed Consolidated Financial Statements.

In
addition, as a result of the Restatement, we determined that we were not in compliance with the interest coverage ratio maintenance covenant and the leverage ratio maintenance
covenant under our Pre-petition Credit Facility for the measurement period ended June 30, 2009, which constituted an event of default under each of the Pre-petition
Credit Facility and the Swaps, and may have constituted an event of default under the Notes, in each case at June 30, 2009.

Other Pre-petition Agreements

As a condition to the approval of the Merger and related transactions by state regulatory authorities, we agreed to make capital
expenditures following the completion of the Merger. Pursuant to the Maine Merger Order, we agreed that, following the closing of the Merger, we will make capital

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expenditures
in Maine during the first three years after the closing of $48 million in the first year and an average of $48 million in the first two years and an average of
$47 million in the first three years. We are also required to expend over a five year period not less than $40 million on equipment and infrastructure to 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
Vermont Merger Order also requires us to make capital expenditures in Vermont during the first three years after the closing of the Merger in the amount of $41 million for the
first year and averaging $40 million per year in the first two years and averaging $40 million per year in the first three years following the closing. Pursuant to the Vermont Merger
Order, we are required to remove double poles in Vermont, make service quality improvements and address certain broadband build-out commitments under a performance enhancement plan in
Vermont, using, in the case of double pole removal, $6.7 million provided by the Verizon Group and, in the case of service quality improvements under the performance enhancement plan,
$25 million provided by the Verizon Group. In Vermont we have also agreed to certain broadband build-out milestones that require us to reach 100% broadband availability in 50% of
our 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 as set forth above.

Pursuant
to the New Hampshire Merger Order, we are also required to make capital expenditures in New Hampshire of at least $52 million during each of the first three years after
the closing of the Merger and $49 million during each of the fourth and fifth years after the closing of the Merger. The amount of any shortfall in any year must be expended in the following
year, and the amount of any excess in any year may be deducted from the amount required to be expended in the following year. If any shortfall in any year exceeds $3 million, then the amount
that we are required to spend in the following year shall be increased by 150% of the amount of such shortfall. If there is any shortfall at the end of the fifth year after the closing of the Merger,
we will be required to spend 150% of the amount of such shortfall at the direction of the NHPUC. The NHPUC may require that a portion of these increased capital expenditures be directed toward state
programs rather than invested in our assets. We are required to spend at least $56.4 million over the 60-month period following the closing of the Merger on broadband infrastructure
in New Hampshire, which is expected to result in capital expenditures in New Hampshire in excess of the minimum capital expenditure requirements described above.

We
also had the availability of $49.2 million contributed to us by the Verizon Group, and $1.1 million in interest earned thereon, to make capital and operating
expenditures in New Hampshire in addition to those described above for unexpected infrastructure improvements proposed by us and approved by the NHPUC. These funds were reflected on the Company's
March 31, 2009 balance sheet as restricted cash to be used only in accordance with a January 23, 2008 settlement agreement among Verizon, us and the staff of the NHPUC. During the three
months ended June 30, 2009, we requested that these funds be made available for general working capital purposes. By letter, dated as of May 12, 2009, the NHPUC approved our request,
conditioned upon our commitment to invest funds on certain NHPUC approved network improvements in New Hampshire on the following schedule: $15 million by the end of 2010, an additional
$20 million by the end of 2011 and an additional $30 million by the end of 2012. The NH Investment Commitment is inclusive of the $50 million previously required by the NHPUC.

Additionally,
the Merger Orders 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, capital expenditures, dividends and other routine cash expenditures have occurred) annually to reduce the principal amount of our indebtedness, until certain
financial ratio tests have been satisfied.

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We
expect that the Merger Orders will be amended by the Regulatory Settlements. For more information regarding the Regulatory Settlements, see "Part IItem 1.
BusinessRegulatory EnvironmentState RegulationRegulatory Conditions to the Merger, as Modified in Connection with the Plan" contained in our Annual Report on
Form 10-K for the year ended December 31, 2009. In addition, for information regarding the impact of the Regulatory Settlements on the Merger
Restricted Cash and certain SQI penalties, see notes 3(e) and 14(c), respectively, to the Condensed Consolidated Financial Statements.

The
MPUC and NHPUC have approved the Regulatory Settlements for Maine and New Hampshire. However, the Vermont Board has rejected the Regulatory Settlement for Vermont. As described in
note 1 to the Condensed Consolidated Financial Statements, on October 20, 2010 we provided supplemental information to the Vermont Board. If we are unable to obtain the Vermont Board's
approval of the Regulatory Settlement for Vermont, it is unclear what effect the filing of the Chapter 11 Cases will have on the requirements, including SQI penalties, imposed by the Vermont
Merger Order and whether the requirements of the Vermont Merger Order would be enforceable against us in the future.

On
January 30, 2009, we entered into the Transition Agreement with Verizon. The Transition Services Agreement and related agreements had required us to make payments totaling
approximately $45.4 million to Verizon in the first quarter of 2009, including a one-time fee of $34.0 million due at Cutover, with the balance related to the purchase of
certain internet access hardware. The settlement set forth in the Transition Agreement resulted in a $22.7 million improvement in our cash flow for the nine months ended September 30,
2009.

Summary of Contractual Obligations

The tables set forth below contain information with regard to disclosures about contractual obligations and commercial commitments.

The
following table discloses aggregate information about our contractual obligations as of September 30, 2010 and the periods in which payments are due:

Payments due by periodTotal

Less than
1 year

1-3
years

3-5
years

More than
5 years(Dollars in thousands)Contractual obligations:Long-term debt, including current maturities(a)

$
2,520,959

$
54,150

$
276,600

$
1,640,213

$
549,996Interest payments on long-term debt obligations(b)(c)


548,380


135,510


257,299


155,571


Capital lease obligations


7,733


2,305


3,405


2,023


Operating leases


40,068


10,145


16,875


8,794


4,254Total obligations

$
3,117,140

$
202,110

$
554,179

$
1,806,601

$
554,250


(a)Includes
$550.0 million of the Notes. Long-term debt maturities represent the normal contractual payment schedule. All payments have been
stayed by the filing of the Chapter 11 Cases. All obligations under the Pre-petition Credit Facility, the Notes and the Swaps have been classified as liabilities subject to
compromise in the Condensed Consolidated Financial Statements. See note 8 to the Condensed Consolidated Financial Statements for more information.


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(b)Excludes
amortization of estimated capitalized debt issuance costs.(c)Interest
payments on long-term debt represent the normal contractual interest payment schedule, based on default rates as defined in the
Pre-petition Credit Facility. All payments have been stayed by the filing of the Chapter 11 Cases.


The
following table discloses aggregate information about our derivative financial instruments as of September 30, 2010, the source of carrying value of these instruments and
their maturities.

Carrying Value of Contracts at Period EndTotal

Less than
1 year

1-3 years

3-5 years

More than
5 years(Dollars in thousands)Source of fair value:Derivative financial instruments(1)(2)

$
(98,833
)

(98,833
)










(1)In
connection with the filing of the Chapter 11 Cases, the derivative financial instruments were terminated by the counterparties. Accordingly, the
carrying value of the Swaps at September 30, 2010 represents the termination value of the Swaps as determined by the respective counterparties following the event of default described herein.
See note 7 to the Condensed Consolidated Financial Statements for more information.(2)The
Swaps have been classified as liabilities subject to compromise in the Condensed Consolidated Financial Statements. See note 7 to the Condensed
Consolidated Financial Statements for more information.


Item 3.    Quantitative and Qualitative Disclosures about Market Risk.

As of September 30, 2010, we had total debt of $2,521.0 million, consisting of both fixed rate and variable rate debt
with interest rates ranging from 6.750% to 13.125% per annum, including applicable margins. As of September 30, 2010, the fair value of our debt was approximately $1,365.0 million. Our
Term Loan A Facility and Revolving Credit Facility mature in 2014, our Term Loan B Facility and Delayed Draw Term Loan mature in 2015 and the Notes mature in 2018.

We
use variable and fixed rate debt to finance our operations, capital expenditures and acquisitions. The variable rate debt obligations expose us to variability in interest payments due
to changes in interest rates. We believe it is prudent to limit the variability of a portion of our interest payments. To meet this objective, from time to time, we entered into interest rate swap
agreements to manage fluctuations in cash flows resulting from interest rate risk. These Swaps effectively changed the variable rate on the debt obligations to a fixed rate. Under the terms of the
Swaps, we made a payment if the variable rate was below the fixed rate, or we received 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 by the respective counterparties thereto.

We
do not hold or issue derivative financial instruments for trading or speculative purposes.

We
are also exposed to market risk from changes in the fair value of our pension plan assets. For the three months and nine months ended September 30, 2010, the actual gain on the
pension plan assets has been approximately 6.5% and 6.0%, respectively. Net periodic benefit cost for 2010 assumes a weighted average annualized expected return on plan assets of approximately 8.3%.
Should our actual return on plan assets continue to be significantly lower than our expected return assumption, our net

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periodic
benefit cost will increase in future periods and we may be required to contribute additional funds to our pension plans after 2010.

Item 4.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, we carried out an evaluation under the supervision and with the
participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our "disclosure controls and procedures" (as defined in
Rule 13a-15(e) of the Exchange Act). Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be
disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the
SEC.

Based
upon this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective due to the
following material weaknesses which were identified in our Annual Report on Form 10-K for the year ended December 31, 2009 and which remain in existence as of the date of
this report:



As
of February of 2010, our management believes that it has corrected the primary issues that led to the Restatement. Specifically, we have:



In
addition, we have:



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Furthermore,
the following actions are underway:



However,
certain of the issues that led to the identified material weaknesses remain open at this time. We believe these measures and other planned process improvements will adequately
remediate the material weaknesses described above and will strengthen our internal controls over financial reporting. We are committed to continuing to improve our internal control processes and will
continue to review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may identify additional measures to
address these material weaknesses or determine to modify certain of the remediation procedures described above. Our management, with the oversight of the audit committee of our board of directors,
will continue to assess and take steps to enhance the overall design and capability of our control environment in the future.

Changes in Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our principal
executive officer and principal financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with GAAP.

As
indicated above, we continue to significantly expand our internal control over financial reporting in order to encompass the new internal control structure associated with our
Northern New England operations and remediate the identified control deficiencies. Accordingly, we continue to develop a significant number of new processes, systems and related controls governing
various aspects of our financial reporting process, particularly relating to our Northern New England operations and the consolidation of our Northern New England operations with Legacy FairPoint's
operations. The processes we have developed 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 foregoing, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2010 that have materially
affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART IIOTHER INFORMATION

Item 1.    Legal Proceedings.

From time to time, we are involved in litigation and regulatory proceedings arising out of our operations. With the exception of the
Chapter 11 Cases, management believes that we are not currently a party to any legal or regulatory proceedings, the adverse outcome of which, individually or in the aggregate, would have a
material adverse effect on our financial position or results of operations. To the extent that we are currently involved in any litigation and/or regulatory proceedings, such proceedings have been
stayed as a result of the filing of the Chapter 11 Cases. For a discussion of the Chapter 11 Cases, see note 1 to the Condensed Consolidated Financial Statements.

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 states may result in
penalties being assessed by the appropriate state regulatory body. As of September 30, 2010, we have recognized an estimated liability of $34.4 million for SQI penalties based on metrics
defined by PUCs in Maine and New Hampshire and by the Vermont Board. However, during February 2010, we reached agreements with the state regulatory authorities in each of Maine, New Hampshire and
Vermont, which, among other things, related to the payment of SQI penalties. Term sheets executed with the state regulatory authorities of New Hampshire and Vermont defer fiscal 2008 and 2009 SQI
penalties until December 31, 2010 and include a clause whereby such penalties may be forgiven in part or in whole if we meet certain metrics for the twelve-month period ending
December 31, 2010. In addition, the term sheet executed with the state regulatory authority in Maine deferred our fiscal 2008 and 2009 SQI penalties until March 2010. The MPUC and NHPUC have
approved the Regulatory Settlements for Maine and New Hampshire. However, the Vermont Board has rejected the Regulatory Settlement for Vermont. As described in note 1 to the Condensed
Consolidated Financial Statements, on October 20, 2010 we provided supplemental information to the Vermont Board. If we are unable to obtain the Vermont Board's approval of the Regulatory
Settlement for Vermont, it is unclear what effect the filing of the Chapter 11 Cases will have on the requirements, including SQI penalties, imposed by the Vermont Merger Order and whether the
requirements of the Vermont Merger Order would be enforceable against us in the future.

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Item 1A.    Risk Factors.

The
risk factors presented below amend and restate the corresponding risk factors previously disclosed in "Part IItem 1A. Risk Factors" of our Annual Report on
Form 10-K for the year ended December 31, 2009, as supplemented by "Part IIItem 1A. Risk Factors" of our Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 2010 and June 30, 2010.

We may not be able to obtain confirmation of the Plan.

Even though the requisite majorities of impaired creditors have voted to accept the Plan, it is possible that the Bankruptcy Court will
not confirm the Plan or that other conditions to the confirmation of the Plan, including, without limitation, obtaining the requisite approval from the Vermont Board, will not be met.

Pursuant
to the Plan Support Agreement, we committed to the achievement of certain milestones, including obtaining an order by the Bankruptcy Court confirming a Chapter 11 plan of
reorganization reflecting the proposed financial restructuring described in the Plan Term Sheet on or before 5:00 P.M. Eastern Time on July 8, 2010. We did not obtain such an order
before this deadline and accordingly the Plan Support Agreement, by its terms, expired on July 8, 2010 and was not renewed or extended. However, pursuant to the Letter Agreement the Company and
the New Consenting Lenders entered into on October 13, 2010, the New Consenting Lenders have agreed, subject to the terms and conditions contained in the Letter Agreement, to support the Plan
and any supplemental documents, all as modified by and incorporating terms consistent with, the terms contained in the Term Sheet.

In
addition, the Plan was filed and accepted within the period in which we hold the exclusive right to file and seek confirmation of a plan of reorganization. Accordingly, no party in
interest may file or solicit acceptances of a competing plan at this time. We also had the exclusive right to file a new plan until October 22, 2010 and have filed a motion with the
Bankruptcy Court to extend the Exclusivity Period Expiration Date to a later date in light of the fact that the Bankruptcy Court did not confirm the Plan prior to the Exclusivity Period Expiration
Date. However, we cannot make any assurances as to whether the Bankruptcy Court will grant our motion to extend the Exclusivity Period Expiration Date, or, if the Exclusivity Period Expiration Date is
extended, whether we will be able to obtain confirmation of the Plan prior to the ultimate expiration of the Exclusivity Period Expiration Date. If we do not have the exclusive right to file and seek
confirmation of a plan of reorganization, any party in interest would be able to file or support a competing plan of reorganization.

If
the Plan is not confirmed by the Bankruptcy Court and certain other conditions precedent to the Plan are not met and/or waived, it is unclear whether we would be able to reorganize
our business and what, if anything, holders of claims against us would ultimately receive with respect to their claims.

The DIP Credit Agreement contains restrictions that could significantly restrict our ability to operate our business.

The DIP Credit Agreement contains a number of covenants which, among other things, limit the incurrence of additional debt, capitalized
leases, issuance of capital stock, issuance of guarantees, liens, investments, disposition of assets, dividends, certain payments, mergers, change of business, transactions with affiliates,
prepayments of debt, repurchases of stock and redemptions of certain other indebtedness and other matters customarily restricted in such agreements. Our ability to comply with the covenants,
agreements and restrictions contained in the DIP Credit Agreement may be affected by events beyond our control, including prevailing economic, financial and industry conditions. There can be no
assurance that we will be able to comply with such covenants, agreements or restrictions in the future. Additionally, breach of any of the covenants imposed on us by the terms of the DIP Credit
Agreement could result in a default under the DIP Credit Agreement. In the event of a default, the

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DIP
Lenders could terminate their commitments to us and could accelerate the repayment of all of our indebtedness under the DIP Credit Agreement, if any. In such case, we may not have sufficient funds
to pay the total amount of accelerated obligations, if any, and our DIP Lenders under the DIP Credit Agreement could proceed against the collateral securing the DIP Credit Agreement. Any acceleration
in the repayment of our outstanding indebtedness, if any, or related foreclosure could adversely affect our business.

We are subject to competition that may adversely impact our business, financial condition, results of operations and liquidity.

We face intense competition from a variety of sources for our local calling, long distance and Internet services in a majority of the
areas we now serve. Regulations and technology change quickly in the communications industry, and changes in these factors historically have had, and may in the future have, a significant impact on
competitive dynamics. In most of our services areas, we face competition from wireless carriers for both local calling and long distance services. As technology and economies of scale improve,
competition from 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 calling, long distance and Internet services through a cable television
company. Wireline and cable television companies have the ability to bundle their services, which has and is expected to continue to intensify the competition we face from these providers. VoIP
providers, Internet service providers, satellite companies and electric utilities also compete with our services, and such competition is expected to continue to increase in the future. In addition,
many of our competitors have access to a larger workforce and have substantially greater name-brand recognition and financial, technological and other resources than we do.

In
addition, consolidation and strategic alliances within the communications industry or the development of new technologies have had and may continue to have an effect on our
competitive position. We cannot predict the number of competitors that will emerge, particularly in light of possible regulatory or legislative actions that could facilitate or impede market entry,
but increased competition from existing and new entities could have a material adverse effect on our business, financial condition, results of operations and liquidity.

Competition
may lead to loss of revenues and profitability as a result of numerous factors, including:



There
have recently been several grants of stimulus funding under the American Recovery and Reinvestment Act of 2009 in our Northern New England and other service areas. Any networks
built with these funds in such areas will at some point provide competition for our products and services.

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A network or data center disruption could cause delays or interruptions of service, which could cause us to lose customers or suffer other damages.

To be successful, we will need to continue to provide our customers reliable service over our expanded network. Some of the risks to
our network and infrastructure include:



Disruptions
may cause interruptions in service or reduced capacity for customers, either of which could cause us to lose customers and incur expenses.

There
have been no other material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009, as supplemented
by our Quarterly Reports on Form 10-Q for the quarterly periods ending March 31, 2010 and June 30, 2010.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

We did not sell any unregistered equity securities during the quarter ended September 30, 2010.

Item 3.    Defaults Upon Senior Securities.

For a discussion of certain events of default that occurred during the year ended December 31, 2009, see note 1 to the
Condensed Consolidated Financial Statements.

Item 4.    (Removed and Reserved).

Item 5.    Other Information.

Not applicable.

Item 6.    Exhibits.

The exhibits filed as part of this Quarterly Report are listed in the index to exhibits immediately preceding such exhibits, which
index to exhibits is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized, and the undersigned also has signed this Quarterly Report in his capacity as the Registrant's Executive Vice
President and Chief Financial Officer (Principal Financial Officer).

FAIRPOINT COMMUNICATIONS, INC.Date: November 9, 2010

By:

/s/ AJAY SABHERWALName:

Ajay SabherwalTitle:

Executive Vice President
and Chief Financial Officer


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Exhibit Index

Exhibit No.

Description2.1

Agreement and Plan of Merger, dated as of January 15, 2007, by and among Verizon Communications Inc., Northern New England Spinco Inc. and FairPoint.(1)2.2

Amendment No. 1 to the Agreement and Plan of Merger, dated as of April 20, 2007, by and among Verizon Communications Inc., Northern New England Spinco Inc. and FairPoint.(1)2.3

Amendment No. 2 to the Agreement and Plan of Merger, dated as of June 28, 2007, by and among Verizon Communications Inc., Northern New England Spinco Inc. and FairPoint.(2)2.4

Amendment No. 3 to the Agreement and Plan of Merger, dated as of July 3, 2007, by and among Verizon Communications Inc., Northern New England Spinco Inc. and FairPoint.(3)2.5

Amendment No. 4 to the Agreement and Plan of Merger, dated as of November 16, 2007, by and among Verizon Communications Inc., Northern New England Spinco Inc. and FairPoint.(4)2.6

Amendment No. 5 to the Agreement and Plan of Merger, dated as of February 25, 2008, by and among Verizon Communications Inc., Northern New England Spinco Inc. and FairPoint.(5)2.7

Distribution Agreement, dated as of January 15, 2007, by and between Verizon Communications Inc. and Northern New England Spinco Inc.(1)2.8

Amendment No. 1 to Distribution Agreement, dated as of March 30, 2007, by and between Verizon Communications Inc. and Northern New England Spinco Inc.(1)2.9

Amendment No. 2 to Distribution Agreement, dated as of June 28, 2007, by and between Verizon Communications Inc. and Northern New England Spinco Inc.(1)2.10

Amendment No. 3 to Distribution Agreement, dated as of July 3, 2007, by and between Verizon Communications Inc. and Northern New England Spinco Inc.(1)2.11

Amendment No. 4 to Distribution Agreement, dated as of February 25, 2008, by and between Verizon Communications Inc. and Northern New England Spinco Inc.(5)2.12

Amendment No. 5 to the Distribution Agreement, dated as of March 31, 2008, by and between Verizon Communications Inc. and Northern New England Spinco Inc.(6)2.13

Transition Services Agreement, dated as of January 15, 2007, by and among 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 Operations LLC, Enhanced Communications of Northern New
England Inc. and Verizon Information Technologies LLC.(6)2.15

Master Services Agreement, dated as of January 15, 2007, by and between FairPoint and Capgemini U.S. LLC.(1)2.16

First Amendment to Master Services Agreement, dated as of July 6, 2007, by and between FairPoint and Capgemini U.S. LLC.(3)


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Exhibit No.

Description2.17

Second Amendment to Master Services Agreement, dated as of February 25, 2008, by and between FairPoint and Capgemini U.S. LLC.(5)2.18

Letter Agreement, dated as of January 17, 2008, by and between FairPoint and Capgemini U.S. LLC.(7)2.19

Amendment to Letter Agreement, dated as of February 28, 2008, by and between FairPoint and Capgemini U.S. LLC.(8)2.20

Employee Matters Agreement, dated as of January 15, 2007, by and among Verizon Communications Inc., Northern New England Spinco Inc. and FairPoint.(1)2.21

Tax Sharing Agreement, dated as of January 15, 2007, by and among FairPoint, Verizon Communications Inc. and Northern New England Spinco Inc.(9)2.22

Partnership Interest Purchase Agreement, dated as of January 15, 2007, by and among Verizon Wireless of the East LP, Cellco Partnership d/b/a Verizon Wireless and Taconic Telephone Corp.(9)2.23

Joinder Agreement, dated as of April 5, 2007, by and among Warwick Valley Telephone Company, Taconic Telephone Corp., Cellco Partnership d/b/a Verizon Wireless and Verizon Wireless of the East LP.(10)2.24

Publishing Agreement, dated as of March 31, 2008, by and between FairPoint and Idearc Media Corp.(6)2.25

Branding Agreement, dated as of March 31, 2008, by and between FairPoint and Idearc Media Corp.(6)2.26

Non-Competition Agreement, dated as of March 31, 2008, by and between FairPoint and Idearc Media Corp.(6)2.27

Listing License Agreement, dated as of March 31, 2008, by and between FairPoint and Idearc Media Corp.(6)2.28

Intellectual Property Agreement, dated as of March 31, 2008, by and between FairPoint and Verizon Communications Inc.(6)2.29

Transition Period Trademark License Agreement, dated as of March 31, 2008, by and between FairPoint and Verizon Communications Inc.(6)2.30

Transition Agreement, dated as 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 Amended and Restated Certificate of Incorporation of FairPoint.(12)3.2

Amended and Restated By Laws of FairPoint.(12)4.1

Indenture, dated as of March 31, 2008, by and between Northern New England Spinco Inc. and U.S. Bank National Association.(6)4.2

Second Supplemental Indenture, dated as of July 17, 2009, by and between FairPoint Communications, Inc. and U.S. Bank National Association.(13)


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Exhibit No.

Description4.3

Registration Rights Agreement, dated as of March 31, 2008, by and among FairPoint Communications, Inc., Banc of America Securities LLC, Lehman Brothers Inc. and Morgan Stanley & Co.
Incorporated.(6)4.4

Form of 131/8% Senior Note due 2018 (included in Exhibit 4.1).(6)4.5

Indenture, dated as of July 29, 2009, by and between FairPoint Communications, Inc. and U.S. Bank National Association.(13)4.6

Form of 131/8% Senior Note due 2018 (included in Exhibit 4.6).(13)10.1

Credit Agreement, dated as of March 31, 2008, by and among FairPoint, Northern New England Spinco Inc., Bank of America, N.A, as syndication agent, Morgan Stanley Senior Funding, Inc. and Deutsche Bank
Securities Inc., as co-documentation agents, and Lehman Commercial Paper Inc., as administrative agent and Lenders party thereto.(6)10.2

Amendment, Waiver, Resignation and Appointment Agreement, dated as of January 21, 2009, by and among FairPoint, Lenders party thereto, Lehman Commercial Paper Inc. and Bank of America, N.A.(14)10.3

Subsidiary Guaranty, dated as of March 31, 2008, by and among FairPoint Broadband, Inc., MJD Ventures, Inc., MJD Services Corp., S T Enterprises, Ltd., FairPoint Carrier Services, Inc.,
FairPoint Logistics, Inc. and Lehman Commercial Paper Inc.(6)10.4

Pledge Agreement, dated as of March 31, 2008, by and among FairPoint, MJD Ventures, Inc., MJD Services Corp., S T Enterprises, Ltd., FairPoint Carrier Services, Inc., FairPoint Broadband, Inc.,
 FairPoint Logistics, Inc., Enhanced Communications of Northern New England, Inc., Utilities, Inc., C-R Communications, Inc., Comerco, Inc., GTC Communications, Inc., St. Joe Communications, Inc., Ravenswood
Communications, Inc., Unite Communications Systems, Inc. and Lehman Commercial Paper Inc.(6)10.5

Deposit Agreement, dated as of 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

Letter Agreement, dated as of October 13, 2010, by and among FairPoint and certain secured lenders under the Pre-petition Credit Facility.(15)10.7

Debtor-in-Possession Credit Agreement, dated as of October 27, 2009, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America, N.A., as administrative agent, and lenders
party thereto.(16)10.8

First Amendment to Debtor-in-Possession Credit Agreement, dated as of December 1, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(17)10.9

Second Amendment to Debtor-in-Possession Credit Agreement, dated as of December 10, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(17)10.10

Third Amendment to Debtor-in-Possession Credit Agreement, dated as of December 15, 2009, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(17)10.11

Fourth Amendment to Debtor-in-Possession Credit Agreement, dated as of January 13, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(17)


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Exhibit No.

Description10.12

Fifth Amendment to Debtor-in-Possession Credit Agreement, dated as of January 28, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative agent,
and the lenders party thereto.(17)10.13

Sixth Amendment to Debtor-in-Possession Credit Agreement, dated as of January 29, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(17)10.14

Seventh Amendment to Debtor-in-Possession Credit Agreement, dated as of February 8, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(17)10.15

Eighth Amendment to Debtor-in-Possession Credit Agreement, dated as of February 24, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(17)10.16

Ninth Amendment to Debtor-in-Possession Credit Agreement, dated as of February 26, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(17)10.17

Tenth Amendment to Debtor-in-Possession Credit Agreement, dated as of March 9, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative agent,
 and the lenders party thereto.(17)10.18

Eleventh Amendment to Debtor-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.(17)10.19

Twelfth Amendment to Debtor-in-Possession Credit Agreement, dated as of May 21, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(18)10.20

Thirteenth Amendment to Debtor-in-Possession Credit Agreement, dated as of July 26, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.*10.21

Fourteenth Amendment to Debtor-in-Possession Credit Agreement, dated as of August 30, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.*10.22

Fifteenth Amendment to Debtor-in-Possession Credit Agreement, dated as of October 22, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.*10.23

Debtor-in-Possession Subsidiary Guaranty, dated as of October 30, 2009, by and among certain subsidiaries of FairPoint Communications, Inc. and Bank of America, N.A.(16)10.24

Debtor-in-Possession Pledge Agreement, dated as of October 30, 2009, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., certain subsidiaries of FairPoint Communications, Inc.
and Bank of America, N.A.(16)10.25

Debtor-in-Possession Security Agreement, dated as of October 30, 2009, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., certain subsidiaries of FairPoint Communications, Inc.
and Bank of America, Inc.(16)10.26

Amended and Restated Tax Sharing Agreement, dated as of November 9, 2000, by and among FairPoint and its Subsidiaries.(19)


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Exhibit No.

Description10.27

Employment Agreement, dated as of August 16, 2010, by and between FairPoint and Paul H. Sunu.*10.28

Consulting Agreement, dated as of August 16, 2010, by and between FairPoint and David L. Hauser.*10.29

Change in Control and Severance Agreement, dated as of March 14, 2007, by and between FairPoint and Peter G. Nixon.(20)10.30

Change in Control and Severance Agreement, dated as of March 14, 2007, by and between FairPoint and Shirley J. Linn.(20)10.31

Change in Control and Severance Agreement, dated as of July 19, 2010, by and between FairPoint and Ajay Sabherwal.*10.32

FairPoint Amended and Restated 1998 Stock Incentive Plan.(21)10.33

FairPoint Amended and Restated 2000 Employee Stock Incentive Plan.(22)10.34

FairPoint 2005 Stock Incentive Plan.(12)10.35

FairPoint Communications, Inc. 2008 Annual Incentive Plan.(22)10.36

FairPoint Communications, Inc. 2008 Long Term Incentive Plan.(23)10.37

Nonqualified Deferred Compensation Adoption Agreement.(11)10.38

Nonqualified Deferred Compensation Plan Document.(11)10.39

Form of February 2005 Restricted Stock Agreement.(24)10.40

Form of Director Restricted Stock AgreementFairPoint Communications, Inc. 2005 Stock Incentive Plan.(25)10.41

Form of Director Restricted Unit AgreementFairPoint Communications, Inc. 2005 Stock Incentive Plan.(25)10.42

Form of Non-Director Restricted Stock AgreementFairPoint Communications, Inc. 2005 Stock Incentive Plan.(26)10.43

Form of Non-Director Restricted Stock AgreementFairPoint Communications, Inc. 2008 Long Term Incentive Plan.(21)10.44

Form of Performance Unit Award Agreement 2008-2009 Award (Performance Unit Award, dated as of April 1, 2008, by and between FairPoint and Eugene B. Johnson).(27)10.45

Form of Performance Unit Award Agreement 2008-2010 Award.(23)10.46

Form of Performance Unit Award Agreement 2009-2011 Award.(28)10.47

Form of Director Restricted Unit AgreementFairPoint Communications, Inc. 2008 Long Term Incentive Plan.(28)10.48

Stipulation filed with the Maine Public Utilities Commission, dated December 12, 2007.(29)10.49

Amended Stipulation filed with the Maine Public Utilities Commission dated December 21, 2007(6)10.50

Stipulation filed with the Vermont Public Service Board, dated January 8, 2008.(30)10.51

Stipulation filed with the New Hampshire Public Utilities Commission, dated January 23, 2008.(7)


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Exhibit No.

Description10.52

Letter Agreement, dated as of March 30, 2008, by and between the Staff of the New Hampshire Public Utilities Commission and Verizon Communications Inc.(6)10.53

Letter, dated as of May 12, 2009, from the Staff of the New Hampshire Public Utilities Commission to FairPoint.(31)11

Statement Regarding Computation of Per Share Earnings (included in the financial statements contained in this Quarterly Report).31.1

Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2

Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1

Certification required by 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2

Certification required by 18 United 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 Utilities Commission, dated February 25, 2008.(5)


*Filed
herewith.Pursuant
to SEC Release No. 33-8238, this certification will be treated as "accompanying" this Quarterly Report on
Form 10-Q and not "filed" as part of such report for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of Section 18 of the Exchange
Act and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically
incorporates it by reference.(1)Incorporated
by reference to the Registration Statement on Form S-4 of FairPoint, declared effective as of July 16, 2007.(2)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on June 28, 2007.(3)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on July 9, 2007.(4)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on November 16, 2007.(5)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on February 27, 2008.(6)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on April 3, 2008.(7)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on January 24, 2008.(8)Incorporated
by reference to the Annual Report on Form 10-K of FairPoint for the year ended December 31, 2007.(9)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on January 19, 2007.(10)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on April 10, 2007.


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(11)Incorporated
by reference to the Annual Report on Form 10-K of FairPoint for the year ended December 31, 2008.(12)Incorporated
by reference to the Annual Report on Form 10-K of FairPoint for the year ended December 31, 2004.(13)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on August 3, 2009.(14)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on January 22, 2009.(15)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on October 19, 2010.(16)Incorporated
by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended September 30, 2009.(17)Incorporated
by referenced to the Annual Report on Form 10-K of FairPoint for the year ended December 31, 2009.(18)Incorporated
by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended June 30, 2010.(19)Incorporated
by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended September 30, 2000.(20)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on March 19, 2007.(21)Incorporated
by reference to the Registration Statement on Form S-4 of FairPoint, declared effective as of August 9, 2000.(22)Incorporated
by reference to the Annual Report on Form 10-K of FairPoint for the year ended December 31, 2003.(23)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on June 23, 2008.(24)Incorporated
by reference to the Registration Statement on Form S-1 of FairPoint, declared effective as of February 3, 2005.(25)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on June 20, 2005.(26)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on September 23, 2005.(27)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on April 1, 2008.(28)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on March 9, 2009.(29)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on December 13, 2007.(30)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on January 8, 2008.(31)Incorporated
by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended June 30, 2009.(32)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on February 6, 2008.(33)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on February 21, 2008.


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