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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, 2009.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 definition 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

As of October 31, 2009, there were 90,015,551 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, 2009 and December 31,
2008

5Condensed Consolidated Statements of Operations for the three and nine months ended September 30,
2009 and 2008

6Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the nine months ended
September 30, 2009

7Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended
September 30, 2009 and 2008

8Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and
2008

9Notes to Consolidated Financial Statements

10Item 2.

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

53Item 3.

Quantitative and Qualitative Disclosures About Market
Risk

73Item 4.

Controls and Procedures

74PART II. OTHER INFORMATIONItem 1.

Legal Proceedings

75Item 1A.

Risk Factors

76Item 2.

Unregistered Sales of Equity Securities and Use of
Proceeds

79Item 3.

Defaults Upon Senior Securities

80Item 4.

Submission of Matters to a Vote of Security Holders

80Item 5.

Other Information

80Item 6.

Exhibits

80Signatures

81


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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:



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,"

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"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, 2008 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 periodic 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

Condensed Consolidated Balance Sheets

September 30, 2009 and December 31, 2008

(in thousands, except share data)

September 30,
2009

December 31,
2008(Unaudited)AssetsCurrent assets:Cash

$
63,529

$
70,325Restricted cash


2,083


8,144Accounts receivable, net


179,748


175,036Materials and supplies


30,314


38,694Other


30,232


28,747Deferred income tax, net


58,276


31,418Total current assets


364,182


352,364Property, plant and equipment, net


1,976,453


2,013,515Intangibles assets, net


217,462


234,481Prepaid pension asset


10,178


8,708Debt issue costs, net


24,121


26,047Restricted cash


825


60,359Other assets


17,533


21,094Goodwill


595,120


619,372Total assets

$
3,205,874

$
3,335,940Liabilities and Stockholders' EquityCurrent liabilities:Current portion of long term debt

$
2,505,538

$
45,000Current portion of capital lease obligations


2,097


2,231Accounts payable


130,775


147,778Dividends payable





23,008Accrued interest payable in cash


39,740


18,844Accrued interest payable in kind


12,226


Interest rate swaps


74,360


41,274Other non-operating accrued liability





19,000Other accrued liabilities


80,441


72,334Total current liabilities


2,845,177


369,469Long term liabilities:Capital lease obligations


6,041


7,522Accrued pension obligation


50,965


46,801Employee benefit obligations


246,637


225,840Deferred income taxes


118,411


154,757Unamortized investment tax credits


4,930


5,339Other long term liabilities


16,786


35,492Long term debt, net of current portion





2,425,253Interest rate swap agreements





41,681Total long-term liabilities


443,770


2,942,685Stockholders' equity (deficit):Common stock, $0.01 par value, 200,000,000 shares authorized; 90,015,551 and 88,995,572 shares issued and outstanding at September 30, 2009 and
December 31, 2008, respectively


900


890Additional paid-in capital


726,195


735,719Retained earnings (deficit)


(682,217
)

(578,319
)Accumulated other comprehensive loss


(127,951
)

(134,504
)Total stockholders' equity (deficit)


(83,073
)

23,786Total liabilities and stockholders' equity

$
3,205,874

$
3,335,940


See accompanying notes to condensed consolidated financial statements (unaudited)

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

Three and nine months ended September 30, 2009 and 2008

(Unaudited)

(in thousands, except per share data)

Three months ended
September 30,

Nine months ended
September 30,2009

2008

2009

2008Revenues

$
268,284

$
328,255

$
879,525

$
955,359Operating expenses:Cost of services and sales, excluding depreciation and amortization


128,550


152,579


396,404


422,316Selling, general and administrative expense, excluding depreciation and amortization


120,391


104,679


310,789


270,085Depreciation and amortization


68,570


60,768


205,066


184,434Total operating expenses


317,511


318,026


912,259


876,835Income (loss) from operations


(49,227
)

10,229


(32,734
)

78,524Other income (expense):Interest expense


(56,874
)

(49,665
)

(165,162
)

(109,310
)Gain (loss) on derivative instruments


(11,536
)

(5,014
)

8,595


38,109Gain on early retirement of debt








12,357


Other


214


2,165


16,071


3,415Total other expense


(68,196
)

(52,514
)

(128,139
)

(67,786
)Income (loss) before income taxes


(117,423
)

(42,285
)

(160,873
)

10,738Income tax (expense) benefit


40,120


17,176


56,975


(3,190
)Net income (loss)

$
(77,303
)
$
(25,109
)
$
(103,898
)
$
7,548Weighted average shares outstanding:Basic


89,366


88,999


89,235


71,358Diluted


89,366


88,999


89,235


72,773Earnings per share:Basic

$
(0.87
)
$
(0.28
)
$
(1.16
)
$
0.11Diluted


(0.87
)

(0.28
)

(1.16
)

0.10


See
accompanying notes to condensed consolidated financial statements (unaudited)

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Deficit)

Nine months ended September 30, 2009

(Unaudited)

(in thousands)

Common Stock





Accumulated
other
comprehensive
income (loss)Additional
paid-in
capital

Retained
earnings
(deficit)

Total
stockholders'
equity (deficit)Shares

AmountBalance at December 31, 2008


88,996

$
890

$
735,719

$
(578,319
)
$
(134,504
)
$
23,786Net loss











(103,898
)




(103,898
)Issuance of 2008 Interim Awards


502


5


(5
)







Issuance of restricted shares


524


5


(5
)







Forfeiture of restricted shares


(6
)













Net assets contributed back to Verizon








(11,084
)







(11,084
)Stock based compensation expense








1,570








1,570Employee benefit adjustment to comprehensive income














6,553


6,553Balance at September 30, 2009


90,016

$
900

$
726,195

$
(682,217
)
$
(127,951
)
$
(83,073
)


See
accompanying notes to condensed consolidated financial statements (unaudited)

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive (Loss) Income

Three and nine months ended September 30, 2009 and 2008

(Unaudited)

(in thousands)

Three Months ended
September 30,

Nine Months ended
September 30,2009

2008

2009

2008Net (loss) income

$
(77,303
)
$
(25,109
)
$
(103,898
)
$
7,548Other comprehensive loss, net of taxes:Defined benefit pension and post-retirement plans (net of $1.3 million and $3.4 million taxes, respectively)


3,267





6,553


Total other comprehensive loss income


3,267





6,553


Comprehensive (loss) income

$
(74,036
)
$
(25,109
)
$
(97,345
)
$
7,548


See
accompanying notes to condensed consolidated financial statements (unaudited)

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Nine months ended September 30, 2009 and 2008

(Unaudited)

(in thousands)

Nine months ended
September 30,2009

2008Cash flows from operating activities:Net (loss) income

$
(103,898
)
$
7,548Adjustments to reconcile net income to net cash provided by operating activities excluding impact of acquisitions:Deferred income taxes


(59,089
)

15,354Provision for uncollectible revenue


40,297


13,004Depreciation and amortization


205,066


184,434Non-cash interest expense


31,137


SFAS 106 post-retirement accruals


25,350


33,762Gain on derivative instruments


(8,595
)

(38,109
)Gain on early retirement of debt, excluding cash fees


(12,477
)

Other non cash items


11,616


(26,382
)Changes in assets and liabilities arising from operations:Accounts receivable


(44,273
)

(37,670
)Prepaid and other assets


3,243


2,838Accounts payable and accrued liabilities


(49,953
)

(106,576
)Accrued interest payable


20,896


Other assets and liabilities, net


(4,687
)

4,244Other





(16,221
)Total adjustments


158,531


28,678Net cash provided by operating activities


54,633


36,226Cash flows from investing activities:Acquired cash balance, net





11,401Net capital additions


(130,658
)

(189,234
)Net proceeds from sales of investments and other assets


1,246


2,154Net cash used in investing activities


(129,412
)

(175,679
)Cash flows from financing activities:Loan origination costs


(2,153
)

(29,238
)Proceeds from issuance of long term debt


50,000


1,930,000Repayments of long term debt


(20,848
)

(687,491
)Contributions from Verizon





373,590Restricted cash


65,595


(80,436
)Repayment of capital lease obligations


(1,615
)

(1,938
)Dividends paid to stockholders


(22,996
)

(1,196,963
)Net cash provided by financing activities


67,983


307,524Net increase (decrease) in cash


(6,796
)

168,071Cash, beginning of period


70,325


Cash, end of period

$
63,529

$
168,071Supplemental disclosure of cash flow information:Non-cash equity consideration





316,290Non-cash issuance of senior notes


18,911


551,000Capital additions included in accounts payable


16,608





See accompanying notes to condensed consolidated financial statements (unaudited)

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)

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

General

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 is the seventh largest
telephone company in the United States based on the number of access lines as of September 30, 2009. FairPoint operates in 18 states with approximately 1.6 million access line
equivalents (including voice access lines and high speed data lines, which include DSL, wireless broadband, cable modem and fiber-to-the-premises) as of
September 30, 2009.

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 is treated as the acquirer for accounting purposes. The financial statements reflect the transaction as if Spinco had issued consideration to
FairPoint stockholders. As a result, for the nine months ended September 30, 2008, the statement of operations and the financial information derived from the statement of operations in this
Quarterly Report reflect the consolidated financial results of the Company by including the financial results of the Verizon Northern New England business for the three months ended March 31,
2008 and the combined financial results of Spinco and Legacy FairPoint for the six months ended September 30, 2008.

In
order to effect the Merger, the Company issued 53,760,623 shares to Verizon stockholders for their interest in Spinco. Accordingly, the number of common shares outstanding, par value,
paid in capital and per share information included herein has been retroactively restated to give effect to the Merger.

Historical Verizon Northern New England business

The Verizon Northern New England business, prior to the Merger, was comprised of carved-out components from each of Verizon
New England, NYNEX Long Distance Company and Bell Atlantic Communications ("VLD"), Verizon Internet Services Inc. and GTE.Net LLC, ("VOL"), and Verizon Select
Services Inc., referred to as VSSI ("VSSI", and together with VLD and VOL, the "Verizon Companies").

Prior
to the Merger, financial statements were not prepared for the Verizon Northern New England business, as it was not operated as a separate business. The Verizon Northern New England
business financial statements for all periods prior to the Merger have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") using specific information where
available and allocations where data was not maintained on a state-specific basis within the Verizon Northern New England business' books and records.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

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

The
Verizon Northern New England business financial statements for all periods prior to the Merger include the wireline-related businesses, Internet access, long distance and customer
premises equipment services provided by the Verizon Northern New England business to customers in the states of Maine, New Hampshire and Vermont. All significant intercompany transactions have been
eliminated. The financial statements prior to the Merger also include the assets, liabilities and expenses related to employees who supported the Verizon Northern New England business, some of whom
remained employees of the Verizon Northern New England business following the acquisition of the Verizon Northern New England business by FairPoint rather than becoming employees of FairPoint.

The
preparation of financial information related to Verizon New England's, VLD's, VOL's and VSSI's operations in the states of Maine, New Hampshire and Vermont, which are
included in the balance sheet and statements of operations of the Verizon Northern New England business for all periods prior to the Merger, was based on the following:

Verizon New England:For the balance sheet, property, plant and equipment, accumulated depreciation, intangible assets, materials and
supplies and
certain other assets and liabilities were determined based upon state specific records; accounts receivable were allocated based upon applicable billing system data; short term investments, prepaid
pension assets, accrued payroll related liabilities and employee benefit obligations were allocated based on employee headcount; and accounts payable were allocated based upon applicable operating
expenses. The remaining assets and liabilities were primarily allocated based upon the percentage of the Verizon Northern New England business revenues, operating expenses and headcount to the total
revenues, operating expenses and headcount of Verizon New England. For the statements of operations, operating revenues and operating expenses were based on state specific records.

VLD:For the balance sheet, receivables were allocated based on the applicable operating revenues and accounts payable were allocated
based on
applicable operating expenses. For the statements of
operations, operating revenues were determined using applicable billing system data; cost of services and sales and selling, general and administrative expenses were allocated based on the percentage
of the Verizon Northern New England business revenues related to the VLD component to the total VLD revenues applied to operating expenses for total VLD.

VOL:For the balance sheet, receivables were allocated based on applicable operating revenues; other current assets were determined
using applicable
billing system data; accounts payable were allocated based on the applicable operating expenses; and other current liabilities, which consisted of advanced billings, were allocated based on applicable
operating revenues. For the statements of operations, operating revenues were determined using applicable billing system data and average access lines in service; cost of services and sales, selling,
general and administrative expenses and interest expense were allocated based on the percentage of the Verizon Northern New England business revenues related to the VOL component to the total VOL
revenues applied to operating expenses and interest expense for total VOL.

VSSI:For the balance sheet, receivables were allocated based on the applicable operating revenues and accounts payable were allocated
based on
applicable operating expenses. For the statements of operations, operating revenues were identified using applicable system data; cost of services and sales and selling, general and administrative
expenses were allocated based on the

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

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

percentage
of the Verizon Northern New England business revenues related to the VSSI component to the total VSSI revenues applied to operating expenses for total VSSI.

Management
believes the allocations used to determine selected amounts in the financial statements are appropriate methods to reasonably reflect the related assets, liabilities, revenues
and expenses of the Verizon Northern New England business for periods prior to the Merger.

Filing of Chapter 11 Cases

On October 26, 2009 (the "Petition Date"), FairPoint Communications and 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").

Background to the Filing of the Chapter 11 Cases



On January 15, 2007, the Company entered into an agreement and plan of merger with Verizon and Spinco pursuant to which the
Company committed to purchase and assume Verizon's landline operations in Maine, New Hampshire and Vermont (the "Merger Agreement"). The transaction required Verizon to contribute specified assets and
liabilities of the local exchange businesses of Verizon New England in Maine, New Hampshire and Vermont to Spinco and the related long distance and internet service provider businesses in those states
to subsidiaries of Spinco. After extensive federal and state regulatory review and approval, on March 31, 2008, Spinco was merged with and into the Company, with the Company being the surviving
entity in the Merger.

In
connection with the Merger, the Company and Spinco entered into a $2.03 billion Credit Facility, as subsequently amended (the "Credit Facility" or "Pre-petition
Credit Facility"), and Spinco issued and the Company subsequently assumed $551 million of 131/8% Senior Notes due 2018 (the "Old Notes"). In consideration of the Merger, Verizon
received a $1.16 billion cash payment from Spinco and an additional $551 million in cash from the proceeds of the issuance of the Old Notes. Verizon's stockholders received approximately
54 million shares of the Company's common stock, representing approximately 60.2% of the equity ownership interests in the Company at that time. As a result of the Merger the Company's size, as
measured by access lines and revenues, increased approximately fivefold.

Following
the acquisition of the Northern New England operations, the Company faced significant short- and long-term challenges, including, among other things
(i) integrating the Northern New England operations into that of the Company, (ii) keeping pace with competition from bundled offerings by cable companies, as well as the use of
alternative technologies, which are eroding the Company's traditional base of wireline voice customers, (iii) monitoring, repairing and upgrading the existing telecommunications network in the
Northern New England operations, while simultaneously building a new state-of-the-art next generation IP based network, and (iv) overcoming the difficulty of
transitioning certain back-office functions from Verizon's integrated systems to newly created systems of the Company, which occurred in January 2009 (the "Cutover").

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

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

These
challenges were made even more difficult by deteriorating market conditions. Although local exchange carriers were the only source of voice communications for many years, more
recently local exchange carriers, including the Company, have experienced a decline in the number of access lines in service, primarily due to increased competition from wireless carriers, cable
television operators who offer voice services, and internet service providers who offer voice over internet protocol services. Moreover, these competitive challenges were exacerbated by the recent
turmoil in the financial markets, which has significantly limited available capital and resulted in a significant decline in the domestic economy in the past year. In addition, the administrative
agent under the Pre-petition Credit Facility filed for bankruptcy in October 2008, resulting in the loss of approximately $30.0 million undrawn, available commitments under the Company's
revolving credit facility. The Company also believes that the economic decline has reduced consumer spending and contributed to an increase in the rate of decline in access lines and an increase in
overdue accounts receivable balances from customers. Additionally, due to the Cutover, the Company incurred higher than anticipated incremental costs and was required to devote significant resources,
including management time and attention, to resolving these problems. Finally, the regulatory regimes under which the Company operates limit its flexibility in addressing these problems. As a result
of the combined impact of each of these developments, the Company was unable to attain the performance levels it projected at the time of the acquisition of the Northern New England operations.

The
inability to achieve the financial performance projections with respect to the Northern New England operations made it impossible for the Company to service its approximately
$2.7 billion in debt obligations. Interest costs on the Company's significant debt has absorbed a large portion of its operating cash flow, thereby imposing limitations on the Company's ability
to construct its next generation, IP based network which the Company believes will enable it to offer a new suite of IP based services and implement its strategic business plan. The Company believes
these are necessary steps to reverse the current downward trend of the Company's revenue and operating cash flows.



As a result of the various factors affecting the Company's financial performance and operations, the Company determined that it may not
be in compliance with certain financial covenants in the Credit Facility for the period ended June 30, 2009. Accordingly, as a first step in a restructuring of its capital structure, the
Company initiated an offer to exchange (the "Exchange Offer") the Old Notes for new 131/8% Senior Notes due 2018 (the "New Notes", and together with the Old Notes, the "Notes"). The
Exchange Offer was consummated on July 29, 2009. Pursuant to the Exchange Offer, $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 the New Notes in the aggregate principal amount of $439.6 million. In addition, pursuant to the terms of
the Exchange Offer, an additional $18.9 million in aggregate principal amount of the New Notes were issued to noteholders 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 July 29, 2009 settlement date of the Exchange Offer (the "Settlement Date").

The
New Notes permitted the Company to pay the interest payable on the New Notes for the period from July 29, 2009 through and including September 30, 2009 (the "Initial
Interest Payment

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

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

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 the Company's
option.

Although
the Company was able to successfully consummate the Exchange Offer and, as a result, was able to maintain compliance with the financial covenants contained in the Credit
Facility for the measurement period ended June 30, 2009, the Exchange Offer did not provide a sufficient reduction in the Company's cash interest expense to prevent a potential breach of the
interest coverage ratio maintenance covenant in the Credit Facility for the measurement period ended September 30, 2009. In addition, the Company anticipated that it would be in breach of the
leverage ratio maintenance covenant in the Credit Facility as early as the measurement period ended September 30, 2009. Such breaches would have permitted the lenders under the 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 the Company. If the lenders
under the Credit Facility had exercised such remedies, the Company did not believe that it could refinance the Credit Facility on reasonable terms, or at all, in the then prevailing lending
environment.

In
order to address these issues, the Company developed an out-of-court restructuring plan (the "Out of Court Restructuring Plan") with the assistance of its
financial advisor. The Out of Court Restructuring Plan related to all of the Company's outstanding Notes and was generally designed to (i) reduce the Company's indebtedness and interest
expense, (ii) improve the Company's liquidity and financial and operational flexibility in order to allow it to compete more effectively and maximize enterprise value and (iii) help the
Company maintain compliance with the maintenance covenants in the Credit Facility. In particular, the Out of Court Restructuring Plan contemplated, among other things, that the holders of Notes would
be tendered in exchange for shares of convertible preferred stock in the Company. The Out of Court Restructuring Plan was conditioned on acceptance by 95% of the outstanding holders of the Notes,
which was the threshold necessary to sufficiently reduce leverage for purposes of the maintenance covenants in the Credit Facility as well as for liquidity purposes.

This
effort, however, was unsuccessful for two primary reasons: (1) following lengthy negotiations with substantial holders of the Notes, it became apparent that the minimum
tender thresholds could not be met and (2) that the holders of the Notes were unwilling to lend an additional $25 million in funds that would have been necessary to effectively implement
the Out of Court Restructuring Plan.

Following
unsuccessful negotiations with the holders of the Notes, the Company entered into discussions with certain of the lenders under the Credit Facility. On September 25,
2009, the Company entered into a forbearance agreement (the "Forbearance Agreement") with lenders holding approximately 68% of the loans and commitments outstanding under the Credit Facility (the
"Forbearing Lenders"). The Forbearance Agreement permitted the Company to forgo certain principal and interest payments due on September 30, 2009 under the Credit Facility. Further, the
Forbearing Lenders agreed to forbear from accelerating the maturity of the loans outstanding under the Credit Facility and from exercising any other remedies thereunder until October 30, 2009
if the Company failed to meet certain interest coverage ratio and leverage ratio covenants contained in the Credit Facility for the period ended September 30, 2009.

In
addition, the Company entered into certain forbearance agreements with the counterparties to the ISDA Master Agreement with Wachovia Bank, N.A., dated as of December 12, 2000,
as amended

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

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

and
restated as of February 1, 2008, and the ISDA Master Agreement with Morgan Stanley Capital Services Inc., dated as of February 1, 2005 (collectively, the "Swaps").

Following
the execution of the forbearance agreements described above, the Company engaged in extensive negotiations with a steering committee of its prepetition secured lenders (the
"Steering Committee") regarding a recapitalization of the Company's significant indebtedness. Subsequently, the Company and the Steering Committee reached agreement on the plan term sheet described
herein.

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 Credit Facility, upon the filing of the Chapter 11 Cases, all commitments under the Credit Facility were terminated and all loans (with accrued interest thereon) and all
other amounts outstanding under the 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 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 Credit Facility. An event of default under
the Credit Facility permits the lenders under the 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 the Company. The occurrence of an event of default under the 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. As such, the
Company has classified its obligations under the Credit Facility and the Swaps as current liabilities as of September 30, 2009.

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. As these events of default occurred prior to the issuance of the
condensed consolidated financial statements, the Company has classified its obligations under the Notes as current liabilities as of September 30, 2009.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

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

Plan Term Sheet

In anticipation of the Chapter 11 Cases, the Debtors entered into a Plan Support Agreement (the "Support Agreement"), dated as
of October 25, 2009, with secured lenders (the "Consenting Lenders") holding more than 50% of the outstanding debt under the Credit Facility. Pursuant to the Support Agreement, the Consenting
Lenders have agreed, subject to the terms and conditions contained in the Support Agreement, to support the Debtors' proposed financial restructuring (the "Restructuring Plan") described in the
FairPoint Communications, Inc. and Affiliates Chapter 11 Plan Term Sheet (the "Plan Term Sheet"), which is attached as an exhibit to the Support Agreement. The Plan Term Sheet, among
other things, provides the framework for a comprehensive balance sheet restructuring of the Debtors that would result in the conversion of more than $1.7 billion of debt into equity, consisting
of $1.2 billion of debt under the Credit Facility and all of the outstanding Notes.

The
following is a summary of certain material terms of the Plan Term Sheet.



Pursuant to the Restructuring Plan, the lenders under the Credit Facility would receive theirpro
ratashare of:



Pursuant to the Restructuring Plan, if the holders of the FairPoint Communications Unsecured Claims vote as a class to accept the
Restructuring Plan, such holders will receive theirpro ratashare of (i) 2% of the New Common Stock (the "Unsecured Common Stock"), subject to
dilution by the issuance of securities under an equity incentive plan and the Unsecured Warrants, and (ii) warrants to purchase up to 5% of the New Common Stock, which warrants shall have a
seven-year term and be exercisable at a strike price equal to a $2.25 billion total enterprise value (the "Unsecured Warrants"), subject to dilution by the issuance of securities
under an equity incentive plan. However, if the holders of FairPoint Communications Unsecured Claims do not vote to accept the Restructuring Plan, holders of FairPoint Communications Unsecured Claims
will not receive any distributions under the Restructuring Plan on account of their claims.

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

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



For purposes of the Restructuring Plan, the term "Convenience Claim" would include any FairPoint Communications Unsecured Claims that
are (i) allowed in an amount of $10,000 or less or (ii) allowed in an amount greater than $10,000 but which are reduced to $10,000 by an irrevocable written election of the holders of
such claims. Each holder of an allowed Convenience Claim would be paid in full in cash.



Pursuant to the Restructuring Plan, the holders of FairPoint Communications' existing common stock will retain no property and receive
no recovery from the Company.



Pursuant to the Restructuring Plan, the reorganized Company would have a nine person board of directors (the "New Board"). Initially,
seven of the New Board members will be nominated by the Consenting Lenders, one of the New Board members will be the Company's chief executive officer and one of the New Board members will be
nominated by the holders of the Notes if the class of FairPoint Communications Unsecured Claims votes to accept the Restructuring Plan. If the class of FairPoint Communications Unsecured Claims does
not vote to accept the Restructuring Plan, then the Consenting Lenders will have the right to nominate eight New Board members. The Consenting Lenders shall have the option to reduce the initial
number of board members they are entitled to nominate to five members, it being understood that the overall size of the board shall be reduced commensurately.

Debtor-in-Possession Financing



In connection with the Chapter 11 Cases, the Company and FairPoint Logistics, Inc. ("Logistics," and together with the
Company, the "Borrowers") entered into a Debtor-in-Possession Credit Agreement, dated as of October 27, 2009 (the "DIP Credit Agreement"), with certain financial
institutions (the "Lenders") and Bank of America, N.A., as the administrative agent for the Lenders (in such capacity, the "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
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 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. If the Bankruptcy Court enters a final order in connection with the
DIP Credit Agreement (the "Final Order"), the Borrowers will be permitted access to the total amount of the DIP Financing, subject to the terms and conditions of the DIP Credit Agreement and related
orders of the Bankruptcy Court. The DIP Credit Agreement became effective by its terms on October 30, 2009.

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

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

The
DIP Financing will mature and will be repayable in full on the earlier to occur of (i) July 26, 2010, which date can be extended up to 3 months at the request of
the Borrowers upon the prior written consent of non-defaulting Lenders holding a majority of the aggregate principal amount of the outstanding loans and letters of credit plus unutilized
commitments under the DIP Financing (the "Required Lenders") with no fee payable by the Borrowers in connection with any such extension, (ii) the effective date of a plan of reorganization that
meets certain conditions and is satisfactory to the Required Lenders and the Administrative Agent, (iii) the voluntary reduction by the 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 Required Lenders 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 will be, at the 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
shall accrue from and including the date of any borrowing up to but excluding the date of any repayment thereof and shall be 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 Administrative Agent, for the pro rata benefit of the Lenders, of an upfront fee in the aggregate principal amount of
$1.5 million, which upfront fee is payable in two installments: (1) the first installment of $400,000 was due and payable 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 is due and payable on the date the Final Order is 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.Under the DIP Credit Agreement, the Borrowers are 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

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

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

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.

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 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 Order and other matters related to the Chapter 11 Cases.



The Borrowers and certain of FairPoint Communications' subsidiaries (collectively, the "Pledgors") entered into the DIP Pledge
Agreement with Bank of America N.A., as collateral agent (the "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 Pledgors have provided to the Collateral Agent for the secured parties identified therein, a security interest in 100% of the equity interests and
promissory notes owned by the 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 "Guarantors") entered into the DIP Subsidiary Guaranty with the
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
Guarantors agreed to jointly and severally guarantee the full and prompt payment of all fees, obligations, liabilities and indebtedness of the Borrowers, as borrowers under the DIP Financing. Pursuant
to the terms of the DIP Subsidiary Guaranty, the Guarantors further agreed to subordinate any indebtedness of the Borrowers held by such Guarantor to the indebtedness of the Borrowers held by the
secured parties under the DIP Financing.



The Borrowers and the Guarantors (collectively, the "Grantors") entered into the DIP Security Agreement with the 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 Grantors have provided to the
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 causes of action arising under
Chapter 5 of the Bankruptcy Code and Federal Communications Commission ("FCC") licenses and authorizations by state regulatory authorities to the extent that any Grantor is prohibited from
granting a lien and security interest therein pursuant to applicable law.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

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

Plan of Reorganization

Pursuant to the Support Agreement, the Company is required to file a Chapter 11 plan of reorganization reflecting the
Restructuring Plan described above with the Bankruptcy Court within 45 days after the Petition Date. Pursuant to the Support Agreement, the Consenting Lenders, which represent more than 50% of
the loans outstanding under the Credit Facility, are required to vote in favor of and support a Chapter 11 plan on substantially the terms and conditions set forth in the Plan Term Sheet.
However, no assurances can be given that the Company will file such a Chapter 11 plan or that a Chapter 11 plan will be confirmed by the Bankruptcy Court on the terms described herein or
at all.

Reporting Requirements

As a result of the filing of the Chapter 11 Cases, the Debtors are 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 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 Debtors 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
Debtors or their 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 Debtors, or to
create, perfect or enforce any lien against the property of the Debtors, or to collect on monies owed or otherwise exercise rights or remedies with respect to a claim arising prior to the Petition
Date are enjoined unless and until the Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods furnished and services provided after the Petition Date in the ordinary course of
business. The deadline for the filing of proofs of claims against the Debtors has not yet been established by the Bankruptcy Court.

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

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

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

before
the Bankruptcy Court with respect to the Debtors. There can be no assurance that the Creditors' Committee will support the Debtors' positions on matters to be presented to the Bankruptcy Court
in the future or on any Chapter 11 plan of reorganization. Disagreements between the Debtors and the Creditors' Committee could protract the court proceedings, negatively impact the Debtors'
ability to operate and delay the Debtors' emergence from bankruptcy.

Executory ContractsSection 365

Under Section 365 and other relevant sections of the Bankruptcy Code, the Debtors may assume, assume and assign or reject
certain executory contracts and unexpired leases, 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 Debtors' express termination rights or a quantification of its obligations, must be read in conjunction with, and is
qualified by, any overriding rejection rights the Debtors have under Section 365 of the Bankruptcy Code. Claims may arise as a result of rejecting any executory contract.

Reorganization Costs

The Debtors have 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 Debtors' results of operations. For the three and nine months ended September 30, 2009, the Company has
incurred $6.1 million and $7.3 million of reorganization costs, respectively.

Risks and Uncertainties

The ability of the Debtors, both during and after the Bankruptcy Court proceedings, to continue as a going concern is dependent upon,
among other things, the ability of the Debtors to confirm the a Chapter 11 restructuring plan. Uncertainty as to the outcome of these factors raises substantial doubt about the Debtors' ability
to continue as a going concern. The 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; Chapter 11 Cases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 Debtors or (iv) as to operations, the effects of any changes that may be made in the underlying business. A plan of reorganization would likely cause material
changes to the amounts currently disclosed in the 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 a
debtor-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
Debtors 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, a
Chapter 11 plan of

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

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

reorganization
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 Debtors' relationship with customers, as well as with vendors and employees, which in
turn could adversely affect the Debtors' 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 and the DIP Lenders, which may limit the Debtors' ability to respond timely to certain events or take advantage of certain
opportunities. Because of the risks and uncertainties associated with the Bankruptcy Court proceedings, the ultimate impact that events that occur during these proceedings will have on the Debtors'
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 Debtors' ability to
continue as a going concern.

Impact on NOL Carryforwards

The Company's NOLs must be reduced by certain debt discharged pursuant to the bankruptcy plan of reorganization. Further, the Company's
ability to utilize its NOL carryforwards will be limited by Section 382 of the Internal Revenue Code of 1986, as amended, after the Company consummates a debt restructuring that results in an
ownership change. In general, following an ownership change, a limitation is imposed on the amount of pre-ownership change NOL carryforwards that may be used to offset taxable income in
each year following the ownership change. Under a special rule that may be elected for an ownership change pursuant to a Chapter 11 reorganization, the amount of this annual limitation is equal
to the "long-term tax-exempt rate" (published monthly by the IRS) for the month in which the ownership change occurs, multiplied by the value of FairPoint Communications' stock
immediately after, rather than immediately before, the ownership change. By taking into account the value of FairPoint Communications' stock immediately after the Chapter 11 reorganization, the
limitation is increased as a result of the cancellation of debt that occurs pursuant to the Chapter 11 reorganization. Because the Company expects to elect this treatment, an annual limitation
will be imposed on the amount of the Company's pre-ownership change NOL carryforwards that can be utilized to offset its taxable income after consummation of the Chapter 11
reorganization. In order to prevent an ownership change that limits the Company's NOL carryfrowards prior to the
effective date of a Chapter 11 plan of reorganization, 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 first five years following the restructuring. Therefore, the
Company does not expect to have NOL carryforwards after such time.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

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

Financial Reporting in Reorganization

As a result of the defaults described in this note 1, the Company has classified its obligations under the Credit Facility, the
Notes and the Swaps as current liabilities in the accompanying condensed consolidated balance sheet as of September 30, 2009.

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 comply with the financial and other covenants
contained in the DIP Credit Agreement and the Bankruptcy Court's approval of the Company's Restructuring 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 the Bankruptcy Code, the Debtors 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 reorganization items must be disclosed separately in the statement of cash flows. The Company will apply the Reorganizations Topic of the ASC effective as of the
Petition Date, and will segregate those items as outlined above for all reporting periods subsequent to such date.

(2) Accounting Policies

(a) Use of Estimates

The accompanying condensed consolidated financial statements have been prepared in accordance with 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

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

(2) Accounting Policies (Continued)

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. The effect of these reclassifications is not material.

Examples
of significant estimates include the allowance for doubtful accounts, the recoverability of plant, property and equipment, pension and post-retirement benefit
assumptions, penalties imposed by state PUCs, purchase price allocation for the acquisition of Legacy FairPoint and income taxes. In addition, estimates were made to determine the allocations used in
preparing the historical combined financial statements as described above.

(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 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. 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.

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(2) Accounting Policies (Continued)

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.

(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.

(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. Pursuant to the
regulatory orders issued in connection with the Merger, the Company is required to use these funds to (i) pay for the removal of double poles in Vermont, which is 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 New Hampshire Public Utilities Commission (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. This investment commitment is inclusive of the $50 million previously required by the NHPUC.

As
of September 30, 2009, the Company had released $79.0 million of the restricted cash, including $1.5 million in interest earned on such restricted cash, for
approved expenditures under the required projects and had forfeited an additional $0.5 million to the Vermont Public Service Board due to an inability to spend the full $12.5 million
allocated for such projects in the 2008 calendar year. Included in the $79.0 million of restricted cash released for approved expenditures is $12.5 million to be spent during the 2009
calendar year on service quality improvements under a performance enhancement plan in Vermont. As of September 30, 2009, it is evident that the Company will not be able to fulfill its
obligation to spend the full $12.5 million allocated for such projects in the 2009 calendar year. As a result, the Company has accrued a $0.5 million forfeiture payable to the Vermont
Public Service Board in the first quarter of 2010.

As
of September 30, 2009, the Company had $2.9 million of restricted cash of which $2.1 million is shown in current assets and $0.8 million is shown as a
non-current asset on the condensed consolidated balance sheet.

However,
at this time, it is unclear what effect the filing of the Chapter 11 Cases will have on the requirements imposed by the PUCs in Maine, New Hampshire and Vermont as a
condition to the to

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(2) Accounting Policies (Continued)

the
approval of the Merger and whether such requirements will be enforceable against the Company in the future.

(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.

During
the three months ended September 30, 2009, the Company revised its methodology for calculating the allowance for doubtful accounts based upon recent collections experience.
This change
in methodology resulted in an increase in the allowance for doubtful accounts and bad debt expense. The allowance for doubtful accounts increased $25.2 million during the three months ended
September 30, 2009.

(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 large number of customers in several states.

The
Company sponsors pension and post-retirement healthcare plans for certain employees. Plan assets are held by a third party trustee. The Company's plans hold debt and
equity securities 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 the Employee Retirement Income Security Act of 1974, as
amended ("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.

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(2) Accounting Policies (Continued)

At
September 30, 2009 and December 31, 2008, accumulated depreciation for property, plant and equipment was $4.1 billion and $4.0 billion, respectively.

The
estimated asset lives used 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.

Network
software purchased or developed in connection with related plant assets is capitalized. The Company also capitalizes interest associated with the acquisition or construction of
network related assets. Capitalized interest is reported as part of the cost of the network related assets and as a reduction in interest expense.

(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.

(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.

Subsequent
additions, modifications or upgrades to internal use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform.
Software maintenance and training costs are expensed in the period in which they are incurred.

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(2) Accounting Policies (Continued)

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.

On
January 15, 2007, FairPoint entered into the Master Services Agreement (the "MSA"), with Capgemini U.S. LLC ("Capgemini"). 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, 2009, 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, 2009, the Company capitalized $3.9 million and $15.4 million, respectively, in software costs in
addition to those capitalized under the MSA. During the three and nine months ended September 30, 2009, the Company capitalized $0.4 million and $1.0 million, respectively, in
interest costs in addition to those capitalized under the MSA.

(l) Debt Issue Costs

On March 31, 2008, immediately prior to the Merger, Legacy FairPoint and Spinco entered into a the $2,030.0 million
Pre-petition Credit Facility, consisting of a non-amortizing revolving facility in an aggregate principal amount of $200.0 million (the "Revolver"), a senior secured
term loan A facility in an aggregate principal amount of $500.0 million (the "Term Loan A Facility"), a senior secured term loan B facility in the aggregate principal amount of
$1,130.0 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
$200.0 million (the "Delayed Draw Term Loan"). The Company incurred $29.2 million of debt issue costs associated with the Credit Facility 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 Credit Facility under which, among other things, the administrative agent resigned and was replaced by a new
administrative agent. In addition, the resigning administrative agent's undrawn loan commitments under the Revolver, 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 with this amendment and began to amortize these costs over the remaining life of the loan.

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

In
connection with the Exchange Offer consummated on July 29, 2009, 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

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(2) Accounting Policies (Continued)

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Modifications and Extinguishments 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.

As
of September 30, 2009, the Company had capitalized debt issue and offering costs of $24.1 million, 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 shareholders' equity balance. As of September 30, 2009, shareholders' deficit totaled $83.1 million. The income approach compares the
fair value of the Company, as measured by discounted expected future cash flows, to the carrying amount of the
Company. If the Company's carrying amount exceeds its estimated fair value, there is a potential impairment and step two of the analysis must be performed.

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, 2008 and concluded that there was no impairment at that time. In light of the
Company's operating performance during the first half of 2009, which was impacted by issues associated with the January 30, 2009 systems cutover, the Company performed an interim goodwill
impairment assessment as of June 30, 2009 and determined goodwill was not impaired.

While
no impairment charges resulted from the analysis performed at June 30, 2009, impairment charges may occur 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.

As
of September 30, 2009, the Company had goodwill of $595.1 million.

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(2) Accounting Policies (Continued)

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

At
September 30, 2009Customer lists (weighted average 9.7 years):Gross carrying amount

$
208,504Less accumulated amortization


(33,858
)Net customer lists


174,646Non-Compete agreement (weighted average 1 year):Gross carrying amount


358Less accumulated amortization


(358
)Net non-compete agreement


Trade names (indefinite life):Gross carrying amount


42,816Total intangible assets, net

$
217,462


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

(o) Accounting for Income Taxes

The Company accounts for income taxes for interim periods in accordance with the Income Taxes Topic of the ASC. The Income
TaxesInterim Reporting subtopic of the ASC requires the tax (or benefit) related to ordinary income (or loss) to be computed at an estimated annual effective tax rate and the tax (or
benefit) related to all other items to be individually computed and recognized when the items occur unless a reliable estimated annual effective tax rate cannot be calculated.

This
process involves estimating the actual current tax exposure and assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included within the Company's condensed consolidated balance sheets. The Company must then assess the likelihood that its deferred
tax assets will be recovered from future taxable income and, to the extent the Company believes the recovery is not likely, it must establish a valuation allowance. Further, to the extent that the
Company establishes a valuation allowance or increases this allowance in a financial accounting period, the Company must include a tax provision, or reduce its tax benefit in the condensed
consolidated statement of operations. In performing the assessment, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning
strategies. The Company uses its judgment to determine its provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax
assets.

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(2) Accounting Policies (Continued)

(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 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.

On
March 3, 2009, the Company's compensation committee approved the award of performance units under the FairPoint Communications, Inc. 2008 Long Term Incentive Plan for
the performance period beginning January 1, 2009 and ending December 31, 2011 to certain key employees. As of September 30, 2009, no shares of common stock had been issued
pursuant to these grants.

On
June 10, 2009, the Company's compensation committee approved the award of certain equity incentives to David L. Hauser, the Company's new Chairman and Chief Executive Officer,
as an inducement to accept employment with the Company (the "Inducement Awards"). As provided in Mr. Hauser's employment agreement, dated June 11, 2009, the Inducement Awards include:
(i) options to purchase 1,600,000 shares of the Company's common stock (the "Inducement Options"); (ii) restricted shares of the Company's common stock valued at $4,000,000 (the
"Inducement Restricted Stock"); and (iii) performance units for two performance periods beginning on July 1, 2009 and ending on December 31, 2010 and December 31, 2011,
respectively (the "Inducement Performance Units"). The Inducement Options were granted on July 1, 2009, at an exercise price of $0.95 per share. The Inducement Options will vest and become
exercisable in three equal annual installments commencing on July 1, 2010, provided that Mr. Hauser remains employed by the Company through each such date. The Inducement Restricted
Stock will be awarded in the following three installments: (i) $500,000 on July 1, 2009; (ii) $1,750,000 on July 1, 2010; and (iii) $1,750,000 on July 1,
2011, and will be valued based on the average closing prices of the Company's common stock during the thirty calendar days immediately preceding the applicable award date. Accordingly, on
July 1, 2009, 523,810 shares of restricted stock were awarded to Mr. Hauser. The Inducement Restricted Stock will become fully vested on July 1, 2012, provided that
Mr. Hauser remains employed by the Company through such date. The Inducement Performance Units will be earned and paid in shares of the Company's common stock, based on the Company's
performance during the performance periods, with a target amount of 200% of Mr. Hauser's base salary and a maximum of 400% of Mr. Hauser's base salary. The number of shares subject to
the Inducement Options and the option exercise price will be adjusted, and additional shares of Inducement Restricted Stock will be awarded, as necessary, to preserve the value of the Inducement
Options and the Inducement Restricted Stock awarded on July 1, 2009 if, prior to December 31, 2010, the Company completes a restructuring of its indebtedness.

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(2) Accounting Policies (Continued)

(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.

(3) Recent Accounting Pronouncements

On July 1, 2009, the Company adopted the FASB ASC. The FASB has established the ASC as the source of authoritative principles and standards recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The adoption of the ASC had no impact on the Company's consolidated results of operations and financial position.

On
January 1, 2009, the Company adopted the accounting standard relating to business combinations. This standard establishes principles and requirements for how an acquirer in a
business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. This standard is to be applied prospectively to business combinations for which the acquisition date is on or after an entity's fiscal year that begins after
December 15, 2008. The Company will assess the impact of this standard if and when a future acquisition occurs.

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(3) Recent Accounting Pronouncements (Continued)

On
January 1, 2009, the Company adopted the accounting standard relating to disclosures about derivative instruments and hedging activities. This standard requires companies with
derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related
hedged items are accounted for under the Derivatives and Hedging Topic of the ASC and how derivative instruments and related hedged items affect a company's financial position, financial performance
and cash flows. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2008.
The adoption of this standard 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 interim disclosures about fair value of financial instruments. This standard extends financial instrument
fair value disclosure to interim financial statements of publicly traded companies. This standard is effective for interim reporting 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.

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 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.

In
December 2008, the accounting standard regarding employers' disclosures about postretirement benefit plan assets was updated to require the Company, as a plan sponsor, to provide
disclosures about plan assets, including categories of plan assets, the nature of concentrations of risk and disclosures about fair value measurements of plan assets. This standard is effective for
fiscal years ending after December 15, 2009. The adoption of this standard is not expected to have a significant impact on the Company's our consolidated results of operations and financial
position.

(4) 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.

(5) Acquisitions and Dispositions

On March 31, 2008, the Company completed the Merger with Spinco. The Merger was accounted for as a reverse acquisition of FairPoint by Spinco under the purchase method of
accounting because Verizon's stockholders owned a majority of the shares of the combined Company following the Merger. The Merger consideration was $316.3 million. Spinco was a wholly-owned
subsidiary of Verizon that owned Verizon's local exchange and related business activities in Maine, New Hampshire and Vermont.

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(5) Acquisitions and Dispositions (Continued)

Spinco
was spun off from Verizon immediately prior to the Merger. Spinco served approximately 1,562,000 access line equivalents as of the date of acquisition.

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 local exchange business of
Verizon New England in Maine, New Hampshire and Vermont and the customers of the Verizon Group's related long distance and Internet service provider businesses in those states to Spinco and the
entities (including an entity formed for holding Vermont property) that became Spinco's subsidiaries. In connection with these restructuring transactions, and immediately prior to closing of the
Merger on March 31, 2008, the Verizon Group contributed certain of those assets and all of the direct and indirect equity interests of those entities to Spinco in exchange
for:



As
a result of these transactions, the Verizon Group received $1.7 billion of combined cash and principal amount of Old Notes.

The
Verizon Group also contributed approximately $316.0 million in cash to Spinco at the time of the Spin-Off (as defined below), in addition to the amount of working
capital, subject to adjustment, that it was required to contribute pursuant to the distribution agreement that was in effect prior to the Merger. During the third quarter of 2008, the Company settled
the working capital adjustment with Verizon, resulting in an additional contribution to the Company of approximately $29.0 million from Verizon. In connection with this working capital
settlement, the Company paid Verizon $66.3 million for certain payables (offset by any receivables) owed to Verizon affiliates.

After
the contribution and immediately prior to the Merger, Verizon spun off Spinco by distributing all of the shares of Spinco common stock to a third-party distribution agent to be
held collectively for the benefit of Verizon stockholders. We refer collectively to the transactions described above as the Spin-Off.

The
Merger was accounted for using the purchase method of accounting for business combinations and, accordingly, the acquired assets and liabilities of Legacy FairPoint were recorded at
their estimated fair values as of the date of acquisition, and Legacy FairPoint's results of operations have been included in the Company's consolidated financial statements from the date of
acquisition. During the first quarter of 2009, the Company recorded an adjustment to its deferred tax account which decreased the excess of the purchase price over fair value by $24.3 million.
Based upon the Company's purchase price allocation, the excess of the purchase price over the fair value of the net tangible assets acquired was approximately $846.8 million. The Company
recorded an intangible asset related to the acquired customer relationships of $208.5 million, an intangible asset related to trade names of $42.8 million and an intangible asset related
to a non-compete agreement of $0.4 million. The remaining $595.1 million was recognized as goodwill. The estimated weighted average useful lives of the intangible assets are
9.7 years for the customer relationships, one year for the non-compete agreement and trade names have an indefinite useful life.

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(5) Acquisitions and Dispositions (Continued)

The
allocation of the total net purchase price of the Merger is shown in the table below (in thousands):

Cash

$
11,401Current assets


57,178Property, plant and equipment


303,261Investments


8,748Excess cost over fair value of net assets acquired


595,120Intangible assets


251,678Other assets


127,034Current liabilities


(179,146
)Long term debt


(687,491
)Other liabilities


(171,493
)Total net purchase price

$
316,290


The
following unaudited pro forma information presents the combined results of operations of the Company as though the Merger and related transactions had been consummated on
January 1, 2008. These results include certain adjustments, mainly associated with increased interest expense on debt and amortization of intangible assets related to the acquisitions and the
related income tax effects. The pro forma financial information does not necessarily reflect the actual results of operations had the Merger been consummated at the beginning of the period or which
may be attained in the future (in thousands, except per share data).

Pro forma
nine months ended
September 30, 2008(unaudited)Revenue

$
1,022,363Loss from operations


(11,509
)Net loss


(11,509
)Earnings per common share:Basic

$
(0.16
)Diluted


(0.16
)


(6) Income Taxes

For the three months and nine months ended September 30, 2009, the Company recorded an income tax benefit of $40.1 million and $57.0 million, respectively, resulting
in an effective tax rate of 34.2% and 35.4%, respectively, compared to an effective tax rate of 40.6% benefit and 29.7% expense for the three months and nine months ended September 30, 2008,
respectively.

The
Income Taxes Topic of the ASC requires the Company to apply a "more likely than not" threshold to the recognition and de-recognition of uncertain tax positions. The
Company's unrecognized tax benefits totaled $5.6 million and $8.6 million as of September 30, 2009 and December 31, 2008, respectively. The reduction in unrecognized tax
benefits was the result of the

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

(6) Income Taxes (Continued)

effective
settlement of Spinco's IRS audit involving the 2000 through 2003 tax years and did not have a material impact on the Company's tax provision for the three months or nine months ended
September 30, 2009. Of the $5.6 million of unrecognized tax benefits at September 30, 2009, $1.0 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 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. During the nine months ended September 30, 2009, there was a
$0.5 million decrease in interest and penalties, primarily as a result of the effective settlement of Spinco's IRS audit involving the 2000 through 2003 tax years. Cumulative interest and
penalties totaled $0.8 million and $1.2 million, net of tax, as of September 30, 2009 and December 31, 2008, respectively.

During
the three months ended September 30, 2009, the Company received the final tax basis of the fixed assets transferred from Verizon on March 31, 2008. The Company is in
the process of confirming this tax basis. Based on the tax basis received from Verizon, the Company has recorded an increase to its deferred tax liability of $11.1 million and a corresponding
decrease to additional paid-in capital.

At
September 30, 2009, the Company had federal and state NOL carryforwards of $457.6 that will expire from 2019 to 2029. At September 30, 2009, 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 NOL carryforwards, alternative minimum tax credits, and other similar tax attributes. The Merger (see note 5) also
resulted in an 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 NOL carryforwards and other tax
attributes. The Company expects that the Restructuring Plan, as currently contemplated, will result in another ownership change for tax purposes and a significant amount of the Company's tax
attributes, including NOL carryforwards, will be reduced. See "Filing of Chapter 11 CasesImpact on Net Operating Loss Carryforwards" in note 1 for a discussion of the
possible effects of the Chapter 11 Cases on the Company's net operating loss carryforwards.

The
Company or one of its subsidiaries files income tax returns in the federal jurisdiction, and with various state and local governments. The Company is no longer subject to federal,
state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004. As of
September 30, 2009, Spinco was under IRS audit for the 2004 through 2006 fiscal years. Management believes that the Company has adequately provided for any adjustments that may arise from these
audits.

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.

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

(7) Interest Rate Swap Agreements

The Company assesses interest rate 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 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 believes it is prudent to limit the variability of a portion of its interest payments. To meet this objective,
from time to time, the Company enters into interest rate swap agreements to manage fluctuations in cash flows resulting from
interest rate risk. The Swaps effectively change 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.

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.

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

(7) Interest Rate Swap Agreements (Continued)

The
chart below provides details of the Swaps.

Effective Date:

Notional Amount

Rate

Rate, including
applicable margin

Expiration DateFebruary 8, 2005

$130.0 Million


4.11
%

6.86
%
December 31, 2009April 29, 2005

$50.0 Million


4.72
%

7.47
%
March 31, 2012June 30, 2005

$50.0 Million


4.69
%

7.44
%
March 31, 2011June 30, 2006

$50.0 Million


5.36
%

8.11
%
December 31, 2009December 31, 2007

$65.0 Million


4.91
%

7.66
%
December 30, 2011December 31, 2007

$75.0 Million


5.46
%

8.21
%
December 31, 2010December 31, 2008

$100.0 Million


5.02
%

7.77
%
December 31, 2010December 31, 2009

$150.0 Million


5.65
%

8.40
%
December 31, 2011June 30, 2008

$100.0 Million


4.99
%

7.74
%
December 30, 2010June 30, 2008

$100.0 Million


4.95
%

7.70
%
June 30, 2010June 30, 2008

$100.0 Million


5.45
%

8.20
%
December 31, 2010June 30, 2008

$100.0 Million


5.30
%

8.05
%
December 30, 2010June 30, 2008

$100.0 Million


4.50
%

7.25
%
December 31, 2010June 30, 2008

$100.0 Million


4.50
%

7.25
%
December 31, 2010December 31, 2010

$300.0 Million


4.49
%

7.24
%
December 31, 2012June 30, 2008

$250.0 Million


3.25
%

6.00
%
December 31, 2010


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 condensed consolidated statement of operations. At
September 30, 2009, the fair market value of the Swaps was a net liability of approximately $74.4 million, all of which has been included in current liabilities due to the event of
default described above. The Company has recognized losses of $11.5 million and gains of $8.6 million, respectively, on derivative instruments on the consolidated statement of operations
as a result of changes in the fair value of the Swaps during the three months and nine months ended September 30, 2009.

The
following table summarizes the location and fair value of the Company's derivative instruments in the condensed consolidated balance sheets as of September 30, 2009 and
December 31, 2008 (in thousands):

Fair Value of Liability Derivatives atSeptember 30, 2009

December 31, 2008Derivatives not designated as hedging instruments under SFAS 133:Interest rate contracts located within the balance sheet caption:Current liabilitiesInterest rate swaps

$
74,360

$
41,274Long term liabilitiesInterest rate swaps





41,681Total derivatives not designated as hedging instruments under SFAS 133

$
74,360

$
82,955


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

(7) Interest Rate Swap Agreements (Continued)

The following table summarizes the location and amount of gains (losses) on the Company's derivative instruments in the condensed consolidated statements of operations for the
three-month and nine-month periods ended September 30, 2009 and 2008 (in thousands):

Amount of (Loss) Gain
Recognized in Income on DerivativesThree months ended
September 30,

Nine months ended
September 30,Location of (Loss) Gain
Recognized in Income on
Derivatives2009

2008

2009

2008Derivatives not designated as hedging instrumentsInterest rate contracts

Gain (loss) on derivative instruments

$
(11,536
)
$
(5,014
)
$
8,595

$
38,109Total derivatives not designated as hedging instruments



$
(11,536
)
$
(5,014
)
$
8,595

$
38,109


(8) Long Term Debt

Long term debt for the Company at September 30, 2009 and December 31, 2008 is shown below (in thousands):

September 30,
2009

December 31,
2008Senior secured credit facility, variable rates ranging from 2.81% to 5.00% (weighted average rate of 4.31%) at September 30, 2009, due 2014 to
2015

$
1,965,450

$
1,930,000Senior notes, 13.125%, due 2018


549,996


551,000Discount on senior notes, 13.125%, due 2018


(9,908
)

(10,747
)Total outstanding long term debt


2,505,538


2,470,253Less current portion


(2,505,538
)

(45,000
)Total long term debt, net of current portion

$


$
2,425,253


The
estimated fair value of the Company's long term debt at September 30, 2009 is $1,614.4 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 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 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 Credit Facility constituted an

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

(8) Long Term Debt (Continued)

event
of default under the Swaps at September 30, 2009. As such, the Company has classified its obligations under the Credit Facility and the Swaps as current liabilities as of
September 30, 2009. Filing of the Chapter 11 Cases constituted an event of default on the New Notes. In addition, 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. As these events of default occurred prior to the issuance of the condensed consolidated financial statements,
the Company has classified its obligations under the Notes as current liabilities as of September 30, 2009.

On
September 25, 2009, the Company entered into forbearance agreements with the lenders under the 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 Credit 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, 2009 are as follows (in thousands):

Quarter ending September 30,2010

$
45,0002011


54,1502012


63,3002013


213,3002014


182,325Thereafter


1,957,371$
2,515,446


Pursuant
to the Restructuring 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.

Prior
to March 31, 2008, debt held by the Verizon Northern New England business was recorded at the Verizon consolidated level and interest expense was allocated to the Verizon
Northern New England business.

On
March 31, 2008, immediately prior to the Merger, FairPoint and Spinco entered into the Credit Facility consisting of the Revolver, the Term Loan A Facility, the Term Loan B
Facility and the Delayed Draw Term Loan. Spinco drew $1,160 million under the Term Loan immediately prior to the Spin-Off, 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.

On
October 5, 2008 the administrative agent under the Credit Facility filed for bankruptcy. The administrative agent accounted for thirty percent of the loan commitments under the
Revolver. On January 21, 2009, the Company entered into an amendment to the Credit Facility under which, among

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

(8) Long Term Debt (Continued)

other
things, the administrative agent resigned and was replaced by a new administrative agent. In addition, the resigning administrative agent's undrawn loan commitments under the Revolver, totaling
$30.0 million, were terminated and are no longer available to the Company.

The
Revolver has a swingline subfacility in the amount of $10 million and a letter of credit subfacility in the amount of $30 million, which will allow issuances of standby
letters of credit by the Company. The Credit Facility also permits interest rate and currency exchange swaps and similar arrangements that the Company may enter into with the lenders under the Credit
Facility and/or their affiliates.

As
of September 30, 2009, the Company had borrowed $150.0 million under the Revolver and letters of credit had been issued for $18.2 million. Accordingly, as of
September 30, 2009, the remaining amount available under the Revolver was $2.1 million. The Company also had pending commitments for additional letters of credit totaling
$0.7 million as of September 30, 2009. Upon the event of default under the Credit Facility relating to the Chapter 11 Cases described herein, the commitments under the Revolver
were automatically terminated.

The
Term Loan B Facility and the Delayed Draw Term Loan will mature in March 2015 and the Revolver 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, the "Term Loans"), are repayable in quarterly installments in the manner set forth in the Credit Facility beginning
June 30, 2009.

Interest
rates for borrowings under the Credit Facility will be, at the Company's option, for the Revolver and for the Term Loans at either (a) the Eurodollar rate, as defined in
the Credit Facility, plus an applicable margin or (b) the base rate, as defined in the 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
Company's effective interest rate on all of its debt, which includes the impact of the Swaps, as of September 30, 2009 is 8.87%.

The
Credit Facility provides for payment to the lenders of a commitment fee on the average daily unused portion of the Revolver 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 Credit Facility also provides for payment to the lenders of a commitment fee from the closing date of
the 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
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

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

(8) Long Term Debt (Continued)

100%
of the net cash proceeds the Company receives from the issuance of debt obligations and preferred stock. In addition, the Credit Facility requires the Company to prepay outstanding Term Loans on
the date the Company delivers a compliance certificate pursuant to the 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
dividend payment and less its amortization payments made on the Term Loans pursuant to the 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 Loans and optional reductions of the unutilized portion of the Revolver 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 Credit Facility.

Under
the 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 Credit
Facility contains customary affirmative covenants. The 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 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 Credit Facility and certain events of bankruptcy and insolvency.

The
Credit Facility also contains restrictions on the Company's ability to pay dividends on or repurchase its common stock.

The
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 Credit Facility.

The
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.

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 April 1, 2013. Interest is payable on the Old Notes semi-annually in cash on April 1 and October 1 of each year. The 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

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(8) Long Term Debt (Continued)

carrying
value of $539.8 million (principal amount at maturity of $551.0 million less discount of $11.2 million).

The
indenture governing the Old Notes (the "Old 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 restriction on the ability of
the Company's subsidiaries to make distributions or transfer assets to the Company and enter into transactions with affiliates.

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

During
the nine months ended September 30, 2009, the Company repurchased $19.9 million in aggregate principal amount of the Old Notes for an aggregate purchase price of
$6.3 million in cash. The Company did not repurchase any Old Notes during the three months ended September 30, 2009. In addition, for the three and nine months ended September 30,
2009, the Company repaid $2.2 million and
$8.4 million, respectively, of principal under the Term Loan A Facility and, for the nine months ended September 30, 2009, repaid $6.1 million of principal under the Term Loan B
Facility. The Company did not make any principal payments on the Term Loan B Facility during the three months ended September 30, 2009. In total, the Company retired $2.2 million and
$34.5 million of outstanding debt during the three and nine months ended September 30, 2009, respectively.

On
June 24, 2009, the Company launched the Exchange Offer. Concurrently with the Exchange Offer, the Company solicited consents (the "Consent Solicitation") from holders of the
Old Notes for certain amendments to the Old Indenture to eliminate or amend substantially all of the restrictive covenants and modify a number of the events of default and certain other provisions
previously contained in the Old Indenture (collectively, the "Proposed Amendments").



On July 29, 2009, the Company successfully consummated the Exchange Offer. On 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 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

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(8) Long Term Debt (Continued)

amount
of the New Notes. 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 a current liability as of September 30, 2009, the Company has classified the accrued interest on the New Notes as of September 30, 2009 of
$12.2 million as a current liability on the condensed consolidated balance sheet.

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.



For a discussion of the DIP Financing that was entered into on October 27, 2009 and became effective on October 30, 2009,
see note 1.

(9) Employee Benefit Plans

The Company remeasured its pension and other post-employment benefit assets and liabilities as of December 31, 2008, in accordance with the
CompensationRetirement Benefits Topic of the ASC. This measurement is based on a 5.99% discount rate, as well as certain other valuation assumption modifications. Additionally, the
Company remeasured its management
pension plan as of September 30, 2009 to recognize a settlement charge in accordance with the CompensationRetirement Benefits Topic of the ASC. This measurement is based on a 5.57%
discount rate.

Prior
to the Merger, the Verizon Northern New England business participated in Verizon's benefit plans. Verizon maintained noncontributory defined benefit pension plans for many of its
employees. The post-retirement health care and life insurance plans for the Verizon Northern New England business' retirees and their dependents were both contributory and noncontributory
and included a limit on the Companies' share of cost for recent and future retirees. The Verizon Northern New England business also sponsored defined contribution savings plans to provide
opportunities for eligible employees to save for retirement on a tax-deferred basis. A measurement date of December 31 was used for the pension and post-retirement
health care and life insurance plans.

The
structure of Verizon's benefit plans did not provide for the separate attribution of the related pension and post-retirement assets and obligations at the Verizon
Northern New England business level. Because there was not a separate plan for the Verizon Northern New England business, the annual income and expense related to such assets and obligations were
allocated to the Verizon

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

(9) Employee Benefit Plans (Continued)

Northern
New England business and are reflected as prepaid pension assets and employee benefit obligations in the balance sheet prior to the Merger.

After
June 30, 2006, Verizon management employees, including management employees of the Verizon Northern New England business, ceased to earn pension benefits or earn service
towards the company retiree medical subsidy. In addition, new management employees hired after December 31, 2005 were not eligible for pension benefits and managers with less than
13.5 years of service as of June 30, 2006 were not eligible for company-subsidized retiree healthcare or retiree life insurance benefits. Beginning July 1, 2006, Verizon Northern
New England business management employees received an increased company match on their savings plan contributions.

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


In
2009, the Company does not expect to make a contribution to the qualified pension plans, but it does expect to incur $0.5 million in post-retirement healthcare plan
expenditures.

For
the three months and nine months ended September 30, 2009, the actual gain on the pension plan assets has been approximately 12.7% and 13.6%, respectively. Net periodic
benefit cost for 2009 assumes a weighted average annualized expected return on plan assets of approximately 8.3%. Should the actual return on plan assets become significantly lower than the expected
return assumption, the net periodic benefit cost may increase in future periods and the Company may be required to contribute additional funds to its pension plans after 2009.

Pension
plan assets at September 30, 2009 include an additional transfer of assets from Verizon, estimated to be between $33.0 and $45.6 million, pending final actuarial
settlement. This estimate reflects an initial estimate of between $38.5 and $50.0 million as of December 31, 2008, reduced by a final asset transfer of $9.0 million on
June 1, 2009 related to the management pension plan, and adjusted for gains and losses since December 31, 2008. For purposes of determining fair value of plan assets at
September 30, 2009, the Company has assumed a final transfer of $33.0 million from Verizon for the associate pension plan. The final transfer will be made from Verizon's defined benefit
plans' trusts upon final validation by actuaries and the Company of the census information and related actuarial calculations in accordance with relevant statutory and regulatory guidelines and an
employee

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FINANCIAL STATEMENTS (Unaudited) (Continued)

(9) Employee Benefit Plans (Continued)

matters
agreement with Verizon. The assets transferred from the Verizon benefit plans' trusts to the Company's benefit plans' trusts have been invested by the plans' trustee in various equity and
fixed income securities. The final asset transfer will include investment return or loss on the final transfer amount from March 31, 2008 until the date of the final asset transfer equivalent
to the rate of return in the Verizon pension trusts.

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 months ended March 31, 2009, the Company generally matched in the Legacy FairPoint
401(k) plans 100% of each employee's contribution up to 3% of compensation and 50% of additional contributions up to 6% or as otherwise required by the relevant collective bargaining agreement; in the
Northern New England 401(k) management plan an amount equal to 100% of each employee's contribution up to 6% of base compensation; and in the Northern New England 401(k) plan for union associates an
amount equal to 82% of each employee's contribution up to 6% of base compensation.

Effective
for the first full payroll period in April 2009, matching contributions made to the Company's 401(k) plans for certain employees may be made in the form of the Company's common
stock or in cash. Generally, each participant in these plans would receive a dollar-for-dollar match of FairPoint stock or cash up to 5% of the participant's eligible
compensation. For the three months ended June 30, 2009, the foregoing matching contributions were made in the form of cash. Matching contributions earned by participants during the three months
ended September 30, 2009 have been accrued by the Company and will be paid, along with matching contributions earned during the three months ending December 31, 2009, in early 2010.
Certain participants in the Company's 401(k) plans who are covered by collective bargaining agreements will continue to have their Company matching contributions determined under the prior formula and
made in cash.

Total
Company contributions to all 401(k) Plans were $2.3 million and $2.5 million for the three months ended September 30, 2009 and 2008, respectively, and were
$7.2 million and $7.6 million for the nine months ended September 30, 2009 and 2008, respectively. The $2.3 million of Company contributions during the three months ended
September 30, 2009 includes a lump sum contribution of $0.9 million to be made in early 2010 to match certain employee contributions made during the three months ended
September 30, 2009.

(10) Accumulated Other Comprehensive Loss

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

September 30,
2009

December 31,
2008Accumulated other comprehensive loss, net of taxes:Defined benefit pension and post-retirement plans

$
(127,951
)
$
(134,504
)Total accumulated other comprehensive loss

$
(127,951
)
$
(134,504
)


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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

(10) Accumulated Other Comprehensive Loss (Continued)

Other
Comprehensive Loss for the nine months ended September 30, 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. Defined benefit pension and post-retirement plan activity during the three months ended
March 31, 2008 included $49.5 million (net of $32.8 million taxes) in connection with the Merger, which is reflected as a reduction to Accumulated Other Comprehensive Loss. This
amount represents the allocation of previously existing plan assets, obligations and prior service costs to the surviving benefit plans upon Merger.

(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 30,2009

2008

2009

2008Weighted average number of common shares used for basic earnings per share


89,366


88,999


89,235


71,358Effect of potential dilutive shares











1,415Weighted average number of common shares and potential dilutive shares used for diluted earnings per share


89,366


88,999


89,235


72,773Anti-dilutive shares excluded from the above reconciliation


2,674


2,894


2,312


282


Since
the Company incurred a loss for the three and nine months ended September 30, 2009 and the three months ended September 30, 2008, 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, 2009, there were 90,015,551 shares of common stock outstanding and 200,000,000 shares of common stock were authorized.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

(13) Transactions with Affiliates

The Verizon Northern New England business' financial statements for periods prior to the Merger include the following transactions with Verizon and related subsidiaries:

The
Verizon Northern New England business' operating revenue includes transactions with Verizon for the provision of local telephone services, network access, billing and collection
services, interconnection
agreements and the rental of facilities and equipment. These services were reimbursed by Verizon based on tariffed rates, market prices, negotiated contract terms that approximated market rates, or
actual costs incurred by the Verizon Northern New England business.

The
Verizon Northern New England business reimbursed Verizon for specific goods and services it provided to, or arranged for, the Verizon Northern New England business based on tariffed
rates, market prices or negotiated terms that approximated market rates. These goods and services included items such as communications and data processing services, office space, professional fees
and insurance coverage.

The
Verizon Northern New England business also reimbursed Verizon for the Verizon Northern New England business' share of costs incurred by Verizon to provide services on a common basis
to all of its subsidiaries. These costs included allocations for legal, security, treasury, tax and audit services. The allocations were based on actual costs incurred by Verizon and periodic studies
that identified employees or groups of employees who were totally or partially dedicated to performing activities that benefited the Verizon Northern New England business, in activities such as
investor relations, financial planning, marketing services and benefits administration. These allocations were based on actual costs incurred by Verizon, as well as on the size of the Verizon Northern
New England business relative to other Verizon subsidiaries. The Company believes that these cost allocations are reasonable for the services provided. The Company also believes that these cost
allocations are consistent with the nature and approximate amount of the costs that the Verizon Northern New England business would have incurred on a stand-alone basis.

The
Verizon Northern New England business also recognized an allocated portion of interest expense in connection with contractual agreements between the Verizon Companies and Verizon for
the provision of short term financing and cash management services. Verizon issues commercial paper and obtains bank loans to fund the working capital requirements of Verizon's subsidiaries, including
the Verizon Group, and invests funds in temporary investments on their behalf. The Verizon Group also recognized interest expense related to a promissory note held by Verizon.

The
affiliate operating revenue and expense amounts do not include affiliate transactions between Verizon and VLD's, VOL's and VSSI's operations in Maine, New Hampshire
and Vermont. Because the Verizon Northern New England business' operating expenses associated with VLD, VOL and VSSI were determined predominantly through allocations, separate identification of the
affiliate transactions was not readily available.

(14) Fair Value Measurements

The Fair Value Measurements and Disclosures Topic of the ASC defines fair value, establishes a framework for measuring fair value and establishes a hierarchy that categorizes and
prioritizes the sources to be used to estimate fair value. This Topic also expands financial statement disclosures about fair value measurements. On February 12, 2008, the FASB issued FASB
Staff Position (FSP) 157-2,

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

(14) Fair Value Measurements (Continued)

which
delays the effective date of the Fair Value Measurements and Disclosures Topic of the ASC 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 Company elected a partial deferral of this Topic under the provisions of FSP 157-2 related to the
measurement of fair value used when evaluating goodwill, investments, other intangible assets and other long-lived assets for impairment and valuing asset retirement obligations and
liabilities for exit or disposal activities until fiscal years beginning after November 15, 2008. As of January 1, 2009, the Company adopted FSP 157-2 which did not have a
material impact on the Company's financial statements. The impact of partially adopting the Fair Value Measurements and Disclosures Topic of the ASC effective January 1, 2008 was not material
to the Company's financial statements.

The
following table summarizes the Company's financial assets and liabilities measured at fair value on a recurring basis (at least annually) as of September 30, 2009 (in
thousands):

September 30,
2009

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)Interest rate swap agreements(1)


(74,360
)




(74,360
)




(1)Fair
value of interest rate swaps at September 30, 2009 was calculated by the Company using valuation methodologies consistent with those of the
counterparties to the underlying contracts. These market values were then discounted for the Company's risk of non-performance, which is represented by the market spread on our debt as of
September 30, 2009. See note 7 for more information.


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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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




(15) Commitments and Contingencies

(a) Leases

Future minimum lease payments under capital leases and non-cancelable operating leases as of September 30, 2009 are
as follows (in thousands):

Capital
Leases

Operating
LeasesTwelve months ending September 30:2010

$
3,059

$
10,9782011


2,275


9,1062012


1,801


7,7842013


1,605


6,6092014


1,534


4,543Thereafter


489


7,952Total minimum lease payments

$
10,763

$
46,972Less interest and executory cost


(2,625
)Present value of minimum lease payments


8,138Less current installments


(2,097
)Long term obligations at September 30, 2009

$
6,041


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

(b) Legal Proceedings

From time to time, the Company is involved in litigation and regulatory proceedings arising out of its operations. With the exception
of the Capter 11 Cases, management believes that the Company 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.

(c) Service Quality Penalties

The Company is subject to certain service quality requirements in the states of Maine, New Hampshire and Vermont. Failure to meet these
requirements in any of these states may result in penalties being assessed by the respective state regulatory body. As of September 30, 2009, 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. Applicable 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, a $19.4 million increase in the
estimated liability was recorded as a reduction to revenue for the three months ended September 30, 2009. The Company has recorded a total liability of $22.4 million on the condensed
consolidated balance sheet at September 30, 2009. Additional penalties may be assessed as a

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

(15) Commitments and Contingencies (Continued)

result
of service quality issues related to the Cutover, which could have a material adverse effect on the Company's financial position, results of operations and liquidity.

At
this time, it is unclear what effect the filing of the Chapter 11 Cases will have on the requirements, including service quality penalties, imposed by the PUCs in Maine, New
Hampshire and Vermont as a condition to the approval of the Merger and whether such requirements will be enforceable against the Company in the future.

(16) Subsequent Events

The Company has evaluated subsequent events through November 20, 2009, the date that the financial statements were issued.

Capgemini Settlement Agreement

On October 9, 2009, the Company entered into a Settlement Agreement and Release (the "Settlement Agreement") with Capgemini. The
Company had certain invoiced amounts and deferred amounts totaling approximately $49.8 million which it owed to Capgemini under various contracts between Capgemini and the Company. Pursuant to
the Settlement Agreement, Capgemini agreed to continue to provide services to the Company in exchange for the Company paying Capgemini ongoing fees plus $30 million of the total
$49.8 million, with the Company paying $15 million upon execution of the Settlement Agreement and an additional $15 million on December 31, 2009. The Settlement Agreement
also allows Capgemini to, among other things, assert an allowed unsecured claim (to which the Company will not object) for the remaining balance of approximately $19.8 million under the
Chapter 11 Cases. The Company also agreed to assume certain contracts with Capgemini under the Chapter 11 Cases.

The Chapter 11 Cases

On October 26, 2009, the Debtors filed the Chapter 11 Cases. For a discussion of the Chapter 11 Cases, see
note 1.

Default Under the Company's Outstanding Debt Instruments

The filing of the Chapter 11 Cases constituted an event of default under the New Indenture, the Credit Facility and the Swaps.
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 Credit Facility, upon the filing of the Chapter 11 Cases, all commitments under the Credit Facility were terminated and all loans (with accrued interest thereon) and all other
amounts outstanding under the 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 Credit Facility on September 30, 2009. The failure to
make the principal

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

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

(16) Subsequent Events (Continued)

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 Credit Facility. An event of default under the Credit Facility
permits the lenders under the 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 the Company.

The
occurrence of an event of default under the 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. As a result of these events of default under the
Swaps and the default resulting from the filing of the Chapter 11 Cases under the Swaps, both of the counterparties to the Swaps exercised their rights to declare an early termination of the
Swaps and all outstanding amounts under the Swaps became immediately due and payable. The Company has been notified that as of October 26, 2009, the settlement amount, including amounts
previously owing by the Company under the Swaps, totaled approximately $98.8 million, as such amount has been determined by the counterparties under the Swaps.

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.

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
FairPoint Communications that it had determined that the listing of FairPoint Communications' common stock should be suspended immediately.

The
last day that FairPoint Communications' common stock traded on the NYSE was October 23, 2009. FairPoint Communications does not intend to take any further action to appeal the
NYSE's decision, and therefore it is expected that FairPoint Communications' common stock will be delisted after the completion of the NYSE's application to the SEC to delist FairPoint Communications'
common stock.

FairPoint
Communications' common stock is currently trading under the symbol "FRCMQ" on the pink sheets.

DIP Financing

In connection with the Chapter 11 Cases, on October 27, 2009 the DIP Borrowers entered into the DIP Credit Agreement
which became effective on October 30, 2009. See note 1 for further discussion.

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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. 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, 2008,
"Part IIItem 1A. Risk Factors" of our Quarterly Report on Form 10-Q for the quarterly periods ending June 30, and March 31, 2009 and
"Part IIItem 1A. Risk Factors" and "Cautionary Note Concerning Forward-Looking Statements" contained in this Quarterly Report.

Recent Developments



On October 26, 2009, the Debtors filed the Chapter 11 Cases. For a discussion of the Chapter 11 Cases, see
note 1 to our condensed consolidated financial statements.



As a result of the filing of the Chapter 11 Cases, on October 26, 2009, the NYSE notified FairPoint Communications that
it had determined that the listing of FairPoint Communications' common stock should be suspended immediately.

The
last day that FairPoint Communications' common stock traded on the NYSE was October 23, 2009. FairPoint Communications does not intend to take any further action to appeal the
NYSE's decision, and therefore it is expected that FairPoint Communications' common stock will be delisted after the completion of the NYSE's application to the SEC to delist FairPoint Communications'
common stock.

FairPoint
Communications' common stock is currently trading under the symbol "FRCMQ" on the pink sheets.



In connection with the Chapter 11 Cases, on October 27, 2009 we entered into the DIP Credit Agreement which became
effective on October 30, 2009. See note 1 to our condensed consolidated financial statements for further discussion.



On October 9, 2009, we entered into the Settlement Agreement with Capgemini. We had certain invoiced amounts and deferred
amounts totaling approximately $49.8 million which we owed to Capgemini under various contracts between Capgemini and us. Pursuant to the Settlement Agreement, Capgemini agreed to continue to
provide services to us in exchange for us paying Capgemini ongoing fees plus $30 million of the total $49.8 million, with us paying $15 million upon execution of the Settlement
Agreement and an additional $15 million on December 31, 2009. The Settlement Agreement also allows Capgemini to, among other things, assert an allowed unsecured claim (to which we will
not object) for the remaining balance of approximately $19.8 million under the Chapter 11 Cases. We also agreed to assume certain contracts with Capgemini under the Chapter 11
Cases.

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, video and Internet and

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broadband
product offerings. We are one of the largest telephone companies in the United States focused on serving rural and small urban communities, and are the 7th largest local telephone
company in the United States, in each case based on number of access lines as of September 30, 2009. We operate in 18 states with approximately 1.6 million access line equivalents
(including voice access lines and high speed data lines, which include DSL, wireless broadband and cable modem) in service as of September 30, 2009.

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

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 Telecommunications Act of 1996, which 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. We have obtained permission to continue to operate under this 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 local
exchange carriers, 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.

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, dated as of January 15, 2007, which we entered into
with certain subsidiaries of Verizon in connection with the Merger, as amended on March 31, 2008 (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 on January 30, 2009, 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 have had limited ability during the first half of 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.

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

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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 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.

We
have since worked diligently to remedy these issues and we now believe that most areas of the business are operating at or near normal levels. The order backlog has been reduced
significantly and order handle times continue to be reduced. Provisioning of new orders has steadily improved and call volumes into the customer service centers have returned to
pre-Cutover levels. In addition, systems functionality supporting our collection efforts continues to improve, but certain functionality is not fully operational. 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 allowance for doubtful accounts during
the third quarter of 2009. Overall, delays in implementing the collections software functionality, together with other Cutover issues, have caused an increase in accounts receivable, which has
adversely impacted our liquidity.

Because
of 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 have been unable to fully implement our operating plan for 2009 and effectively
compete in the marketplace, which we believe is having an adverse effect on our business, financial condition, results of operations and liquidity.

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 the Merger Agreement, Legacy FairPoint issued 53,760,623 shares of common stock to Verizon stockholders. Prior to the Merger, the Verizon Group engaged in a series of restructuring
transactions to effect the transfer of specified assets and liabilities of the Verizon Northern New England business to 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 is deemed to be the acquirer. As a result, for the nine months
ended September 30, 2008, the statement of operations and

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the
financial information derived from the statement of operations in this Quarterly Report reflect the consolidated financial results of the Company by including the financial results of the Verizon
Northern New England business for the three months ended March 31, 2008 and the combined financial results of Spinco and Legacy FairPoint for the six months ended September 30, 2008. For
more information, see note 1 to the "Condensed Consolidated Financial Statements."

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.

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 30,2009

2008

2009

2008

2009

2008

2009

2008Revenue Source:Local calling services

$
103,520

$
143,415

$
358,569

$
425,181


39
%

44
%

41
%

44
%Access


89,573


94,094


285,126


274,514


33
%

29
%

32
%

29
%Long distance services


36,517


50,161


116,646


140,518


14
%

15
%

13
%

15
%Data and Internet services


26,402


32,873


83,869


85,445


10
%

10
%

10
%

9
%Other services


12,272


7,712


35,315


29,701


4
%

2
%

4
%

3
%Total

$
268,284

$
328,255

$
879,525

$
955,359


100
%

100
%

100
%

100
%


Operating Expenses

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



Because
the Verizon Northern New England business had been operating as the local exchange carrier of Verizon in Maine, New Hampshire and Vermont, and not as a standalone
telecommunications provider, the historical operating results of the Verizon Northern New England business for the three months ended March 31, 2008 include approximately $58 million of
expenses for services provided by the Verizon Group, including information systems and information technology, shared assets including office space outside of New England, supplemental customer sales
and service and operations. During January 30, 2009, we operated under the Transition Services Agreement, under which we incurred $15.9 million of expenses. As of January 30,
2009, we began performing these services internally or obtaining them from third-party service providers and not from Verizon.

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Acquisitions and Dispositions

On March 31, 2008, we completed the Merger with Spinco. The Merger of Legacy FairPoint and Spinco was accounted for as a reverse
acquisition of Legacy FairPoint by Spinco under the purchase method of accounting because Verizon's stockholders owned at least a majority of the shares of the combined Company following the Merger.
The Merger consideration was $316.3 million. Spinco was a wholly-owned subsidiary of Verizon that owned Verizon's local exchange and related business activities in Maine, New Hampshire and
Vermont. Spinco was spun off from Verizon immediately prior to the Merger. Spinco served approximately 1,562,000 access line equivalents as of the date of acquisition.

Results of Operations

Three Months Ended September 30, 2009 Compared with Three Months Ended September 30, 2008

The following table sets forth the percentages of revenues represented by selected items reflected in the 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):

2009

% of
Revenues

2008

% of
RevenuesRevenues

$
268,284


100
%
$
328,255


100
%Operating expensesCost of services and sales


128,550


48


152,579


46Selling, general and administrative


120,391


45


104,679


32Depreciation and amortization


68,570


26


60,768


19Total operating expenses


317,511


119


318,026


97Income from operations


(49,227
)

(19
)

10,229


3Interest expense


(56,874
)

(21
)

(49,665
)

(15
)Gain (loss) on derivative instruments


(11,536
)

(4
)

(5,014
)

(2
)Other income (expense)


214





2,165


1Income (loss) before income taxes


(117,423
)

(44
)

(42,285
)

(13
)Income tax (expense) benefit


40,120


15


17,176


5Net income (loss)

$
(77,303
)

(29
)%
$
(25,109
)

(8
)%


Revenues
decreased $60.0 million to $268.3 million in the third quarter of 2009 compared to 2008, of which $6.3 million is attributable to adjustments recorded in
the three months ended September 30, 2009 that relate to prior periods and $19.4 million is due to service quality assessments incurred in the northern New England states. Excluding this
$25.7 million reduction in revenue, revenues in each of our revenue categories have been impacted by weakness in the economy during recent months which has caused a decrease in discretionary
consumer spending and resulted in an increase in access line losses and a decrease in usage. In addition, our revenues have also been adversely impacted by the effects of competition and technology
substitution. Additionally, because of Cutover issues that have prevented us from executing fully on our operating plan for 2009, our revenue has continued to decline. We derive our revenues from the
following sources:

Local calling services.Local calling services revenues decreased $39.9 million to $103.5 million during the third quarter of
2009
compared to the same period in 2008. This decrease is partially attributable to a reduction in revenue totaling $19.4 million for the third quarter of 2009 for service quality assessments
incurred in the northern New England states and $2.9 million reduction of revenue recorded in the three months ended September 30, 2009 that relate to prior periods coupled with a 9.3%
decline in total voice access lines in service at September 30, 2009 compared to September 30, 2008. The decline in total voice access lines was mainly driven by the effects of
competition and technology substitution as well as the weakness of the economy.

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Access.Access revenues decreased $4.5 million to $89.6 million during the third quarter of 2009 compared to the same period
in 2008.
This decrease consisted of a $8.9 million decrease in interstate access revenues, reflecting a $1.8 million reduction of revenue recorded in the three months ended September 30,
2009 that relate to prior periods, the impact of access line loss and technology substitution as well as weakness of the economy, partially offset by a $4.4 million increase in intrastate
revenues.

Long distance services.Long distance services revenues decreased $13.6 million to $36.5 million in the third quarter of 2009
compared
to the same period in 2008. The decrease was primarily attributable to a decrease in the number of subscriber lines in 2009 due to technology substitution and the weakness of the economy coupled with
a $0.5 million reduction of revenue recorded in the three months ended September 30, 2009 that relate to prior periods, partially offset by increased revenue from bundled product
offerings designed to retain customers and generate more revenue.

Data and Internet services.Data and Internet services revenues decreased $6.5 million to $26.4 million in the third quarter
of 2009
compared to the same period in 2008. This decrease is primarily due to a
slowing in our high speed data subscriber growth, caused by an absence of promotional advertising of our data and Internet products due to cutover issues as well as the weakness of the economy and a
$1.1 million reduction of revenue recorded in the three months ended September 30, 2009 that relate to prior periods.

Other services.Other services revenues increased $4.6 million to $12.3 million in the third quarter of 2009 compared to the
same
period in 2008. A prior period adjustment of $3.3 million related to the second quarter of 2008 was recorded to other services revenues in the third quarter of 2008. Excluding the impact of
this adjustment, other services revenues would have increased $1.3 million.

Operating Expenses

Cost of services and sales.Cost of services and sales decreased $24.0 million to $128.6 million in the third quarter of 2009
compared
to the same period in 2008. The decrease is primarily related to the elimination of costs under the Transition Services Agreement, which was terminated on January 30, 2009, and the methodology
utilized by Verizon to allocate certain expenses to cost of services and sales prior to the Cutover to our own operating systems. Costs incurred under the Transition Services Agreement accounted for
$18.9 million of cost of services and sales during the third quarter of 2008. The elimination of these Transition Services Agreement costs has been partially offset by direct costs incurred by
us to operate the Northern New England operations.

Selling, general and administrative.Selling, general and administrative expenses increased $15.7 million to $120.4 million
in the
third quarter of 2009 compared to the same period in 2008. The increase is primarily related to a $20.5 million increase in bad debt expense, $6.1 million in costs incurred in connection
with the restructuring of our capital structure, the methodology utilized by Verizon to allocate certain expenses to selling, general and administrative expenses prior to the Cutover to our own
operating systems, and direct costs incurred by us to operate the Northern New England operations which has been partially offset by the elimination of costs under the Transition Services Agreement.
Costs incurred under the Transition Services Agreement accounted for $30.5 million of selling, general and administrative expense during the third quarter of 2008.

Depreciation and amortization.Depreciation and amortization expense increased $7.8 million to $68.6 million in the third
quarter of
2009 compared to the same period in 2008. Adjustments of $4.6 million related to the second quarter of 2008 were recorded in the third quarter of 2008. Excluding the impact of these
adjustments, depreciation and amortization expense would have increased $3.2 million, due primarily to increased gross plant asset balances, including capitalized software placed into service
upon termination of the Transition Services Agreement.

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Other Results

Interest expense.Interest expense increased $7.2 million to $56.9 million in the third quarter of 2009 compared to the same
period in
2008. This increase is due to the debt that we incurred subsequent to September 30, 2008. Accrued and unpaid interest on the Old Notes exchanged in the Exchange Offer through July 28,
2009 was paid on July 29, 2009 in the form of additional New Notes totaling $18.9 million (or $4.5 million for the period July 1, 2009 through July 28, 2009).
Accrued and unpaid interest on the New Notes from July 29, 2009 through the end of the third quarter 2009 is payable in the form of additional New Notes totaling $12.2 million. The
$16.7 million interest expense paid or payable in the form of New Notes has been treated as non-cash for purposes of our financial debt covenants.

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.

Other income (expense).Other income (expense) includes non-operating gains and losses such as those incurred on sale of equipment.
Other
income was $0.2 million in the third quarter of 2009, compared with other income of $2.2 million in the same period in 2008.

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 in the third quarter of 2009 and 2008 was 34.2% benefit and 40.6% benefit, respectively.

Net income (loss).Net loss for the three months ended September 30, 2009 was $77.3 million compared to net loss of
$25.1 million for the same period in 2008. The difference in net income (loss) between 2009 and 2008 is a result of the factors discussed above.

Nine Months Ended September 30, 2009 Compared with Nine Months Ended September 30, 2008

The following table sets forth the percentages of revenues represented by selected items reflected in the 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):

2009

% of
Revenues

2008

% of
RevenuesRevenues

$
879,525


100
%
$
955,359


100
%Operating expensesCost of services and sales


396,404


45


422,316


44Selling, general and administrative


310,789


35


270,085


29Depreciation and amortization


205,066


23


184,434


19Total operating expenses


912,259


103


876,835


92Income from operations


(32,734
)

(3
)

78,524


8Interest expense


(165,162
)

(19
)

(109,310
)

(11
)Gain on derivative instruments


8,595


1


38,109


4Gain on early retirement of debt


12,357


1





Other income


16,071


2


3,415


Income (loss) before income taxes


(160,873
)

(18
)

10,738


1Income tax (expense) benefit


56,975


6


(3,190
)

Net income (loss)

$
(103,898
)

(12
)%
$
7,548


1
%


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Revenues
decreased $75.8 million to $879.5 million in 2009 compared to 2008. The acquisition of Legacy FairPoint contributed $184.2 million and $131.8 million
to total revenues in the nine months ended September 30, 2009 and 2008, respectively. Excluding the impact of the Merger, combined total revenue would have decreased $128.2 million.
Revenues in each of our revenue categories have been impacted by weakness in the economy during recent months which has caused a decrease in discretionary consumer spending and resulted in an increase
in access line losses and a decrease in usage. Our revenues have also been adversely impacted by the effects of competition and technology substitution. Additionally, because of Cutover issues that
have prevented us from executing fully on our operating plan for 2009, our revenue has continued to decline. We derive our revenues from the following sources:

Local calling services.Local calling services revenues decreased $66.6 million to $358.6 million during the nine months ended
September 30, 2009 compared to the same period in 2008. Legacy FairPoint contributed $54.8 million and $42.0 million to local revenue for the nine months ended
September 30, 2009 and 2008, respectively. Excluding the impact of the Merger, local calling services revenues would have decreased $79.4 million compared to the prior year. This
decrease is partially attributable to a reduction in revenue totaling $21.0 million for the nine months ended September 30, 2009 for service quality penalties incurred in the northern
New England states coupled with a 9.3% decline in total voice access lines in service at September 30, 2009 compared to September 30, 2008. The revenue decline was mainly driven by the
effects of competition and technology substitution as well as the weakness of the economy.

Access.Access revenues increased $10.6 million to $285.1 million during the nine months ended September 30, 2009
compared to
the same period in 2008. Legacy FairPoint contributed $68.9 million and $47.0 million to access revenues for the nine months ended September 30, 2009 and 2008, respectively.
Excluding the impact of the Merger, access revenues would have decreased by $11.3 million. Of this decrease, $12.0 million was attributable to a decrease in interstate revenues,
reflecting the impact of access line loss and technology substitution as well as weakness of the economy, partially offset by a $0.7 million increase in intrastate revenues.

Long distance services.Long distance services revenues decreased $23.9 million to $116.6 million in the nine months ended
September 30, 2009 compared to the same period in 2008. Legacy FairPoint contributed $20.6 million and $15.5 million to long distance revenues in the nine months ended
September 30, 2009 and 2008, respectively. Excluding the impact of the Merger, long distance revenues would have decreased $29.0 million. The decrease was primarily attributable to a
decrease in the number of subscriber lines in 2009 due to technology substitution and the weakness of the economy, partially offset by increased revenue from bundled product offerings designed to
retain customers and generate more revenue.

Data and Internet services.Data and Internet services revenues decreased $1.6 million to $83.9 million in the nine months
ended
September 30, 2009 compared to the same period in 2008. Legacy FairPoint contributed $27.2 million and $18.5 million to data and Internet services revenues in the nine months
ended September 30, 2009 and 2008, respectively. Excluding the impact of the Merger, data and Internet services revenues would have decreased $10.3 million. This decrease is primarily
due to a slowing in our high speed data subscriber growth, caused by an absence of promotional advertising of our data and Internet products due to Cutover issues as well as the weakness of the
economy.

Other services.Other services revenues increased $5.6 million to $35.3 million in the nine months ended September 30,
2009
compared to the same period in 2008. Legacy FairPoint contributed $12.7 million and $8.8 million to other services revenues in the nine months ended September 30, 2009 and 2008,
respectively. Excluding the impact of the Merger, other services revenues would have increased $1.7 million.

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Operating Expenses

Cost of services and sales.Cost of services and sales decreased $25.9 million to $396.4 million in the nine
months ended September 30, 2009 compared to the same period in 2008. Legacy FairPoint contributed $68.5 million and $49.7 million to cost of services and sales expenses in the
nine months ended September 30, 2009 and 2008, respectively. Also included in cost of services and sales for the nine months ended September 30, 2009 and 2008 are $6.1 million and
$37.8 million, respectively, of expenses related to the Transition Services Agreement, which was terminated on January 30, 2009. Excluding the impact of the Merger and the Transition
Services Agreement, cost of services and sales would have declined $13.0 million. The decline reflects the elimination of costs allocated from Verizon affiliates prior to the closing of the
Merger and the methodology utilized by Verizon to allocate certain expenses to cost of services and sales prior to the Cutover to our own operating systems, which has more than offset direct costs
incurred by us to operate our Northern New England operations.

Selling, general and administrative.Selling, general and administrative expenses increased $40.7 million to $310.8 million
in the nine
months ended September 30, 2009 compared to the same period in 2008. Legacy FairPoint contributed $62.0 million and $29.7 million to selling, general and administrative expenses
in the nine months ended September 30, 2009 and 2008, respectively. Included in selling, general and administrative expenses for the nine months ended September 30, 2009 and 2008 are
$9.8 million and $61.1 million, respectively, of expenses related to the transition services agreement and $28.0 million and $25.3 million, respectively, of
non-recurring Cutover related costs (which we are allowed to add back to adjusted EBITDA under the Credit Facility). Excluding the impact of the Merger and the Transition Services
Agreement, selling, general and administrative expenses would have increased $57.0 million. The increase is primarily due to a $27.3 million increase in bad debt expense, increases in
other operating expenses, some of which is attributable to the methodology utilized by Verizon to allocate certain expenses to selling, general and administrative expenses prior to the Cutover to our
own operating systems, as well as $7.3 million in costs incurred to effect a restructuring of our capital structure.

Depreciation and amortization.Depreciation and amortization expense increased $20.6 million to $205.1 million in the nine
months ended
September 30, 2009 compared to the same period in 2008. Legacy FairPoint contributed $27.4 million and $27.1 million to depreciation and amortization expenses in the nine months
ended September 30, 2009 and 2008, respectively. Excluding the impact of the Merger, depreciation and amortization expense would have increased $20.3 million, due primarily to increased
gross plant asset balances, including capitalized software placed into service upon termination of the Transition Services Agreement. Also contributing to the increase in depreciation and amortization
expense is an increase of $5.6 million in amortization expense on intangible assets acquired in the Merger, as no such amortization expense was recognized during the first quarter of 2008,
prior to the Merger.

Other Results

Interest expense.Interest expense increased $55.9 million to $165.2 million in the nine months ended September 30, 2009
compared to the same period in 2008. This increase is due to the debt that we incurred upon and subsequent to the closing of the Merger. Accrued and unpaid interest on the Old Notes exchanged in the
Exchange Offer through July 28, 2009 was paid on July 29, 2009 in the form of additional New Notes totaling $18.9 million. Accrued and unpaid interest on the New Notes from
July 29, 2009 through the end of the third quarter 2009 is payable in the form of additional New Notes totaling $12.2 million. The $31.1 million interest expense paid or payable
in the form of New Notes has been treated as non-cash for purposes of our financial debt covenants.

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

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ended
September 30, 2009 and 2008, we recognized non-cash gains of $8.6 million and $38.1 million, respectively, related to our derivative financial instruments.

Gain on early retirement of debt.Gain on early retirement of debt represents $13.2 million net gains 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 the Credit Facility.

Other income (expense).Other income (expense) includes non-operating gains and losses such as those incurred on sale of equipment.
Other
income increased $12.7 million to $16.1 million in the nine months ended September 30, 2009 compared to the same period in 2008. The increase was primarily attributable to a
one-time gain of $15.0 million recognized in the first quarter of 2009 related to the settlement under the Transition Agreement we entered into with Verizon on January 30,
2009, in connection with the Cutover, as contemplated by the Transition Services Agreement (the "Transition Agreement").

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 in the nine months ended September 30, 2009 and 2008 was 35.4% benefit and 29.7% expense, respectively.

Net income (loss).Net loss for the nine months ended September 30, 2009 was ($103.9) million compared to net income of
$7.5 million
for the same period in 2008. The difference in net income (loss) between 2009 and 2008 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.

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

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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. Several factors could trigger an impairment review such as:



Goodwill
was $595.1 million at September 30, 2009. We have recorded intangible assets related to the acquired companies' customer relationships and trade names of
$251.7 million as of September 30, 2009. As of September 30, 2009, there was $34.2 million of accumulated amortization recorded. These intangible assets are being amortized
over a weighted average life of approximately 9.7 years. The intangible assets are included in intangible assets on our condensed consolidated balance sheet.

We
are required to perform an impairment review of goodwill 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

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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 shareholders' equity balance. As of September 30, 2009, shareholders' deficit totaled $83.1 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, 2008 and concluded that there was no indication of impairment at that time. In light of our
operating performance during the first half of 2009, which was impacted by issues associated with the January 30, 2009 systems cutover, we performed another goodwill impairment assessment as of
June 30, 2009. After applying the impairment test at June 30, 2009, it was determined that goodwill was not impaired.

While
no impairment charges resulted from the analysis performed at June 30, 2009, impairment charges may occur in the future due to the outcome of the Chapter 11 Cases or
the application of "fresh start" accounting upon our emergence from Chapter 11.

Accounting for Software Development Costs.We capitalize certain costs incurred in connection with developing or obtaining
internal use software in
accordance with the IntangiblesGoodwill and 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
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.

New Accounting Standards

On July 1, 2009, we adopted the FASB ASC. The FASB has established the ASC as the source of authoritative principles and
standards recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The adoption of the ASC had no impact on our consolidated results of operations and financial position.

On
January 1, 2009, we adopted the accounting standard relating to business combinations. This standard establishes principles and requirements for how an acquirer in a business
combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities
assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial effects of the business combination. This standard is to be applied prospectively to business combinations for which the
acquisition date is on or after an entity's fiscal year that begins after December 15, 2008. We will assess the impact of this standard if and when a future acquisition occurs.

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On January 1, 2009, we adopted the accounting standard relating to disclosures about derivative instruments and hedging activities. This standard requires
companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments
and related hedged items are accounted for under the Derivatives and Hedging Topic of the ASC and how derivative instruments and related hedged items affect a company's financial position, financial
performance and cash flows. This standard is effective for financial statements issued for fiscal years beginning after November 15, 2008. The adoption of this standard had no impact on our
consolidated results of operations and financial position.

On
June 15, 2009, we adopted the accounting standard relating to interim disclosures about fair value of financial instruments. This standard extends financial instrument fair
value disclosure to interim financial statements of publicly traded companies. This standard is effective for interim reporting periods ending after June 15, 2009. The adoption of this standard
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 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.

In
December 2008, the accounting standard regarding employers' disclosures about postretirement benefit plan assets was updated to require the Company, as a plan sponsor, to provide
disclosures about plan assets, including categories of plan assets, the nature of concentrations of risk and disclosures about fair value measurements of plan assets. This standard is effective for
fiscal years ending after December 15, 2009. The adoption of this standard is not expected to have a significant impact on the Company's our 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, the Debtors 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 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 Debtors. See Note 1 to our 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, 2008 and
"Part IIItem 1A. Risk Factors" contained 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. 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 terms and conditions of the DIP Credit Agreement;
(ii) to obtain confirmation of a plan of reorganization under the Bankruptcy Code; (iii) to generate sufficient cash flow from operations; and (iv) 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 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 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. If the Bankruptcy Court enters a final order in connection with the DIP Credit Agreement, the Borrowers will be permitted access to
the total amount of the DIP Financing, subject to the terms and conditions of the DIP Credit Agreement and related orders of the Bankruptcy Court. The DIP Credit Agreement became effective by its
terms on October 30, 2009. For a further description of the DIP Credit Agreement and the terms thereof, see Note 1 to our 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.

Cash
and cash equivalents at September 30, 2009 totaled $63.5 million compared to $81.0 million at June 30, 2009, excluding restricted cash of
$2.9 million and $3.4 million, respectively.

Net
cash provided by operating activities was $54.6 million and $36.2 million for the nine months ended September 30, 2009 and 2008, respectively.

Net
cash used in investing activities was $129.4 million and $175.7 million for the nine months ended September 30, 2009 and 2008, respectively. These cash flows
primarily reflect capital expenditures of $130.7 million and $189.2 million for the nine months ended September 30, 2009 and 2008, respectively. Net cash used in investing
activities also includes acquired cash of $11.4 million for the nine months ended September 30, 2008.

Net
cash provided by financing activities was $68.0 million and $307.5 million for the nine months ended September 30, 2009 and 2008, respectively. For the nine
months ended 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 to
stockholders was $23.0 million. Additionally, $65.6 million was released from restricted cash during the nine months ended September 30, 2009.

We
expect our capital expenditures will be approximately $190 million to $210 million in 2009. 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, New Hampshire and Vermont as a condition to the to the approval of the Merger and
whether such requirements will be enforceable against us in the future. We anticipate that we will fund these expenditures through cash flows from operations, cash on hand and funds available under
the DIP Credit Agreement.

We
expect our contributions to our employee pension plans and post-retirement medical plans will be approximately $0.5 million in 2009.

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On
July 29, 2009, we successfully consummated the Exchange Offer. On the Settlement Date, $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 $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). Interest expense paid in the form of New Notes has been
treated as non-cash for purposes of our financial debt covenants. As the Notes have been classified as a current liability as of September 30, 2009, we have classified the accrued
interest on the New Notes as of September 30, 2009 of $12.2 million as a current liability on the condensed consolidated balance sheet.

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.

After
giving effect to the conversion of a portion of our cash interest expense to non-cash interest expense as a result of the Exchange Offer, we were able to maintain
compliance with all the financial covenants contained in the Credit Facility as of June 30, 2009.

The
Exchange Offer was the first step in our efforts to restructure our capital structure. Following unsuccessful efforts to negotiate an out-of-court
restructuring with the holders of the Notes, we entered into discussions with certain of the lenders under the Credit Facility. On September 25, 2009, we entered into the Forbearance Agreement
with lenders holding approximately 68% of the loans and commitments outstanding under the Credit Facility (the "Forbearing Lenders"). The Forbearance Agreement permitted us to forgo certain principal
and interest payments due on September 30, 2009 under the Credit Facility. Further, the Forbearing Lenders
agreed to forbear from accelerating the maturity of the loans outstanding under the Credit Facility and from exercising any other remedies thereunder until October 30, 2009 if we failed to meet
certain interest coverage ratio and leverage ratio covenants contained in the Credit Facility for the period ended September 30, 2009.

In
addition, we entered into certain forbearance agreements with the counterparties to the Swaps.

Following
the execution of these forbearance agreements, we engaged in extensive negotiations with the Steering Committee regarding a recapitalization of our significant indebtedness.
Subsequently, we and the Steering Committee reached agreement on the plan term sheet dated October 25, 2009, which provides the framework for a comprehensive balance sheet restructuring that
would result in the conversion of more than $1.7 billion of debt into equity, consisting of $1.2 billion of debt under the Credit Facility and all of the outstanding Notes.

For
a further description of the background to the filing of the Chapter 11 Cases, see note 1 to our condensed consolidated financial statements.

Our Pre-petition Credit Facility

Our $2,030 million Pre-petition Credit Facility consists of a non-amortizing revolving facility in an
aggregate principal amount of $200 million, a senior secured term loan A facility in an aggregate principal amount of $500 million, a senior secured term loan B facility in the aggregate
principal amount of $1,130 million and a delayed draw term loan facility in an aggregate principal amount of $200 million. 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.

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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 Revolver. On January 21, 2009, we entered into an amendment to our Pre-petition Credit Facility under which, among other things, the administrative agent
resigned and was replaced by a new administrative agent. In addition, the resigning administrative agent's undrawn commitments under the Revolver, totaling $30.0 million, were terminated and
are no longer available to us.

The
Revolver has a swingline subfacility in the amount of $10.0 million and a letter of credit subfacility 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, 2009, we had borrowed $150.0 million under the Revolver and letters of credit had been issued for $18.2 million. Accordingly, as of
September 30, 2009, the remaining amount available under the Revolver is $2.1 million. As of September 30, 2009, we also had pending commitments for additional letters of credit
totaling $0.7 million.

The
Term Loan B Facility and the Delayed Draw Term Loan will mature in March 2015 and the Revolver 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.

Interest
rates for borrowings under our Pre-petition Credit Facility are, at our option, for the Revolver and for the Term Loans at either (a) the Eurodollar rate, as
defined in the Credit Facility, plus an applicable margin or (b) the base rate, as defined in the 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 on the Term Loan A Facility in 2009 and will begin on the Term Loan B Facility in 2010 and on the
Delayed Draw Term Loan in 2011. 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.

Borrowings
under our Pre-petition Credit Facility bear interest at variable interest rates. We have entered into the Swaps which are detailed in note 7 of the notes to
our condensed consolidated financial statements for the nine months ended September 30, 2009 included in this Quarterly Report. As a result of the Swaps, approximately 77% of our indebtedness
effectively bore interest at fixed rates rather than variable rates as of September 30, 2009. After the Swaps expire, our annual debt service obligations on such portion of the Term Loans will
vary from year to year unless we enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge. To the extent interest rates increase in the future, we may not be
able to enter into new interest rate swaps or to purchase interest rate caps or other interest rate hedges on acceptable terms.

The
filing of the Chapter 11 Cases constitutes an event of default under our Pre-petition Credit Facility and the Swaps. See note 1 to our condensed
consolidated financial statements.

For
the three 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, for
the nine months ended

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September 30,
2009, repaid $6.1 million of principal under the Term Loan B Facility. We did not make any principal payments on the Term Loan B Facility during the three months ended
September 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).

Upon
the consummation of the Exchange Offer and the corresponding Consent Solicitation, substantially all of the restrictive covenants in the Old Indenture 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.

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.

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. We did not repurchase any Old Notes during the three months ended September 30, 2009. 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 and nine months ended September 30, 2009, respectively.

The
filing of the Chapter 11 Cases constitutes an event of default under the New Notes. Failure to make the October 1, 2009 interest payment on the Old Notes within thirty
days of the due date constitutes an event of default on the Old Notes. See note 1 to our condensed consolidated financial statements.

Other Pre-petition Agreements

As a condition to the approval of the Merger and related transactions by state regulatory authorities, we have agreed to make capital
expenditures following the completion of the Merger. As a

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condition
to the approval of the transactions by the state regulatory authority in Maine, we agreed that, following the closing of the Merger, we will make capital 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
order issued by the state regulatory authority in Vermont 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 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 order as set forth above.

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 have 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 settlement agreement dated as of January 23, 2008, with certain affiliates of Verizon 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. This investment commitment is inclusive of the $50 million previously required
by the NHPUC.

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Additionally, the orders issued by the PUCs in Maine, New Hampshire and Vermont in connection with their approval of the Merger include a requirement that we pay
the greater of $45 million or 90% of 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.

At
this time, it is unclear what effect the filing of the Chapter 11 Cases will have on the requirements, including service quality penalties, imposed by the PUCs in Maine, New
Hampshire and Vermont as a condition to the approval of the Merger and whether such requirements will be enforceable against us in the future.

On
January 30, 2009, we entered into the Transition Agreement with Verizon in connection with the cutover of certain back office systems, as contemplated by the Transition
Services Agreement. 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, 2009 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(in thousands)Long term debt, including current maturities(a)

$
2,515,446

$
45,000

$
117,450

$
395,625

$
1,957,371Interest payments on long term debt obligations(b)


978,295


210,265


365,805


327,097


75,128Capital lease obligations


10,763


3,059


4,076


3,139


489Operating leases


46,972


10,978


16,890


11,152


7,952Total projected contractual obligations

$
3,551,476

$
269,302

$
504,221

$
737,013

$
2,040,940


(a)Includes
$550.0 million of the Notes. All obligations under the Credit Facility, the Notes and the Swaps have been classified as current liabilities
in the condensed consolidated financial statements. See note 8 to the condensed consolidated financial statements for more information.(b)Excludes
amortization of estimated capitalized debt issuance costs.


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The
following table discloses aggregate information about our derivative financial instruments as of September 30, 2009, including the source of fair value of these instruments
and their maturities.

Fair 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)

$
(74,360
)

(50,914
)

(22,967
)

(479
)




(1)Fair
value of interest rate swaps at September 30, 2009 is based on information provided by the counterparties in order to compute the value of the
underlying contracts using consistent methodologies. These market values were then discounted for the Company's risk of non-performance, which is represented by the market spread on our
debt as of September 30, 2009. 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, 2009, we had total debt of $2,505.5 million, net of discount of $9.9 million, consisting of
both fixed rate and variable rate debt with interest rates ranging from 2.813% to 13.125% per annum, including applicable margins. As of September 30, 2009, the fair value of our debt was
approximately $1,614.4 million, net of discount of $9.9 million. Our Term Loan A Facility and Revolver 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 enter into interest
rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk. The Swaps effectively change the variable rate on the debt obligations to a fixed rate. Under the terms of
the Swaps, we were required to make 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 Credit Facility, we
are required to reduce the risk of interest rate volatility with respect to at least 50% of our Term Loan borrowings.

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The
chart below provides details of the Swaps.

Effective Date:

Notional Amount

Rate

Rate, including
applicable margin

Expiration DateFebruary 8, 2005

$130.0 Million


4.11
%

6.86
%
December 31, 2009April 29, 2005

$50.0 Million


4.72
%

7.47
%
March 31, 2012June 30, 2005

$50.0 Million


4.69
%

7.44
%
March 31, 2011June 30, 2006

$50.0 Million


5.36
%

8.11
%
December 31, 2009December 31, 2007

$65.0 Million


4.91
%

7.66
%
December 30, 2011December 31, 2007

$75.0 Million


5.46
%

8.21
%
December 31, 2010December 31, 2008

$100.0 Million


5.02
%

7.77
%
December 31, 2010December 31, 2009

$150.0 Million


5.65
%

8.40
%
December 31, 2011June 30, 2008

$100.0 Million


4.99
%

7.74
%
December 30, 2010June 30, 2008

$100.0 Million


4.95
%

7.70
%
June 30, 2010June 30, 2008

$100.0 Million


5.45
%

8.20
%
December 31, 2010June 30, 2008

$100.0 Million


5.30
%

8.05
%
December 30, 2010June 30, 2008

$100.0 Million


4.50
%

7.25
%
December 31, 2010June 30, 2008

$100.0 Million


4.50
%

7.25
%
December 31, 2010December 31, 2010

$300.0 Million


4.49
%

7.24
%
December 31, 2012June 30, 2008

$250.0 Million


3.25
%

6.00
%
December 31, 2010


At
September 30, 2009, the fair market value of the Swaps is a net liability of approximately $74.4 million, all of which has been included in current liabilities due to
the event of default described in note 8 to the condensed consolidated financial statements.

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 nine months ended September 30, 2009, the actual gain on the pension plan
assets has been approximately 13.6%. Net periodic benefit cost for 2009 assumes a weighted average annualized expected return on plan assets of approximately 8.3%. Should our actual return on plan
assets become significantly lower than our expected return assumption, our net periodic benefit cost will increase in future periods and we may be required to contribute additional funds to our
pension plans after 2009.

The
occurrence of an event of default under the 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. As a result of these events of default under the
Swaps and the default resulting from the filing of the Chapter 11 Cases under the Swaps, both of the counterparties to the Swaps exercised their rights to declare an early termination of the
Swaps and all outstanding amounts under the Swaps became immediately due and payable. We have been notified that as of October 26, 2009, the settlement amount, including amounts previously
owing by us under the Swaps, totaled approximately $98.8 million, as such amount has been determined by the counterparties under the Swaps.

Item 4.    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 Chief Executive Officer and Chief 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

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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 Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (i) are effective to ensure that
information required to be disclosed by us in this Quarterly Report has been recorded, processed, summarized and reported within the time periods specified in the rules of the SEC and
(ii) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



In connection with the Merger, we have significantly expanded our internal control over financial reporting in order to encompass the
new internal control structure associated with our Northern New England operations. Accordingly, we have developed 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.

Our
preliminary evaluation of these newly developed internal controls has identified a number of exceptions in the areas of IT access and security where controls are not yet functioning
as intended. Based on the nature and magnitude of these exceptions and mitigating controls that are in place, management does not believe these exceptions have a material adverse impact on our
internal control over financial reporting. We will continue to assess the effectiveness of the controls and identify any remediation efforts which may be required to enhance the effectiveness of
controls.

With
the exception of the foregoing, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2009 that have materially
affected or are reasonably likely to materially affect our internal control over financial reporting.

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 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 our 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, 2009, we have recognized an estimated liability of $22.4 million for service quality penalties
based on metrics defined by PUCs in
Maine, New Hampshire and Vermont. However, at this time, it is unclear what effect the filing of the Chapter 11 Cases will have on the requirements, including service quality penalties, imposed
by the PUCs in Maine, New Hampshire and Vermont as a condition to the to the approval of the Merger and whether such requirements will be enforceable against us in the future.

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Item 1A.    Risk Factors.

(a)   The
following risk factors are added to the 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, 2008, as supplemented by "Part IIItem 1A. Risk Factors" of our Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 2009 and June 30, 2009, under a new heading "Risks Related to the Chapter 11 Cases."

For the duration of the Chapter 11 Cases, our operations, including our ability to execute our business plan, will be subject to the risks and uncertainties
associated with bankruptcy, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.

Risks and uncertainties associated with the Chapter 11 Cases include the following:



These
risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with the Chapter 11 Cases could
adversely affect our revenues and the relationship with our customers which in turn could have a material adverse effect on our business, financial condition, results of operations and liquidity,
particularly if the Chapter 11 Cases are unexpectedly protracted. In addition, for the duration of the Chapter 11 Cases, transactions outside the ordinary course of business are subject
to the prior approval of the Bankruptcy Court, which may limit our ability to respond timely to certain events or take advantage of certain business opportunities.

Furthermore,
as a result of the Chapter 11 Cases, realization of assets and liquidation of liabilities are subject to uncertainty. While operating as a
debtor-in-possession under the protection of the Bankruptcy Code, we may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those
reflected in our financial statements, subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business. Further, a Chapter 11 plan of reorganization could
materially change the amounts and classifications reported in our 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 Chapter 11 plan of reorganization and the discharge of such liabilities.

Because
of the risks and uncertainties associated with the Chapter 11 Cases, the ultimate impact of events that occur during these proceedings on our business, financial
condition, results of operations and liquidity cannot be accurately predicted or quantified. Additionally, the result of any confirmed Chapter 11 plan of reorganization may result in
cancellation of our common stock and/or the failure of the Company to continue as a public reporting company, which could cause any investment in the Company to become worthless.

In
light of the foregoing, trading in our securities during the Chapter 11 Cases is highly speculative and poses substantial risks. Holders of our securities may have their
securities cancelled and in return

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receive
no payment or other consideration, or a payment or other consideration that is less than the par value or the purchase price of such securities.

Operating under Bankruptcy Court protection for a long period of time may harm our business.

A long period of operations under Bankruptcy Court protection could have a material adverse effect on our business, financial
condition, results of operations and liquidity. So long as the Chapter 11 Cases continue, our senior management will be required to spend a significant amount of time and effort dealing with
the reorganization instead of focusing exclusively on our business operations. A prolonged period of operating under Bankruptcy Court protection may also make it more difficult to retain management
and other key personnel necessary to the success and growth of our business. In addition, the longer the Chapter 11 Cases continue, the more likely it is that our customers and suppliers will
lose confidence in our ability to successfully reorganize our businesses and seek to establish alternative commercial relationships.

Furthermore,
so long as the Chapter 11 Cases continue, we will be required to incur substantial costs for professional fees and other expenses associated with the administration
of the Chapter 11 Cases. A prolonged continuation of the Chapter 11 Cases may also require us to seek additional financing. If we require additional financing during the
Chapter 11 Cases and we are unable to obtain the financing on favorable terms or at all, our chances of successfully reorganizing our business may be seriously jeopardized, and, as a result,
any securities in the Company could become further devalued or become worthless.

We may not be able to obtain confirmation of a Chapter 11 plan of reorganization.

To successfully emerge from Bankruptcy Court protection as a viable entity, we must meet certain statutory requirements with respect to
adequacy of disclosure with respect to a Chapter 11 plan of reorganization, solicit and obtain the requisite acceptances of such a plan and fulfill other statutory conditions for confirmation
of such a plan, which have not occurred to date. We may not receive the requisite acceptances of constituencies in the Chapter 11 Cases to confirm our Restructuring Plan. Even if the requisite
acceptances of our Restructuring Plan are received, the Bankruptcy Court may not confirm such a plan. Furthermore, our Restructuring Plan contemplates numerous operating assumptions, including,
without limitation, certain concessions on behalf of our employees represented by labor unions and state public utility commissions, which may not be attained.

In
connection with the Support Agreement, we have committed to the achievement of certain milestones, including the following: (i) the filing of a Chapter 11 plan of
reorganization reflecting the Restructuring Plan with the Bankruptcy Court on or before 5:00 P.M. Eastern Time on December 10, 2009 and (ii) an order by the Bankruptcy Court
confirming a Chapter 11 plan of reorganization reflecting the Restructuring Plan on or before 5:00 P.M. Eastern Time on May 9, 2010. Our failure to achieve these milestones by the
dates required under the Support Agreement would (unless duly waived) constitute a termination event under the Support Agreement, pursuant to which the Consenting Lenders agreed to support such a
plan, that could allow the Consenting Lenders to
terminate their obligations to support a Chapter 11 plan of reorganization reflecting the Restructuring Plan.

If
a Chapter 11 plan of reorganization is not confirmed by the Bankruptcy Court, 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.

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A Chapter 11 plan of reorganization may result in holders of our common stock receiving no distribution on account of their interests and cancellation of their common
stock.

Under
the priority scheme established by the Bankruptcy Code, unless creditors agree otherwise, post-petition liabilities and
pre-petition liabilities must be satisfied in full before stockholders are entitled to receive any distribution or retain any property under a Chapter 11 plan of reorganization. The
ultimate recovery to creditors and/or stockholders, if any, will not be determined until confirmation of such a plan. No assurance can be given as to what values, if any, will be ascribed in the
Chapter 11 Cases to each of these constituencies or what types or amounts of distributions, if any, they would receive. A Chapter 11 plan of reorganization could result in holders of our
common stock receiving no distribution on account of their interests and may even result in the cancellation of their existing stock. If certain requirements of the Bankruptcy Code are met, a
Chapter 11 plan of reorganization can be confirmed notwithstanding its rejection by the class comprising the interests of our equity security holders. The Restructuring Plan contemplates, among
other things, the exchange of new common stock of the Company for certain claims against us and the cancellation of existing common stock. Therefore, an investment in our common stock is highly
speculative and may become worthless (or be cancelled) in the future without any required approval or consent of our stockholders.

Even if a Chapter 11 plan of reorganization is consummated, we will continue to face risks.

Even if a Chapter 11 plan of reorganization is consummated, we will continue to face a number of risks, including certain risks
that are beyond our control, such as further deterioration or other changes in economic conditions, changes in our industry, changes in consumer demand for, and acceptance of, our services and
increasing expenses. Some of these concerns and effects typically become more acute when a case under the Bankruptcy Code continues for a protracted period without indication of how or when the case
may be completed. As a result of these risks and others, there is no guaranty that a Chapter 11 plan of reorganization reflecting the Restructuring Plan will achieve our stated goals.

Furthermore,
even if our debts are reduced or discharged through a Chapter 11 plan of reorganization, we may need to raise additional funds through public or private debt or
equity financing or other various means to fund our business after the completion of the Chapter 11 Cases. Irrespective of the New Term Loan and a new revolving credit facility, adequate funds
may not be available when needed or may not be available on favorable terms.

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, capital
expenditures, 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 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 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.

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Historical financial information may not be comparable.

If a Chapter 11 plan of reorganization reflecting the Restructuring Plan is consummated, our financial condition and results of
operations from and after the effective date of such a Chapter 11 plan of reorganization may not be comparable to the financial condition or results of operations reflected in our historical
financial statements.

(b)   The
following risk factor is added to the 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, 2008, as supplemented by "Part IIItem 1A. Risk Factors" of our Quarterly Reports on
Form 10-Q for the quarterly periods ending March 31, 2009 and June 30, 2009, under the heading "Risks Related to Our Substantial Indebtedness and Common Stock."

Our stock is no longer listed on a national securities exchange. It will likely be more difficult for stockholders and investors to sell our common stock or to obtain
accurate quotations of the share price of our common stock.

Effective October 26, 2009, the NYSE suspended trading in our common stock. Our common stock is now traded on the Pink Sheets
under the symbol "FRCMQ." We can provide no assurance that we will be able to re-list our common stock on a national securities exchange or that our common stock will continue to be traded
on the Pink Sheets. The trading of our common stock on the Pink Sheets may negatively impact the trading price of our common stock and the levels of liquidity available to our stockholders.

(c)   The
risk factor entitled "If we are unable to consummate a successful restructuring of our notes, we will consider all other restructuring
alternatives available to us, which may include a Chapter 11 proceeding. A Chapter 11 proceeding may result in a protracted process which could disrupt our business, divert the attention
of our management from the operation of our business and the implementation of our business plan and may ultimately be unsuccessful"is deleted from the 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, 2008, as supplemented by
"Part IIItem 1A. Risk Factors" of our Quarterly Reports on Form 10-Q for the quarterly periods ending March 31, 2009 and June 30, 2009.

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, 2008, as supplemented
by our Quarterly Reports on Form 10-Q for the quarterly periods ending March 31, 2009 and June 30, 2009.

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

On July 1, 2009, we awarded David L. Hauser, our chairman and chief executive officer, options to purchase 1,600,000 shares of
our common stock and 523,810 restricted shares of our common stock, pursuant to an employment agreement we entered into with Mr. Hauser on June 11, 2009. The Inducement Options were
granted at an exercise price of $0.95 and will vest in
three annual installments, beginning on July 1, 2010. The shares of Inducement Restricted Stock will vest on July 1, 2012. The vesting of the Inducement Options and the Inducement
Restricted Stock is contingent upon Mr. Hauser's continued employment with us.

We
did not receive any proceeds in connection with the issuance of the Inducement Options and the Inducement Restricted Stock to Mr. Hauser. The Inducement Options and the
Inducement Restricted Stock were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended.

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Item 3.    Defaults Upon Senior Securities.

We failed to make principal and interest payments totaling approximately $27.7 million due under the Credit Facility on
September 30, 2009. The failure to make the principal payment constituted an event of default under the Credit Facility and the failure to make the interest payment constituted an event of
default under the Credit Facility after the expiration of a five business day grace period.

We
failed to make payments totaling approximately $14.0 million in the aggregate 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.

We
failed to make interest payments totaling approximately $17.6 million due on the Notes on October 1, 2009. 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.

As
of November 20, 2009, approximately $27.7 million of unpaid principal and interest payments was outstanding under the Credit Facility, approximately $14.0 million
of unpaid payments was outstanding under the Swaps and approximately $17.6 million of unpaid interest payments was outstanding under the Notes, in each case including accrued interest on the
defaulted payments.

Item 4.    Submission of Matters to a Vote of Security Holders.

Not applicable.

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 20, 2009

By:

/s/ ALFRED C. GIAMMARINOName:

Alfred C. GiammarinoTitle:

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

Amendment No. 1 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

Amendment No. 2 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.(10)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 6, 2003, by and between FairPoint and The Bank of New York, relating to FairPoint's $225,000,000 117/8% Senior Notes due 2010.(13)4.2

Supplemental Indenture, dated as of January 20, 2005, by and between FairPoint and The Bank of New York, amending the Indenture dated as of March 6, 2003 between FairPoint and The Bank of New York.(12)4.3

Form of Initial Senior Note due 2010.(13)


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Exhibit No.

Description4.4

Form of Exchange Senior Note due 2010.(13)4.5

Indenture, dated as of March 31, 2008, by and between Northern New England Spinco Inc. and U.S. Bank National Association.(6)4.6

First Supplemental Indenture, dated as of March 31, 2008, by and between FairPoint Communications, Inc. and U.S. Bank National Association.(6)4.7

Second Supplemental Indenture, dated as of July 29, 2009, by and between FairPoint Communications, Inc. and U.S. Bank National Association.(14)4.8

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)4.9

Form of 131/8% Senior Note due 2018 (included in Exhibit 4.6).(6)4.10

Indenture, dated as of July 29, 2009, by and between FairPoint Communications, Inc. and U.S. Bank National Association.(14)4.11

Form of 131/8% Senior Note due 2018 (included in Exhibit 4.10).(14)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.(15)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

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.*10.7

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.*10.8

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.*


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Exhibit No.

Description10.9

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.*10.10

Amended and Restated Tax Sharing Agreement, dated as of November 9, 2000, by and among FairPoint and its Subsidiaries.(16)10.11

Employment Agreement, dated as of June 11, 2009, by and between FairPoint and David L. Hauser.(18)10.12

Registration Rights Letter Agreement, dated as of July 1, 2009, by and between FairPoint and David L. Hauser.(18)10.13

Change in Control and Severance Agreement, dated as of March 14, 2007, by and between FairPoint and Peter G. Nixon.(19)10.14

Change in Control and Severance Agreement, dated as of March 14, 2007, by and between FairPoint and Shirley J. Linn.(19)10.15

Change in Control and Severance Agreement, dated as of September 3, 2008, by and between FairPoint and Alfred C. Giammarino.(20)10.16

FairPoint Amended and Restated 1998 Stock Incentive Plan.(21)10.17

FairPoint Amended and Restated 2000 Employee Stock Incentive Plan.(22)10.18

FairPoint 2005 Stock Incentive Plan.(11)10.19

FairPoint Communications, Inc. 2008 Annual Incentive Plan.(23)10.20

FairPoint Communications, Inc. 2008 Long Term Incentive Plan.(23)10.21

Nonqualified Deferred Compensation Adoption Agreement.(11)10.22

Nonqualified Deferred Compensation Plan Document.(11)10.23

Form of February 2005 Restricted Stock Agreement.(24)10.24

Form of Director Restricted Stock AgreementFairPoint Communications, Inc. 2005 Stock Incentive Plan.(25)10.25

Form of Director Restricted Unit AgreementFairPoint Communications, Inc. 2005 Stock Incentive Plan.(25)10.26

Form of Non-Director Restricted Stock AgreementFairPoint Communications, Inc. 2005 Stock Incentive Plan.(26)10.27

Form of Non-Director Restricted Stock AgreementFairPoint Communications, Inc. 2008 Long Term Incentive Plan.(20)10.28

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).(17)10.29

Form of Performance Unit Award Agreement 2008-2010 Award.(23)10.30

Form of Performance Unit Award Agreement 2009-2011 Award.(28)10.31

Form of Director Restricted Unit AgreementFairPoint Communications, Inc. 2008 Long Term Incentive Plan.(17)


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Exhibit No.

Description10.32

FairPoint Communications, Inc. Restricted Stock Award Agreement, dated as of July 1, 2009, by and between FairPoint and David L. Hauser.(18)10.33

FairPoint Communications, Inc. Non-Qualified Stock Option Award Agreement, dated as of July 1, 2009, by and between FairPoint and David L. Hauser.(18)10.34

FairPoint Communications, Inc. Performance Unit Award Agreement for Performance Period Beginning July 1, 2009 and Ending December 31, 2010, dated as of July 1, 2009, by and between FairPoint and
David L. Hauser.(18)10.35

FairPoint Communications, Inc. Performance Unit Award Agreement for Performance Period Beginning July 1, 2009 and Ending December 31, 2011, dated as of July 1, 2009, by and between FairPoint and
David L. Hauser.(18)10.36

Stipulation filed with the Maine Public Utilities Commission, dated December 12, 2007.(29)10.37

Amended Stipulation filed with the Maine Public Utilities Commission dated December 21, 2007(6)10.38

Stipulation filed with the Vermont Public Service Board, dated January 8, 2008.(30)10.39

Stipulation filed with the New Hampshire Public Utilities Commission, dated January 23, 2008.(7)10.40

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)10.41

Letter, dated as of May 12, 2009, from the Staff of the New Hampshire Public Utilities Commission to FairPoint.(18)14.1

FairPoint Code of Business Conduct and Ethics.(31)14.2

FairPoint Code of Ethics for Financial Professionals.(12)21

Subsidiaries of FairPoint.(27)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 Securities and Exchange Commission 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 Securities Exchange Act of 1934, or otherwise subject to the liability
of Section 18 of the Securities Exchange Act of 1934 and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the


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Securities
Exchange Act of 1934, 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.(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 Annual Report on Form 10-K of FairPoint for the year ended December 31, 2002.(14)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on August 3, 2009.(15)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on January 22, 2009.(16)Incorporated
by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended September 30, 2000.(17)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on April 1, 2008.(18)Incorporated
by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended June 30, 2009.(19)Incorporated
by reference to the Current Report on Form 8-K of FairPoint filed on March 19, 2007.(20)Incorporated
by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended September 30, 2008.(21)Incorporated
by reference to the Registration Statement on Form S-4 of FairPoint, declared effective as of August 9, 2000.


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(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 Quarterly Report on Form 10-Q of FairPoint for the period ended March 31, 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 Annual Report on Form 10-K of FairPoint for the year ended December 31, 2005.(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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