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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 March 31, 2010.ORo

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


Commission File Number 333-56365



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

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

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

28202(Zip Code)


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



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

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

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

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o

Smaller reporting company o


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

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

As of May 31, 2010, there were 89,989,144 shares of the registrant's common stock, par value $0.01 per share, outstanding.

Documents
incorporated by reference:None

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INDEX



PagePART I. FINANCIAL INFORMATIONItem 1.

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

5Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009
(Unaudited)

6Condensed Consolidated Statement of Stockholders' Deficit for the three months ended March 31, 2010
(Unaudited)

7Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31,
 2010 and 2009 (Unaudited)

8Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009
(Unaudited)

9Notes to Condensed Consolidated Financial Statements (Unaudited)

10Item 2.

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

53Item 3.

Quantitative and Qualitative Disclosures About Market
Risk

70Item 4.

Controls and Procedures

70PART II. OTHER INFORMATIONItem 1.

Legal Proceedings

72Item 1A.

Risk Factors

72Item 2.

Unregistered Sales of Equity Securities and Use of
Proceeds

73Item 3.

Defaults Upon Senior Securities

73Item 4.

(Removed and Reserved)

73Item 5.

Other Information

73Item 6.

Exhibits

73Signatures

74


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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," "plans," "believes," "seeks," "estimates" and similar expressions are generally
intended to identify

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

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



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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(Debtors-In-Possession)

Condensed Consolidated Balance Sheets

March 31, 2010 and December 31, 2009

(in thousands, except share data)

March 31,
2010

December 31,
2009(Unaudited)AssetsCurrent assets:Cash and cash equivalents

$
146,862

$
109,355Restricted cash


2,311


2,558Accounts receivable, net


137,029


154,095Materials and supplies


22,223


18,884Other


29,219


24,042Deferred income tax, net


73,694


75,713Total current assets


411,338


384,647Property, plant, and equipment, net


1,931,916


1,950,435Intangibles assets, net


206,176


211,819Prepaid pension asset


9,225


8,808Debt issue costs, net


1,317


680Restricted cash


1,565


1,478Other assets


20,056


19,135Goodwill


595,120


595,120Total assets

$
3,176,713

$
3,172,122Liabilities and Stockholders' DeficitLiabilities not subject to compromise:Accounts payable

$
81,899

$
61,681Accrued interest payable


55


36Other accrued liabilities


56,107


44,004Total current liabilities


138,061


105,721Accrued pension obligation


53,600


51,438Employee benefit obligations


268,377


261,420Deferred income taxes


117,944


115,742Unamortized investment tax credits


4,659


4,788Other long-term liabilities


14,347


15,100Total long-term liabilities


458,927


448,488Total liabilities not subject to compromise


596,988


554,209Liabilities subject to compromise


2,872,002


2,836,340Total liabilities


3,468,990


3,390,549Stockholders' deficit:Common stock, $0.01 par value, 200,000,000 shares authorized, issued and outstanding 89,989,144 and 90,002,026 shares at March 31, 2010
and December 31, 2009, respectively


900


900Additional paid-in capital


725,551


725,312Retained deficit


(895,306
)

(819,715
)Accumulated other comprehensive loss


(123,422
)

(124,924
)Total stockholders' deficit


(292,277
)

(218,427
)Total liabilities and stockholders' deficit

$
3,176,713

$
3,172,122


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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(Debtors-In-Possession)

Condensed Consolidated Statements of Operations

Three months ended March 31, 2010 and 2009

(Unaudited)

(in thousands, except per share data)

Three months ended
March 31,2010

2009Revenues

$
275,166

$
299,298Operating expenses:Cost of services and sales, excluding depreciation and amortization


130,626


149,402Selling, general and administrative expense, excluding depreciation and amortization


95,090


88,273Depreciation and amortization


70,345


67,867Total operating expenses


296,061


305,542Loss from operations


(20,895
)

(6,244
)Other income (expense):Interest expense


(34,630
)

(53,479
)Gain (loss) on derivative instruments





12,898Gain on early retirement of debt





4,863Other


26


6,277Total other expense


(34,604
)

(29,441
)Loss before reorganization items and income taxes


(55,499
)

(35,685
)Reorganization items


(16,591
)

Loss before income taxes


(72,090
)

(35,685
)Income tax (expense) benefit


(3,501
)

13,380Net loss

$
(75,591
)
$
(22,305
)Weighted average shares outstanding:Basic


89,424


89,151Diluted


89,424


89,151Earnings per share:Basic

$
(0.85
)
$
(0.25
)Diluted


(0.85
)

(0.25
)


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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES        (Debtors-In-Possession)        Condensed Consolidated Statement of Stockholders' Deficit    
Three months ended March 31, 2010        (Unaudited)        (in thousands)

Common Stock





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

Retained
earnings
(deficit)

Total
stockholders'
deficitShares

AmountBalance at December 31, 2009


90,002

$
900

$
725,312

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











(75,591
)




(75,591
)Restricted stock cancelled for withholding tax


(13
)













Stock based compensation expense








239








239Employee benefit adjustment to comprehensive income














1,502


1,502Balance at March 31, 2010


89,989

$
900

$
725,551

$
(895,306
)
$
(123,422
)
$
(292,277
)


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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES        (Debtors-In-Possession)        Condensed Consolidated Statements of Comprehensive Loss    
Three months ended March 31, 2010 and 2009        (Unaudited)        (in thousands, except per share data)

Three months ended
March 31,2010

2009Net loss

$
(75,591
)
$
(22,305
)Other comprehensive income, net of taxes:Defined benefit pension and post-retirement plans (net of $1.0 million and $0.9 million tax expense, respectively)


1,502


1,356Total other comprehensive income


1,502


1,356Comprehensive loss

$
(74,089
)
$
(20,949
)


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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES        (Debtors-In-Possession)        Condensed Consolidated Statements of Cash Flows        Three
months ended March 31, 2010 and 2009        (Unaudited)        (in thousands)

Three months ended
March 31,2010

2009Cash flows from operating activities:Net (loss) income

$
(75,591
)
$
(22,305
)Adjustments to reconcile net income to net cash provided by operating activities:Deferred income taxes


3,207


(13,483
)Provision for uncollectible revenue


8,931


5,569Depreciation and amortization


70,345


67,867Post-retirement accruals


9,283


7,732Gain on derivative instruments





(12,898
)Gain on early retirement of debt, excluding cash fees





(4,863
)Non-cash reorganization costs


977


Other non cash items


2,862


2,557Changes in assets and liabilities arising from operations:Accounts receivable


8,136


(232
)Prepaid and other assets


(8,517
)

2,068Accounts payable and accrued liabilities


31,904


(3,664
)Accrued interest payable


33,810


17,790Other assets and liabilities, net


(6,783
)

(176
)Total adjustments


154,155


68,267Net cash provided by operating activities


78,564


45,962Cash flows from investing activities:Net capital additions


(45,117
)

(57,543
)Net proceeds from sales of investments and other assets


8


110Net cash used in investing activities


(45,109
)

(57,433
)Cash flows from financing activities:Loan origination costs


(1,100
)

(494
)Proceeds from issuance of long-term debt


5,513


50,000Repayments of long-term debt





(5,475
)Restricted cash


160


13,300Repayment of capital lease obligations


(521
)

(647
)Dividends paid to stockholders





(22,996
)Net cash provided by (used in) financing activities


4,052


33,688Net increase in cash


37,507


22,217Cash, beginning of period


109,355


70,325Cash, end of period

$
146,862

$
92,542Supplemental disclosure of cash flow information:Capital additions included in accounts payable or liabilities subject to compromise at period-end


32,687


26,416Reorganization costs paid


14,381





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

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

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

Organization and Basis of Financial Reporting

FairPoint is a leading provider of communications services in rural and small urban communities, primarily in northern New England,
offering an array of services, including local and long distance voice, data, Internet and broadband product offerings, to both residential and business customers. FairPoint operates in 18 states with
approximately 1.5 million access line equivalents (including voice access lines and high speed data lines, which include DSL, wireless broadband, cable modem and
fiber-to-the-premises) as of March 31, 2010.

On
March 31, 2008, FairPoint completed the acquisition of Spinco, pursuant to which Spinco merged with and into FairPoint, with FairPoint continuing as the surviving corporation
for legal purposes.
Spinco was a wholly-owned subsidiary of Verizon and prior to the Merger the Verizon Group transferred certain specified assets and liabilities of the local exchange businesses of Verizon New England
in Maine, New Hampshire and Vermont and the customers of the related long distance and Internet service provider businesses in those states to subsidiaries of Spinco. The Merger was accounted for as a
"reverse acquisition" of Legacy FairPoint by Spinco under the purchase method of accounting because Verizon stockholders owned a majority of the shares of the consolidated Company following the Merger
and, therefore, Spinco was treated as the acquirer for accounting purposes. The financial statements reflect the transaction as if Spinco had issued consideration to FairPoint stockholders.

In
order to effect the Merger, the Company issued 53,760,623 shares to Verizon stockholders for their interest in Spinco.

Financial Reporting in Reorganization

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
(i) its ability to comply with the financial and other covenants contained in the Debtor in Possession Credit Agreement the Company entered into with certain financial institutions (the "DIP
Lenders") and Bank of America, N.A., as the administrative agent for the DIP Lenders (in such capacity, the "DIP Administrative Agent"), dated as of October 27, 2009 (as amended, the "DIP
Credit Agreement"), and, after the actual date of emergence from Chapter 11 protection (the "Effective Date"), a $1,075,000,000 senior secured credit facility (the "Exit Facility") to be
provided to FairPoint Communications and FairPoint Logistics, Inc. ("Logistics" and, together with FairPoint Communications, the "Exit Borrowers") by Bank of America, N.A., Banc of America
Securities LLC and a syndicate of lenders (collectively, the "Exit Facility Lenders"), and (ii) United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court")
approval of the Plan, among other things. As a result of the cases being jointly administered under the captionIn re FairPoint
Communications, Inc., Case No. 09-16335 (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 Chapter 11 of title 11 of the United States Code (the "Bankruptcy Code" or "Chapter 11"), the
Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and
subject to restrictions contained in the DIP Credit Agreement), in amounts other than those reflected in the

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

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

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 consolidated financial statements do not include any direct adjustments related to the recoverability and classification of assets or the amounts and classification of
liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases.

The
Reorganizations Topic of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification (the "ASC"), which is applicable to companies in Chapter 11,
generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of the Chapter 11
Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Amounts that can be directly associated with the
reorganization and restructuring of the business must be reported separately as reorganization items in the statements of operations beginning in the quarter ending December 31, 2009. The
balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from
post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser
amounts. In addition, cash provided by and used for reorganization items must be disclosed separately. The Company has applied the Reorganizations Topic of the ASC effective as of the Petition Date
(as defined herein), and has segregated those items as outlined above for all reporting periods subsequent to such date.

Chapter 11 Cases

On October 26, 2009 (the "Petition Date"), the Company and substantially all of its direct and indirect subsidiaries
(collectively, the "Debtors") filed the Chapter 11 Cases.

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

The Plan

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

Following
the Petition Date, an ad hoc committee of the holders of the Notes (as defined herein) raised certain concerns regarding the proposed treatment of holders of unsecured claims
against FairPoint Communications ("FairPoint Communications Unsecured Claims") under the FairPoint Communications, Inc. and Affiliates Chapter 11 Plan Term Sheet (the "Plan Term Sheet"),
which was included as Exhibit A to the Plan Support Agreement, which the Company entered into in anticipation of the Chapter 11 Cases on October 25, 2009 with secured lenders
holding more than 50% of the outstanding debt under the Pre-petition Credit Facility. In an effort to resolve these concerns, and after

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

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

extensive
negotiations, certain changes were made to the terms of the proposed financial restructuring contained in the Plan Term Sheet, as evidenced in the Plan.

In
addition, the Plan is the result of extensive negotiations among the Company, a steering committee of its pre-petition secured lenders (the "Steering Committee"), certain
unions and certain representatives of regulatory authorities in Maine, New Hampshire and Vermont. The Plan incorporates and implements various settlements reached with these parties, but is subject to
the approval of the applicable state commissions or boards with respect to certain actions resulting from the Plan.

On
February 8, 2010, the Company filed an initial version of the Plan, together with an accompanying Disclosure Statement, with the Bankruptcy Court. The Plan and accompanying
Disclosure Statement were subsequently amended on February 11, 2010 and March 10, 2010 and the Plan was modified further on May 11, 2010. On March 11, 2010, the Bankruptcy
Court approved the adequacy of the Disclosure Statement, the solicitation and notice procedures with respect to confirmation of the Plan and the form of various ballots and notices in connection
therewith. On April 23, 2010, the Company filed a supplement to the Plan (as modified, supplemented or amended, the "Plan Supplement"), which Plan Supplement was subsequently amended on
May 7, 2010 and May 24, 2010. The voting deadline with respect to the Plan occurred on April 28, 2010. The vote tabulation has concluded and the Company has obtained the approval
of the classes of creditors entitled to vote to accept or reject the Plan.

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



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

The
confirmation hearing to determine whether to confirm the Plan in the Bankruptcy Court commenced on May 11, 2010. The Bankruptcy Court continued the hearing to July 2010,
pending

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

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

approvals
of the PUCs in Maine, New Hampshire and Vermont and the resolution of any potential dispute with respect to the litigation trust contemplated by the Plan.

The
summary of the provisions of the Plan and our related capital structure contained herein highlights certain substantive provisions of the Plan and our resulting capital structure and
is not a complete description of the Plan or its provisions or our proposed post-petition capital structure. The summary is qualified in its entirety by reference to the full text of the
Plan, which is available at www.fprestructuring.com under the "Court Filings" link.The Plan and the information on, or accessible through this website, are not part of or
incorporated by reference herein.



Pursuant to the Plan, all outstanding equity interests of the Company, including but not limited to all outstanding shares of common
stock, options and contractual or other rights to acquire any equity interests, will be cancelled and extinguished on the Effective Date.

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

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

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

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



The Plan provides for the Company to incur indebtedness upon the Effective Date consisting of the Exit Facility. The Exit Facility is
expected to be comprised of a $75,000,000 revolving loan facility (the "Exit Revolving Loan") and a $1,000,000,000 term loan facility (the "Exit Term Loan" and together with the Exit Revolving Loan,
collectively, the "Exit Facility Loans"). Interest on the Exit

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

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

Facility
will accrue at an annual rate equal to the British Bankers Association LIBOR Rate ("LIBOR") plus 4.50%, with a 2.00% LIBOR floor for the Exit Term Loans, and a 0.75% commitment fee on the
average daily unused portion of the Exit Revolving Loan. The outstanding principal amount of the Exit Facility will be due and payable five years after the Effective Date (the "Exit Maturity Date").
The loan agreement governing the Exit Facility (the "Exit Facility Loan Agreement") will require quarterly repayments of principal of the Exit Term Loan in an amount equal to $2,500,000 during the
first two fiscal years following the Effective Date, $12,500,000 during the third fiscal year following the Effective Date, $37,500,000 during the fourth fiscal year following the Effective Date and
$50,000,000 during the first three fiscal quarters of the fifth fiscal year following the Effective Date, with all remaining outstanding principal of the Exit Term Loan being due and payable on the
Exit Maturity Date.

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

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

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



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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

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

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



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



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

On
the Effective Date, in accordance with the Plan, (i) certain employees are expected to receive (a) certain cash bonuses (the "Success Bonuses") pursuant to the terms of
the Success Bonus Plan and/or (b) New Common Stock awards, consisting of restricted shares of New Common Stock and/or options to purchase shares of New Common Stock, pursuant to the terms of
the New Long Term Incentive Plan, and (ii) members of the New Board are expected to receive options to purchase New Common Stock pursuant to the terms of the New Long Term Incentive Plan. The
Success Bonuses are expected to be earned based upon certain performance measures, subject to upward or downward adjustments to reflect the timing of the Effective Date. 6,269,206 shares of New Common
Stock are expected to be reserved for awards under the New Long Term Incentive Plan that are expected to consist of stock options and restricted stock awards, which will be granted to certain
employees of the Company and members of the New Board. On the Effective Date, (i)(a) 1,018,746 shares of restricted New Common Stock are expected to be granted to certain employees of the Company
under the New Long Term Incentive Plan and (b) at the sole discretion of the New Board, an additional 78,365 shares of restricted New Common Stock may be granted to certain employees of the
Company and (ii)(a) 1,724,032 options to purchase shares of New Common Stock are expected to be granted to certain employees of the Company, (b) 264,030 options to purchase shares of New Common
Stock are expected to be granted to members of the New Board and (c) at the sole discretion of the New Board, an additional 313,460 options to purchase shares of New Common Stock may be granted
to certain employees of the Company, in each case pursuant to the New Long Term Incentive Plan. These awards are expected to vest 25% on the Effective Date, and the remainder of these awards are
expected to vest in three equal annual installments, commencing on the first anniversary of the Effective Date, with

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(DEBTORS-IN-POSSESSION)

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

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

accelerated
vesting on a change in control or a termination of an award holder's employment without cause. In addition, 2,870,573 shares of New Common Stock are expected to be available for future
distribution under the New Long Term Incentive Plan. However, if the aggregate enterprise value of the Company does not equal or exceed $2.3 billion on or prior to the expiration date of the
New Warrants, the aggregate amount of options to purchase New Common Stock that are available for future distribution under the New Long Term Incentive Plan will be automatically reduced by 620,651
shares.

Debtor-in-Possession Financing



In connection with the Chapter 11 Cases, the Company and FairPoint Logistics, Inc. (collectively, the "DIP Borrowers")
entered into the DIP Credit Agreement with the DIP Lenders and the DIP Administrative Agent. The DIP Credit Agreement provides for a revolving facility in an aggregate principal amount of up to
$75 million, of which up to $30 million is also available in the form of one or more letters of credit that may be issued to third parties for the account of the Company and its
subsidiaries (the "DIP Financing"). Pursuant to an Order of the Bankruptcy Court, dated October 28, 2009 (the "Interim Order"), the DIP Borrowers were authorized to enter into and immediately
draw upon the DIP Credit Agreement on an interim basis in an aggregate amount of $20 million, pending a final hearing before the Bankruptcy Court. Pursuant to a final order of the Bankruptcy
Court, dated March 11, 2010, (the "Final DIP Order"), the DIP Borrowers were permitted access to the total $75 million of the DIP Financing, subject to the terms and conditions of the
DIP Credit Agreement and related orders of the Bankruptcy Court. As of March 31, 2010 and December, 31, 2009, the Company had not borrowed any amounts under the DIP Credit Agreement and letters
of credit totaling $17.2 million and $1.6 million, respectively, had been issued and were outstanding under the DIP Credit Agreement.

The
DIP Financing matures and is repayable in full on the earlier to occur of (i) July 26, 2010, which date can be extended up to three months at the request of the DIP
Borrowers upon the prior written consent of non-defaulting DIP Lenders holding a majority of the aggregate principal amount of the outstanding loans and letters of credit plus unutilized
commitments under the DIP Financing (the "Required DIP Lenders") with no fee payable by the DIP Borrowers in connection with any such extension, (ii) the Effective Date (iii) the
voluntary reduction by the DIP Borrowers to zero of all commitments to lend under the DIP Credit Agreement or (iv) the date on which the obligations under the DIP Financing are accelerated by
the Required DIP 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 are, at the DIP Borrowers' option, at either
(i) the
Eurodollar rate plus a margin of 4.5% or (ii) the base rate plus a margin of 3.5%, payable monthly in arrears on the last business day of each month.

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(DEBTORS-IN-POSSESSION)

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

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

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

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

Covenants.Under the DIP Credit Agreement, the DIP 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 restrictions, including, among others, with
respect to investments, additional indebtedness, liens, changes in the nature of the business, mergers, acquisitions, asset sales and transactions with affiliates. As of March 31, 2010, the DIP
Borrowers were in compliance with all covenants under the DIP Credit Agreement.

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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

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



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



Certain of FairPoint Communications' subsidiaries (collectively, the "DIP Guarantors") entered into the DIP Subsidiary Guaranty with
the DIP Administrative Agent, dated as of October 30, 2009 (the "DIP Subsidiary Guaranty"), as required under the terms of the DIP Credit Agreement. Pursuant to the DIP Subsidiary Guaranty, the
DIP Guarantors agreed to jointly and severally guarantee the full and prompt payment of all fees, obligations, liabilities and indebtedness of the DIP Borrowers, as borrowers under the DIP Financing.
Pursuant to the terms of the DIP Subsidiary Guaranty, the DIP Guarantors further agreed to subordinate any indebtedness of the DIP Borrowers held by such DIP Guarantor to the indebtedness of the DIP
Borrowers held by the secured parties under the DIP Financing.



The DIP Borrowers and the DIP Guarantors (collectively, the "DIP Grantors") entered into the DIP Security Agreement with the DIP
Collateral Agent, dated as of October 30, 2009 (the "DIP Security Agreement"), as required under the terms of the DIP Credit Agreement. Pursuant to the DIP Security Agreement, the DIP Grantors
provided to the DIP Collateral
Agent for the benefit of the secured parties identified therein, a security interest in all assets other than the DIP Pledge Agreement Collateral, any equity interests in an Excluded Entity (as
defined in the DIP Pledge Agreement), any causes of action arising under Chapter 5 of the Bankruptcy Code and FCC licenses and authorizations by state regulatory authorities to the extent that
any DIP Grantor is prohibited from granting a lien and security interest therein pursuant to applicable law.

Reporting Requirements

As a result of the filing of the Chapter 11 Cases, the Company is now required to file various documents with, and provide
certain information to, the Bankruptcy Court, including statements of financial affairs, schedules of assets and liabilities, and monthly operating reports in forms prescribed by federal bankruptcy
law. Such materials have been and will be prepared according to requirements of the Bankruptcy Code. While these materials accurately provide then-current information required under the
Bankruptcy Code, they are nonetheless unaudited, are prepared in a format different from that used in the Company's consolidated financial statements filed under the securities laws and certain of
this financial information may be prepared on an unconsolidated basis. Accordingly, the Company

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(DEBTORS-IN-POSSESSION)

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

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

believes
that the substance and format of these materials do not allow meaningful comparison with its regular publicly-disclosed consolidated financial statements. Moreover, the materials filed with
the Bankruptcy Court are not prepared for the purpose of providing a basis for an investment decision relating to the Company's securities, or for comparison with other financial information filed
with the SEC.

Notifications

Shortly after the Petition Date, the Company began notifying current or potential creditors of the Chapter 11 Cases. Subject to
certain exceptions under the Bankruptcy Code, the Chapter 11 Cases automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against the
Company or its property to recover on, collect or secure a claim arising prior to the Petition Date. Thus, for example, most creditor actions to obtain possession of property from the Company, or to
create, perfect or enforce any lien against the property of the Company, or to collect on monies owed or otherwise exercise rights or remedies with respect to a claim arising prior to the Petition
Date are enjoined unless and until the Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods furnished and services provided after the Petition Date in the ordinary course of
business.

Creditors' Committee

As required by the Bankruptcy Code, the United States Trustee for the Southern District of New York has appointed a statutory committee
of unsecured creditors (the "Creditors' Committee"). The Creditors' Committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court with respect
to the Company.

Executory ContractsSection 365

Under Section 365 and other relevant sections of the Bankruptcy Code, the Company may assume, assume and assign or reject
certain executory contracts and unexpired leases, including, without limitation, leases of real property, subject to the approval of the Bankruptcy Court and certain other conditions. Any description
of an executory contract or unexpired lease in this Quarterly Report, including where applicable, the Company's express termination rights or a quantification of its obligations, must be read in
conjunction with, and is qualified by, any overriding rejection rights the Company has under Section 365 of the Bankruptcy Code. Claims may arise as a result of rejecting any executory
contract.

Reorganization Costs

The Company has incurred and will continue to incur significant costs associated with the Chapter 11 Cases. The amount of these
costs, which are being expensed as incurred, are expected to significantly affect the Company's results of operations. For the three months ended March 31, 2010, the Company has incurred
$16.6 million of reorganization costs.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

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

Impact on Net Operating Loss Carryforwards

The Company's NOLs must be reduced by certain debt discharged pursuant to the Plan. Further, the Company's ability to utilize its NOL
carryforwards will be limited by Section 382 of the Internal Revenue Code of 1986, as amended, after the Company consummates a debt restructuring that results in an ownership change. In
general, following an ownership change, a limitation is imposed on the amount of pre-ownership change NOL carryforwards that may be used to offset taxable income in each year following the
ownership change. Under a special rule that may be elected for an ownership change pursuant to a Chapter 11 reorganization, the amount of this annual limitation is equal to the "long term
tax-exempt rate" (published monthly by the Internal Revenue Service (the "IRS")) for the month in which the ownership change occurs, multiplied by the value of FairPoint Communications'
stock immediately after, rather than immediately before, the ownership change. By taking into account the value of FairPoint Communications' stock immediately after the Chapter 11
reorganization, the limitation is increased as a result of the cancellation of debt that occurs pursuant to the Chapter 11 reorganization. Because the Company expects to elect this treatment,
an annual limitation will be imposed on the amount of the Company's pre-ownership change NOL carryforwards that can be utilized to offset its taxable income after consummation of the
Chapter 11 reorganization. In order to prevent an ownership change that limits the Company's NOL carryforwards prior to the Effective Date, the Bankruptcy Court has put in place notification
procedures and potential restrictions on the trading of FairPoint Communications' common stock.

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

Defaults Under Outstanding Debt Instruments

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



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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

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



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

Prior
to the filing of the Chapter 11 Cases, the Company failed to make principal and interest payments due under the Pre-petition Credit Facility on
September 30, 2009. The failure to make the principal payment on the due date and failure to make the interest payment within five days of the due date constituted events of default under the
Pre-petition Credit Facility. An event of default under the Pre-petition Credit Facility permits the lenders under the Pre-petition Credit Facility to accelerate
the maturity of the loans outstanding thereunder, seek foreclosure upon any collateral securing such loans and terminate any remaining commitments to lend to the Company. The occurrence of an event of
default under the Pre-petition Credit Facility constituted an event of default under the Swaps. In addition, the Company failed to make payments due under the Swaps on September 30,
2009, which failure
resulted in an event of default under the Swaps upon the expiration of a three business day grace period.

Prior
to the filing of the Chapter 11 Cases, the Company also failed to make the October 1, 2009 interest payment on the Notes. The failure to make the interest payment on
the Notes constituted an event of default under the Notes upon the expiration of a thirty day grace period. An event of default under the Notes permits the holders of the Notes to accelerate the
maturity of the Notes. In addition, the filing of the Chapter 11 Cases constituted an event of default under the New Notes.

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

NYSE Delisting

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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

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

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

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

Risks and Uncertainties

The ability of the Company, both during and after the Bankruptcy Court proceedings, to continue as a going concern, is dependent upon,
among other things, the ability of the Company to confirm the Plan. Uncertainty as to the outcome of these factors raises substantial doubt about the Company's ability to continue as a going concern.
The Condensed Consolidated Financial Statements contained in this Quarterly Report do not include any adjustments to reflect or provide for the consequences of the bankruptcy proceedings. See
"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 Company or (iv) as to
operations, the effects of any changes that may be made in the underlying business. A confirmed plan of reorganization would likely cause material changes to the amounts currently disclosed in 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
debtors-in-possession under the protection of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, the
Company may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in the Condensed Consolidated Financial Statements. Further, the Plan could
materially change the amounts and classifications reported in the consolidated historical financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts
of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.

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

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(DEBTORS-IN-POSSESSION)

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

(2) Reorganization

The Reorganizations Topic of the ASC, which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it
does require that the financial statements for periods subsequent to the filing of the Chapter 11 Cases distinguish transactions and events that are directly associated with the reorganization
from the ongoing operations of the business. Amounts that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in
the statements of operations beginning in the quarter ending December 31, 2009. The balance sheet must distinguish pre-petition liabilities subject to compromise from both those
pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at
the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by and used for reorganization items must be disclosed separately.

The
accompanying Condensed Consolidated Financial Statements have been prepared in accordance with the Reorganizations Topic of the ASC. All pre-petition liabilities subject
to compromise have been segregated in the condensed consolidated balance sheets and classified as liabilities subject to compromise at the estimated amount of the allowable claims. Liabilities not
subject to compromise are separately classified as current or noncurrent. The Company's condensed consolidated statement of operations for the three months ended March 31, 2010 includes the
results of operations during the Chapter 11 Cases. As such, any revenues, expenses, and gains and losses realized or incurred that are directly related to the bankruptcy case are reported
separately as reorganization items due to the bankruptcy.

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

Reorganization Items

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

Three months ended
March 31, 2010Professional fees(a)


14,739Success bonus(b)


875Non-cash allowed claim adjustments(c)


977Total reorganization items

$
16,591


(a)Professional
fees relate to legal, financial advisory and other professional costs directly associated with the reorganization process.


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(DEBTORS-IN-POSSESSION)

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

(2) Reorganization (Continued)

(b)Success
bonus represents charges incurred relating to the Success Bonus Plan in accordance with the plan of reorganization.(c)The
carrying values of certain liabilities subject to compromise were adjusted to the value of the claim allowed by the Bankruptcy Court.


Liabilities Subject to Compromise

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

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

March 31,
2010

December 31,
2009Senior secured credit facility

$
1,970,963

$
1,965,450Senior Notes


549,996


549,996Interest rate swap


98,833


98,833Accrued interest


108,197


74,406Accounts payable


100,084


93,049Other accrued liabilities


36,056


42,461Capital lease obligations


7,107


7,627Other long-term liabilities


766


787Employee benefit obligations





3,731Liabilities subject to compromise

$
2,872,002

$
2,836,340


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

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

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(DEBTORS-IN-POSSESSION)

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

(2) Reorganization (Continued)

Magnitude of Potential Claims

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

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

As
of June 3, 2010, claims totaling $4.9 billion have been filed with the Bankruptcy Court against the Company, $1.4 million of which have been withdrawn. The
Company expects new and amended claims to be filed in the future, including claims amended to assign values to claims originally filed with no designated value. The Company has identified, and expects
to continue to identify, many claims that the Company believes should be disallowed by the Bankruptcy Court because they are duplicative, have been later amended or superseded, are without merit, are
overstated or for other reasons. As of June 3, 2010, the Bankruptcy Court has disallowed $1.0 billion of these claims and has not yet ruled on the Company's other objections to claims,
the disputed portions of which aggregate to an additional $7.0 million. The Company expects to continue to file objections in the future. Because the process of analyzing and objecting to
claims will be ongoing, the amount of disallowed claims may increase significantly in the future.

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

(3) Accounting Policies

(a) Use of Estimates

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting
principles, or GAAP, which
require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The Condensed Consolidated Financial Statements
reflect all adjustments that are necessary for a fair presentation of results of operations and financial condition for the interim periods shown, including normal recurring accruals and other items.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(3) Accounting Policies (Continued)

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 and income taxes. Estimates were made to determine the allocations used in preparing the historical combined financial statements as described above. In addition, estimates have been made
in determining the amounts and classification of certain liabilities subject to compromise.

(b) Revenue Recognition

Revenues are recognized as services are rendered and are primarily derived from the usage of the Company's networks and facilities or
under revenue-sharing arrangements with other communications carriers. Revenues are primarily derived from: access, pooling, local calling services, Universal Service Fund receipts, long distance
services, Internet and broadband services, and other miscellaneous services. Local access charges are billed to local end users under tariffs approved by each state's public utilities commission.
Access revenues are derived for the intrastate jurisdiction by billing access charges to interexchange carriers and to other local exchange carriers ("LECs"). These charges are billed based on toll or
access tariffs approved by the local state's public utilities commission. Access charges for the interstate jurisdiction are billed in accordance with tariffs filed by the National Exchange Carrier
Association or by the individual company and approved by the FCC.

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

Long
distance retail and wholesale services are usage sensitive and are billed in arrears and recognized when earned. Internet and data services revenues are substantially all recurring
revenues and are billed one month in advance and deferred until earned. The majority of the Company's miscellaneous revenue is provided from billing and collection and directory services. The Company
earns revenue from billing and collecting charges for toll calls on behalf of interexchange carriers. The interexchange carrier pays a certain rate per each minute billed by the Company. The Company
recognizes revenue from billing and collection services when the services are provided.

Internet
and broadband services and certain other services are recognized in the month the service is provided.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(3) 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.

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

Management
makes estimated adjustments, as necessary, to revenue or accounts receivable for known billing errors. At March 31, 2010 and December 31, 2009, the Company
recorded revenue reserves of $23.7 million and $22.6 million, respectively.

(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 (the "Merger
Restricted Cash"). 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 (the "NH Investment Commitment"). The NH Investment Commitment is inclusive of the $50 million previously required by the NHPUC. In addition, if the
Regulatory Settlement (as defined below) with the state regulatory authority in New Hampshire is approved in connection with the Plan, the NH Investment Commitment will be reduced by
$10 million, with such funds being reallocated to recurring maintenance capital expenditures to be spent on or before March 31, 2013.

As
of March 31, 2010, the Company had released $78.9 million of the restricted cash for approved expenditures under the required projects, including $1.4 million in
interest earned on such restricted cash, and had forfeited an additional $1.0 million to the Vermont Public Service Board (the "Vermont Board") due to an inability to spend the full amount of
allocated funds for such projects during the 2008 and 2009 calendar years. As of March 31, 2010, $2.5 million of the Merger Restricted Cash remains
for removal of double poles in Vermont. In addition, the Company also had $1.4 million of cash restricted for other purposes.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(3) Accounting Policies (Continued)

In
total, the Company had $3.9 million of restricted cash at March 31, 2010 of which $2.3 million is shown in current assets and $1.6 million is shown as a
non-current asset on the condensed consolidated balance sheet.

We
expect that the orders entered into by the PUCs in Maine, New Hampshire and Vermont in connection with the Merger will be amended based on regulatory settlements that we negotiated
with representatives of the state regulatory authorities in each of Maine, New Hampshire and Vermont in connection with the Chapter 11 Cases and the Plan (each, a "Regulatory Settlement," and
collectively the "Regulatory Settlements"). However, if the Regulatory Settlements are not approved by the applicable regulatory authorities in Maine, New Hampshire and Vermont, 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 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.

As
of March 31, 2010 and December 31, 2009, the Company's allowance for doubtful accounts totaled $60.6 million and $66.0 million, respectively.

(g) Credit Risk

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

The
Company sponsors pension and post-retirement healthcare plans for certain employees. Plan assets are held by a third party trustee. The Company's plans hold debt and
equity securities for investment purposes. The value of these plan assets is dependent on the financial condition of those entities issuing the debt and equity securities. A significant decline in the
fair value of plan assets could result in additional contributions to the plans by the Company in order to meet funding requirements under ERISA.

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(DEBTORS-IN-POSSESSION)

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

(3) Accounting Policies (Continued)

(h) Materials and Supplies

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

(i) Property, Plant, and Equipment

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

At
March 31, 2010 and December 31, 2009, accumulated depreciation for property, plant and equipment was $4.3 billion and $4.2 billion, respectively.

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

Average Lives

YearsBuildings


45Central office equipment


5 - 11Outside communications plantCopper cable


15 - 18Fiber cable


25Poles and conduit


30 - 50Furniture, vehicles and other


3 - 15


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

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

(j) Long-Lived Assets

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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(3) Accounting Policies (Continued)

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

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

(k) Computer Software and Interest Costs

The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software which has a useful life
in excess of one year in accordance with the Intangibles-Goodwill and Other Topic of the ASC. Capitalized costs include direct development costs associated with internal use software, including direct
labor costs and external costs of materials and services.

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

In
addition, the Company capitalizes the interest cost associated with the period of time over which the Company's internal use software is developed or obtained in accordance with the
Interest Topic of the ASC. The Company has not capitalized interest costs incurred subsequent to the filing of the Chapter 11 Cases, as payments on all interest obligations have been stayed as
a result of the filing of the Chapter 11 Cases.

On
January 15, 2007, FairPoint entered into the Master Services Agreement (the "MSA"), with Capgemini U.S. LLC. Through the MSA, the Company replicated and/or replaced
certain existing Verizon systems during a phased period through January 2009. As of June 30, 2009, the Company had completed the application development stage of the project and was no longer
capitalizing costs in accordance with the Intangibles-Goodwill and Other Topic of the ASC. The Company has recognized both external and internal service costs associated with the MSA based on total
labor incurred through the completion of the application development stage. As of March 31, 2010, the Company had capitalized $107.0 million of MSA costs and an additional
$6.9 million of interest costs.

In
addition to the MSA, the Company has other agreements and projects for which costs are capitalized in accordance with the IntangiblesGoodwill and Other Topic and the
Interest Topic of the ASC. During the three months ended March 31, 2010, the Company capitalized $3.8 million in software costs and did not capitalize any interest costs.

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

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(DEBTORS-IN-POSSESSION)

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

(3) Accounting Policies (Continued)

(l) Debt Issue Costs

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

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

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

In
connection with the Exchange Offer, the Company paid a cash consent fee of $1.6 million in the aggregate to holders of Old Notes who validly delivered and did not revoke
consents in the related consent solicitation prior to a specified early consent deadline, which amount was equal to $3.75 in cash per $1,000 aggregate principal amount of Old Notes exchanged in the
Exchange Offer. Pursuant to the Debt Topic of the ASC, this consent fee was capitalized and the Company began to amortize these costs over the life of the New Notes using the effective interest
method.

Concurrent
with the filing of the Chapter 11 Cases, on October 26, 2009 the Company wrote off all remaining debt issue and offering costs related to its
pre-petition debt in accordance with the Reorganizations Topic of the ASC.

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

As
of March 31, 2010 and December 31, 2009, the Company had capitalized debt issue costs, net of amortization, of $1.3 million and $0.7 million, respectively.

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(DEBTORS-IN-POSSESSION)

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

(3) Accounting Policies (Continued)

(m) Advertising Costs

Advertising costs are expensed as they are incurred.

(n) Goodwill and Other Intangible Assets

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

Goodwill
impairment is determined using a two-step process. Step one compares the estimated fair value of the Company's single wireline reporting unit (calculated using both
the market approach and the income approach) to its carrying amount, including goodwill. The market approach compares the fair value of the Company, as measured by its market capitalization, to the
carrying amount of the Company, which represents its stockholders' equity balance. As of March 31, 2010, stockholders' deficit totaled $292.3 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, 2009 and concluded that there was no impairment at that time. In light of the
Chapter 11 Cases, the Company performed an interim goodwill impairment assessment as of December 31, 2009 and determined that goodwill was not impaired.

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

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(DEBTORS-IN-POSSESSION)

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

(3) Accounting Policies (Continued)

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

At
March 31,
2010

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

$
208,504

$
208,504Less accumulated amortization


(45,144
)

(39,501
)Net customer lists


163,360


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


42,816


42,816Total intangible assets, net

$
206,176

$
211,819


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

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

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

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

The
estimated weighted average useful lives of the intangible assets are 9.7 years for the customer relationships and an indefinite useful life for trade names. Amortization
expense was $5.6 million and $5.7 million for the three months ended March 31, 2010 and 2009, respectively, and is expected to be approximately $22.6 million per year.

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(DEBTORS-IN-POSSESSION)

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

(3) Accounting Policies (Continued)

(o) Accounting for Income Taxes

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

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

The
Company adopted FASB Interpretation No. (FIN) 48,Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement
No. 109,on January 1, 2007. FIN 48 requires applying a "more likely than not" threshold to the recognition and de-recognition of tax
positions. The Company's unrecognized tax benefits totaled $5.4 million as of March 31, 2010, of which $2.0 million would impact its effective tax rate, if recognized.

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

Based
upon the level of projections for future taxable income at December 31, 2008, management believed it was more likely than not the Company would realize the full benefits of
these deductible differences. However, as a result of the change in facts and circumstances during 2009 in which the Company filed for Chapter 11 reorganization and continuing into the three
months ended March 31, 2010, the Company reassessed the likelihood that its deferred tax assets will be realized as of March 31, 2010. Based upon the change in circumstances, management
believes it can support the realizability of its deferred tax asset only by the scheduled reversal of its deferred tax liabilities and can no longer rely upon the projection of future taxable income.
As of March 31, 2010, the Company carries a valuation allowance of $28.4 million against its deferred tax assets which consists of a $22.8 million Federal allowance and a
$5.6 million state allowance.

(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

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

(3) Accounting Policies (Continued)

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.

(q) Employee Benefit Plans

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

(r) Business Segments

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

(s) Purchase Accounting

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

(4) Recent Accounting Pronouncements

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

On
June 15, 2009, the Company adopted the accounting standard relating to subsequent events. This standard establishes principles and requirements for identifying, recognizing and
disclosing subsequent events. This standard requires that an entity identify the type of subsequent event as either

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

(4) Recent Accounting Pronouncements (Continued)

recognized
or unrecognized, and disclose the date through which the entity has evaluated subsequent events. This standard was revised by FASB Accounting Standard Update 2010-09 to remove
the requirement to disclose the date through which subsequent events have been evaluated. This standard is effective for interim or annual financial periods ending after June 15, 2009. The
adoption of this standard had no impact on the Company's consolidated results of operations and financial position.

(5) Dividends

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

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

(6) Income Taxes

For the three months ended March 31, 2010, the Company recorded income tax expense of $3.5 million, resulting in an effective tax rate of 4.9% expense compared to an
effective tax rate of 37.5% benefit for
the three months ended March 31, 2009. The 4.9% effective tax rate for the three months ended March 31, 2010 was primarily impacted by a one-time, non-cash income
tax charge of $6.8 million, as a result of the enactment of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, both of which became law
in March 2010 (collectively the Health Care Act). Under the Health Care Act, beginning in 2013, FairPoint and other companies that receive a subsidy under Medicare Part D to provide retiree
prescription drug coverage will no longer receive a federal income tax deduction for the expenses incurred in connection with providing the subsidized coverage to the extent of the subsidy received.
Because future anticipated retiree prescription drug plan liabilities and related subsidies are already reflected in the Company's financial statements, this change required the Company to reduce the
value of the related tax benefits recognized in its financial statements in the period during which the Health Care Act was enacted.

The
effective tax rate for the three months ended March 31, 2010 was also impacted by post-petition interest on debts that is not expected to be paid and, therefore,
not expected to result in a future tax deduction, as well as non-deductible costs incurred related to the Chapter 11 Cases. In addition, tax benefits from the reported loss during
the period were partially offset by an increase in the valuation allowance on the Company's deferred tax assets.

At
March 31, 2010, the Company had federal and state net operating loss carryforwards of $450.4 million that will expire from 2019 to 2029. At March 31, 2010, the
Company has alternative minimum tax credits of $3.8 million that may be carried forward indefinitely. Legacy FairPoint completed an initial public offering on February 4, 2005, which
resulted in an "ownership change" within the meaning of the U.S. Federal income tax laws addressing net operating loss carryforwards, alternative minimum tax credits, and other similar tax attributes.
The Merger also resulted in an ownership change as of March 31, 2008. As a result of these ownership changes, there are specific

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(DEBTORS-IN-POSSESSION)

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

(6) Income Taxes (Continued)

limitations
on the Company's ability to use its net operating loss carryfowards and other tax attributes. It is the Company's belief that it can use the net operating losses even with these
restrictions in place.

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

Based
upon the level of projections for future taxable income at December 31, 2008, management believed it was more likely than not the Company would realize the full benefits of
these deductible differences. However, as a result of the change in facts and circumstances during 2009 in which the
Company filed the Chapter 11 Cases, the Company reassessed the likelihood that its deferred tax assets will be realized as of December 31, 2009. Based upon the change in circumstances,
management believes it can support the realizability of its deferred tax asset only by the scheduled reversal of its deferred tax liabilities and can no longer rely upon the projection of future
taxable income. At March 31, 2010, the Company carries a valuation allowance of $28.4 million against its deferred tax assets which consists of a $22.8 million Federal allowance
and a $5.6 million state allowance.

The
Income Taxes Topic of the ASC requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and
disclosures regarding uncertainties in income tax positions. The unrecognized tax benefits under the Income Taxes Topic of the ASC are similar to the income tax reserves reflected prior to adoption
under SFAS No. 5,Accounting for Contingencies,whereby reserves were established for probable loss contingencies that could be reasonably
estimated. The Company's unrecognized tax benefits totaled $5.4 million as of March 31, 2010 and December 31, 2009. Of the $5.4 million of unrecognized tax benefits at
March 31, 2010, $2.0 million would impact the Company's effective rate, if recognized. The remaining unrecognized tax benefits relate to temporary items and tax reserves recorded in a
business combination. Furthermore, the Company does not anticipate any significant increase or decrease to the unrecognized tax benefits within the next twelve months.

The
Company recognizes any interest and penalties accrued related to unrecognized tax benefits in income tax expense. For the three months ended March 31, 2010, there was a
$0.1 million increase in interest and penalties. As of March 31, 2010, cumulative interest and penalties totaled $1.4 million, net of tax.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(6) Income Taxes (Continued)

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and with various state and local governments. The Company is no longer subject to U.S.
federal, state and local, or non-U.S. income tax examinations by tax authorities for years prior to 2004. During the quarter ending June 30, 2009, Verizon received notification from
the IRS that a tax position taken on their returns for the years 2000 through 2003 relating to FairPoint's acquired business was settled through acceptance of the filing position. During the quarter
ending June 30, 2008, Verizon effectively settled the IRS examination for fiscal years 2000 through 2003. Due to the executed tax sharing agreement dated January 15, 2007 between
FairPoint and Verizon covering prior period tax liabilities, current period tax liabilities, tax payments and tax returns (the "Tax Sharing Agreement"), the settlement of the IRS audit resulted in an
amount due to Verizon from FairPoint in the amount of $1.5 million relating to adjustments of temporary differences and $0.1 million of interest. As of March 31, 2010, the Company
does not have any significant additional jurisdictional tax audits.

Prior
to the Merger, Verizon and its domestic subsidiaries, including the operations of the Verizon Companies, filed a consolidated federal income tax return and combined state income
tax returns in the states of Maine, New Hampshire and Vermont. The operations of the Verizon Companies, including the Verizon Northern New England business, for periods prior to the Merger were
included in a Tax Sharing Agreement with Verizon and were allocated tax payments based on the respective tax liability as if they were filing on a separate company basis. Current and deferred tax
expense was determined by applying the provisions of the Income Taxes Topic of the ASC to each company as if it were a separate taxpayer.

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

(7) Interest Rate Swap Agreements

The Company assesses interest rate 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 believed it was prudent to limit the variability of a portion of its interest payments. To meet this
objective, from time to time, the Company entered into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk. The Swaps effectively changed the variable
rate on the debt obligations to a fixed rate. Under the terms of

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(DEBTORS-IN-POSSESSION)

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

(7) Interest Rate Swap Agreements (Continued)

the
Swaps, the Company was required to make a payment if the variable rate was below the fixed rate, or it received a payment if the variable rate was above the fixed rate.

The
Company failed to make payments of $14.0 million due under the Swaps on September 30, 2009, which failure resulted in an event of default under the Swaps upon the
expiration of a three business day grace period.

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

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

As
a result of the Merger, the Company reassessed the accounting treatment of the Swaps and determined that, beginning on April 1, 2008, the Swaps did not meet the criteria for
hedge accounting. Therefore, the changes in fair value of the Swaps subsequent to the Merger have been recorded as other income (expense) on the consolidated statement of operations. At
March 31, 2010 and December 31, 2009, the carrying value of the Swaps was a net liability of approximately $98.8 million, all
of which has been included in liabilities subject to compromise as a result of the filing of the Chapter 11 Cases. The carrying value of the Swaps at March 31, 2010 and
December 31, 2009 represents the termination value of the Swaps as determined by the respective counterparties following the termination event described above. The Company has recognized no
gain or loss on derivative instruments on the condensed consolidated statement of operations during the three months ended March 31, 2010. For the three months ended March 31, 2009, the
Company recognized a $12.9 million gain on derivative instruments.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(8) Long Term Debt

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

March 31,
2010

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

$
1,970,963

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


549,996


549,996Total outstanding long-term debt


2,520,959


2,515,446Less amounts subject to compromise


(2,520,959
)

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

$


$



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

The
estimated fair value of the Company's long-term debt at March 31, 2010 was approximately $1,734.4 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 Pre-petition Credit Facility. Failure to make the principal
payment on the due date and failure to make the interest payment within five days of the due date constituted events of default under the Pre-petition Credit Facility, which permits the
lenders to accelerate the maturity of the loans outstanding thereunder, seek foreclosure upon any collateral securing such loans
and terminate any remaining commitments to lend to the Company. In addition, the incurrence of an event of default on the Pre-petition Credit Facility constituted an event of default under
the Swaps at September 30, 2009, which failure resulted in an event of default under the Swaps upon the expiration of a three business day grace period. Also, the failure to make the
October 1, 2009 interest payment on the Notes within thirty days of the due date constituted an event of default under the Notes. An event of default under the Notes permits the holders of the
Notes to accelerate the maturity of the Notes. Filing of the Chapter 11 Cases constituted an event of default on the New Notes. In addition, as a result of the Restatement (as defined herein),
the Company determined that the Company was not in compliance with the interest coverage ratio maintenance covenant and the leverage ratio maintenance covenant under the Pre-petition
Credit Facility for the measurement period ended June 30, 2009, which constituted an event of default under each of the Pre-petition Credit Facility and the Swaps, and may have
constituted an event of default under the Notes, in each case at June 30, 2009.

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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(8) Long Term Debt (Continued)

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 March 31, 2010 are as follows (in thousands):

Quarter ending March 31,2010

$
45,0002011


63,3002012


63,3002013


373,1752014


1,426,188Thereafter


549,996$
2,520,959


Pursuant
to the Plan, the Company does not expect to make any principal or interest payments on its pre-petition debt during the pendency of the Chapter 11 Cases. In
accordance with the Reorganizations Topic of the ASC, as interest on the Notes subsequent to the Petition Date is not expected to be an allowed claim, the Company has not accrued interest expense on
the Notes subsequent to the Petition Date. Accordingly, $18.0 million of interest on unsecured debts, at the stated contractual rates, was not accrued for this reason during the three months
ended March 31, 2010. The Company has continued to accrue interest expense on the Pre-petition Credit Facility, as such interest is considered an allowed claim according to the
Plan.



On March 31, 2008, immediately prior to the Merger, FairPoint and Spinco entered into the Pre-Petition Credit
Facility consisting of the Revolving Credit Facility, the Term Loan and the Delayed Draw Term Loan. Spinco drew $1,160 million under the Term Loan immediately prior to being spun off by
Verizon, and then the Company drew $470 million under the Term Loan and $5.5 million under the Delayed Draw Term Loan concurrently with the closing of the
Merger. Subsequent to the Merger, the Company has drawn an additional $194.5 million under the Delayed Draw Term Loan. These funds were used for certain capital expenditures and other expenses
associated with the Merger.

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

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

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

(8) Long Term Debt (Continued)

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

As
of March 31, 2010, the Company had borrowed $155.5 million under the Revolving Credit Facility, including $5.5 million of funds drawn down under letters of credit
during the three months ended March 31, 2010, and outstanding letters of credit totaled $7.5 million. Upon the event of default under the Pre-petition Credit Facility
relating to the Chapter 11 Cases described herein, the commitments under the Revolving Credit Facility were automatically terminated. Accordingly, as of March 31, 2010, no funds remained
available under the Revolving Credit Facility.

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

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

The
Company's Term Loan B Facility debt is subject to a LIBOR floor of 3.00%. As a result, the Company incurs interest expense at above-market levels when LIBOR rates are below 3.00%.

The
Pre-petition Credit Facility provides for payment to the lenders of a commitment fee on the average daily unused portion of the Revolving Credit Facility commitments,
payable quarterly in arrears on the last business day of each calendar quarter and on the date upon which the commitment is terminated. The Pre-petition Credit Facility also provides for
payment to the lenders of a commitment fee from the closing date of the Pre-petition Credit Facility up through and including the twelve month anniversary thereof on the unused portion of
the Delayed Draw Term Loan, payable quarterly in arrears, and on the date upon which the Delayed Draw Term Loan is terminated, as well as other fees.

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

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(DEBTORS-IN-POSSESSION)

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

(8) Long Term Debt (Continued)

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

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

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

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

Scheduled
amortization payments on our Pre-petition Credit Facility began in 2009. No principal payments are due on the Notes prior to their maturity. As a result of the
Chapter 11 Cases, the Company does not expect to make any additional principal or interest payments on its pre-petition debt.

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

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

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(DEBTORS-IN-POSSESSION)

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

(8) Long Term Debt (Continued)



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

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

Prior
to the filing of the Chapter 11 Cases, the Company failed to make the October 1, 2009 interest payment on the Notes. The failure to make the interest payment on the
Notes constituted an event of default under the Notes upon the expiration of a thirty day grace period. An event of default under the Notes permits the holders of the Notes to accelerate the maturity
of the Notes.

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



On July 29, 2009, the Company successfully consummated the Exchange Offer. On the July 29, 2009 settlement date of the
Exchange Offer (the "Settlement Date"), the Proposed Amendments became operative and $439.6 million in aggregate principal amount of the Old Notes (which amount was equal to approximately 83%
of the then outstanding Old Notes) were exchanged for $439.6 million in aggregate principal amount of the New Notes. In addition, pursuant to the terms of the Exchange Offer, an additional
$18.9 million in aggregate principal amount of New Notes was issued to holders who tendered their Old Notes in the Exchange Offer as payment for accrued and unpaid interest on the exchanged Old
Notes up to, but not including, the Settlement Date.

The
New Notes mature on April 2, 2018 and bear interest at a fixed rate of 131/8%, payable in cash, except that the New Notes bore interest at a rate of 15% for the
period from July 29, 2009 through and including September 30, 2009. In addition, the Company was permitted to pay the interest payable on the New Notes for the period from
July 29, 2009 through and including September 30, 2009

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(DEBTORS-IN-POSSESSION)

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

(8) Long Term Debt (Continued)

(the
"Initial Interest Payment Period") in the form of cash, by capitalizing such interest and adding it to the principal amount of the New Notes or a combination of both cash and such capitalization
of interest, at its option. The Company intended to make the interest payments due on October 1, 2009 on the New Notes by capitalizing such interest and adding it to the principal amount of the
New Notes. As such, interest payable of $12.2 million at September 30, 2009 was reflected as interest payable in kind on the condensed consolidated balance sheet. As the Notes have been
classified as subject to compromise as of March 31, 2010, the Company has classified the accrued interest on the exchanged Old Notes as of March 31, 2010 of $12.2 million as
subject to compromise on the condensed consolidated balance sheet. In accordance with the Reorganizations Topic of the ASC, as interest on the Notes subsequent to the Petition Date is not expected to
be an allowed claim, the Company has not accrued interest expense on the Notes subsequent to the Petition Date.

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

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

In
connection with the Exchange Offer and the corresponding consent solicitation, the Company also paid a cash consent fee of $1.6 million in the aggregate to holders of Old Notes
who validly delivered and did not revoke consents in the consent solicitation prior to a specified early consent deadline, which amount was equal to $3.75 in cash per $1,000 aggregate principal amount
of Old Notes exchanged in the Exchange Offer.



In connection with the Chapter 11 Cases, the DIP Borrowers entered into the DIP Credit Agreement with the DIP Lenders and the
DIP Administrative Agent. The DIP Credit Agreement provides for the DIP Financing. Pursuant to the Interim Order, the DIP Borrowers were authorized to enter into and immediately draw upon the DIP
Credit Agreement on an interim basis, pending a final hearing before the Bankruptcy Court, in an aggregate amount of $20 million. On March 11, 2010 the Bankruptcy Court entered the Final
DIP Order, permitting the DIP Borrowers access to the total $75 million of the DIP Financing, subject to the terms and conditions of the DIP Credit Agreement and related orders of the
Bankruptcy Court. As of March 31, 2010 and December 31, 2009, the Company had not borrowed any amounts under the DIP Credit Agreement and letters of credit totaling $17.2 million
and $1.6 million, respectively, had been issued and were outstanding under the DIP Credit Agreement. Accordingly, as of March 31, 2010, the amount available under the DIP Credit
Agreement was approximately $57.8 million of the $75.0 million made available pursuant to the Final DIP Order.

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(DEBTORS-IN-POSSESSION)

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

(8) Long Term Debt (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 three months at the request of
the DIP Borrowers upon the prior written consent of the Required DIP Lenders with no fee payable by the DIP Borrowers in connection with any such extension, (ii) the Effective Date,
(iii) the voluntary reduction by the DIP Borrowers to zero of all commitments to lend under the DIP Credit Agreement or (iv) the date on which the obligations under the DIP Financing are
accelerated by the Required DIP 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 are, at the DIP Borrowers' option, at either
(i) the
Eurodollar rate plus a margin of 4.5% or (ii) the base rate plus a margin of 3.5%, payable monthly in arrears on the last business day of each month.

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

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

Covenants.Under the DIP Credit Agreement, the DIP 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 restrictions, including, among others, with
respect to investments, additional indebtedness, liens, changes in the nature of the business, mergers, acquisitions, asset sales and

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

(8) Long Term Debt (Continued)

transactions
with affiliates. As of March 31, 2010, the DIP Borrowers are in compliance with all covenants under the DIP Credit Agreement.

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 DIP Order and other matters related to the Chapter 11 Cases.



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



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



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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(9) Employee Benefit Plans

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

Components
of the net periodic benefit (income) cost related to the Company's pension and post-retirement healthcare plans for the three months ended March 31, 2010
are presented below.

In Millions

Qualified Pension

Post-retirement HealthService cost

$
2,881

$
3,453Interest cost


3,012


3,981Expected return on plan assets


(4,148
)

Amortization of prior service cost


381


1,073Amortization of actuarial (gain) loss


279


777Net periodic benefit cost

$
2,405

$
9,284


In
2010, the Company does not expect to make a contribution to the qualified pension plans, but it does expect to incur $1.0 million in post-retirement healthcare plan
expenditures.

For
the three months ended March 31, 2010, the actual gain on the pension plan assets was approximately 2.5%. Net periodic benefit cost for 2010 assumes a weighted average
annualized expected return on plan assets of approximately 8.3%. Should the Company's actual return on plan assets continue to be 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 2010.

During
the three months ended March 31, 2010, $33.3 million was transferred from Verizon's defined benefit plans' trusts to the Company's pension plan trust. A disputed
amount is pending final validation
by a third-party actuary of the census information and related actuarial calculations in accordance with relevant statutory and regulatory guidelines and the Employee Matters Agreement dated
January 15, 2007 between Verizon and the Company. The disputed amount is not included in the Company's pension plan assets at March 31, 2010 or December 31, 2009.

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, 2010 and for the 401 (k) Plan year ended
December 31, 2009, the Company matched 100% of each employee's contribution up to 5% of compensation. Total Company contributions to all 401(k) Plans were $2.4 million for both the three
months ended March 31, 2010 and 2009.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(10) Accumulated Other Comprehensive Loss

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

March 31,
2010

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

$
(123,422
)
$
(124,924
)Total accumulated other comprehensive loss

$
(123,422
)
$
(124,924
)


Other
comprehensive loss for the three months ended March 31, 2010 and 2009 includes amortization of defined benefit pension and post-retirement plan related prior
service costs and actuarial gains and losses included in accumulated other comprehensive loss.

(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 March 31,2010

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


89,424


89,151Effect of potential dilutive shares





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


89,424


89,151Anti-dilutive shares excluded from the above reconciliation


2,535


990


Weighted
average number of common shares used for basic earnings per share excludes 565,476 shares of non-vested restricted stock. Since the Company incurred a loss for the three months
ended March 31, 2010 and 2009, all potentially dilutive securities are anti-dilutive and are, therefore, excluded from the determination of diluted earnings per share.

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(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 March 31,
2010, there were 89,989,144 shares of common stock outstanding and 200,000,000 shares of common stock were authorized.

(13) Fair Value Measurements

The Fair Value Measurements and Disclosures Topic of the ASC (formerly SFAS 157,Fair Value Measurements("SFAS 157"))
defines fair value, establishes a framework for measuring fair value and establishes a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value. The Fair Value
Measurements and Disclosures Topic of the ASC also expands financial statement disclosures about fair value measurements. On February 12, 2008, the FASB issued FASB Staff Position ("FSP")
157-2, which delayed the effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis. The Company elected a partial deferral of SFAS No. 157 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. The Company is currently evaluating the impact of FSP 157-2 on its financial statements. The impact of partially adopting SFAS 157 effective January 1,
2008 was not material to the Company's financial statements.

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

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

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(14) Commitments and Contingencies

(a) Leases

Future minimum lease payments under capital leases and non-cancelable operating leases as of March 31, 2010 are as
follows (in thousands):

Capital
Leases

Operating
LeasesTwelve months ending March 31:2011

$
2,850

$
10,1792012


1,867


8,7382013


1,705


7,3992014


1,534


5,5712015


1,256


3,474Thereafter





6,990Total minimum lease payments

$
9,212

$
42,351Less interest and executory cost


(2,105
)Present value of minimum lease payments


7,107Less amounts subject to compromise


(7,107
)Long-term obligations at March 31, 2010

$



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

(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 March 31, 2010, the Company has recognized an estimated liability for
service quality penalties based on metrics defined by the state regulatory authorities in Maine, New Hampshire and Vermont. 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 $2.4 million increase in the
estimated liability was recorded as a reduction to revenue for the three

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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

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

(14) Commitments and Contingencies (Continued)

months
ended March 31, 2010. During the three months ended March 31, 2010, the Company paid out $0.4 million of service quality index ("SQI") penalties in the form of customer
rebates, all of which were related to Maine fiscal 2008 and 2009 penalties. The Company has recorded a total liability of $29.4 million on the condensed consolidated balance sheet at
March 31, 2010. Additional penalties may be assessed as a result of service quality issues related to transitioning certain back-office functions from Verizon's integrated systems
to newly created systems of the Company, which occurred in January 2009 (the "Cutover"), which could have a material adverse effect on the Company's financial position, results of operations and
liquidity.

During
February 2010, the Company entered into the Regulatory Settlements with representatives of the state regulatory authorities in each Maine, New Hampshire and Vermont, which are
subject to the approval of the regulatory authorities in these states. The Regulatory Settlements in New Hampshire and Vermont defer fiscal 2008 and 2009 SQI penalties until December 31,
2010 and include a clause whereby such penalties may be forgiven in part or in whole if the Company meets certain metrics for the twelve-month period ending December 31, 2010. As this clause
represents a contingent gain, the Company has not recognized such gain as of March 31, 2010. As of March 31, 2010, the Company has accrued fiscal 2008 and 2009 liabilities of
$6.0 million for New Hampshire and approximately $11.4 million for Vermont. In addition, the Regulatory Settlement in Maine deferred the Company's fiscal 2008 and 2009
SQI penalties until March 2010, subject to the Company's right to credit such rebates against future SQI rebates that it is required to pay, in the event the Regulatory Settlement in
Maine is not approved by the Maine Public Utilities Commission (the "MPUC") and the Bankruptcy Court subsequently enters an injunction against the Company's payment of rebates for fiscal 2008 and
2009. Beginning in March 2010, the Company began to issue SQI rebates related to the Maine 2008 and 2009 SQI penalties to customers over a twelve month period.

If
the Regulatory Settlements are not approved by the regulatory authorities in Maine, New Hampshire and Vermont, it is unclear what effect the filing of the Chapter 11 Cases will
have on the requirements, including SQI 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.

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Table of Contents

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

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

Overview

We are a leading provider of communications services in rural and small urban communities, offering an array of services, including
local and long distance voice, data, Internet, television and broadband product offerings. We operate in 18 states with 1.5 million access line equivalents (including voice access lines and
high speed data lines, which include digital subscriber lines ("DSL"), wireless broadband, cable modem and fiber-to-the-premises) in service as of
March 31, 2010.

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

As
our primary source of revenues, access lines are an important element of our business. Over the past several years, communications companies, including FairPoint, have experienced a
decline in access lines due to increased competition, including competition from wireless carriers and cable television operators, the introduction of DSL services (resulting in customers substituting
DSL for a second line) and challenging economic conditions. In addition, while we were operating under the Transition Services Agreement, we had limited ability to change current product offerings.
Upon completion of the Cutover from the Verizon systems to the new FairPoint systems, we expected to be able to modify bundles and prices to be more competitive in the marketplace. However, due to
certain systems functionality issues (as described herein), we had limited ability during 2009 to make changes to our product offerings. In late June 2009, we began actively marketing and promoting
our DSL product for the first time since the Cutover.

We
are subject to regulation primarily by federal and state governmental agencies. At the federal level, the FCC generally exercises jurisdiction over the facilities and services of
communications common carriers, such as FairPoint, to the extent those facilities are used to provide, originate or terminate interstate or international communications. State regulatory commissions
generally exercise jurisdiction over common carriers' facilities and services to the extent those facilities are used to provide, originate or terminate intrastate communications. In addition,
pursuant to the 1996 Act, which amended the Communications Act of 1934, state and federal regulators share responsibility for implementing and enforcing the domestic pro-competitive
policies introduced by that legislation.

Legacy
FairPoint's operations and our Northern New England operations operate under different regulatory regimes in certain respects. For example, concerning interstate access, all of
the pre-Merger regulated interstate services of FairPoint were regulated under a rate-of-return model, while all of the rate-regulated interstate
services provided by the Verizon Northern New England business were regulated under a price cap model. On May 10, 2010, we received FCC approval to convert our Legacy FairPoint operations in
Maine and Vermont to the price cap model. Our Legacy FairPoint operations in Maine and Vermont will convert to price cap regulation on July 1, 2010. We have obtained permission to continue to
operate our Legacy FairPoint incumbent LECs outside of Maine and Vermont under the rate-of-return regime until the FCC completes its general review of whether to modify or
eliminate the "all-or-nothing" rule. Without this permission, the all-or-nothing rule would require that all of our regulated operations be operated
under the price cap model for federal regulatory purposes. In

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addition,
while all of our operations generally are subject to obligations that apply to all LECs, our non-rural operations are subject to additional requirements concerning
interconnection, non-discriminatory network access for competitive communications providers and other matters, subject to substantial oversight by state regulatory commissions. In
addition, the FCC has ruled that our Northern New England operations must comply with the regulations applicable to the Bell Operating Companies. Our rural and non-rural operations are
also subject to different regimes concerning universal service.

From
2007 through January 2009, we were in the process of developing and deploying new systems, processes and personnel to replace those used by Verizon to operate and support our
network and back-office functions in the Maine, New Hampshire and Vermont operations we acquired from Verizon. These services were provided by Verizon under the Transition Services
Agreement through January 30, 2009. On January 30, 2009, we began the Cutover, and on February 9, 2009, we began operating our new platform of systems independently from the
Verizon systems, processes and personnel. During the period from January 23, 2009 until January 30, 2009, all retail orders were taken manually and following the Cutover were entered
into the new systems. From February 2, 2009 through February 9, 2009, we manually processed only emergency orders, although we continued to provide repair and maintenance services to all
customers.

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

We
have since worked diligently to remedy these issues. 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 ended March 31, 2009 we incurred $19.4 million of incremental expenses in order to operate our business, including
third-party contractor costs and internal labor costs in the form of overtime pay. The Cutover issues also required significant staff and senior management attention, diverting their focus from other
efforts.

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

On
April 30, 2010, we filed amendments to our Quarterly Reports on Form 10-Q/A for the quarters ended March 31, 2009, June 30, 2009 and
September 30, 2009 (collectively, the

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Table of Contents

"Amendments")
to reflect the effect of an accounting error, a one-time non-operating loss related to a disputed claim and certain billing and other adjustments. For the nine
months ended September 30, 2009, the accounting error and the billing and other adjustments resulted in a $25.0 million overstatement of revenues, a $0.2 million understatement of
operating expenses and a $9.6 million overstatement of other income in the financial data originally reported in our Quarterly Report on Form 10-Q for the nine months ended
September 30, 2009, which was originally filed with the SEC on November 20, 2009. The restatement of the interim condensed consolidated financial statements contained in the Amendments
(the "Restatement"), which Restatement accounts for the foregoing overstatements and understatement, resulted in a reduction in net income of $21.8 million, net of income taxes, for the nine
months ended September 30, 2009.

For
the three months ended March 31, 2009, the accounting error and the billing and other adjustments resulted in a $12.3 million overstatement of revenues, a
$0.1 million understatement of operating expenses and a $9.6 million overstatement of other income in the financial data originally reported in our Quarterly Report on
Form 10-Q for the three months ended March 31, 2009, which
was originally filed with the SEC on May 5, 2009 and was subsequently amended on May 8, 2009. The Restatement resulted in a reduction in net income of $13.5 million, net of income
taxes, for the three months ended March 31, 2009. For more information, see the Amendments as filed with the SEC.

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

Basis of Presentation

On March 31, 2008, the Merger between Spinco and Legacy FairPoint was completed. In connection with the Merger and in accordance
with the terms of an agreement and plan of merger with Verizon and Spinco pursuant to which we committed to purchase and assume Verizon's landline operations in Maine, New Hampshire and Vermont (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 was deemed to be the acquirer. 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
March 31,

Three months
ended
March 31,2010

2009

2010

2009Revenue Source:Local calling services

$
108,436


122,820


40
%

41
%Access


97,445


93,127


35
%

31
%Long distance services


30,863


43,395


11
%

15
%Data and Internet services


27,067


28,194


10
%

9
%Other services


11,355


11,762


4
%

4
%Total


275,166


299,298


100
%

100
%


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Table of Contents

Operating Expenses

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



Through
January 30, 2009, we operated under the Transition Services Agreement, under which we incurred $15.9 million of expenses during the three months ended
March 31, 2009. 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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Table of Contents

Results of Operations

Three Months Ended March 31, 2010 Compared with Three Months Ended March 31, 2009

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):

2010

% of
Revenues

2009

% of
RevenuesRevenues

$
275,166


100
%
$
299,298


100
%Operating expensesCost of services and sales


130,626


47


149,402


50Selling, general and administrative


95,090


35


88,273


29Depreciation and amortization


70,345


26


67,867


23Total operating expenses


296,061


108


305,542


102Loss from operations


(20,895
)

(8
)

(6,244
)

(2
)Interest expense


(34,630
)

(12
)

(53,479
)

(18
)Gain on derivative instruments








12,898


4Gain on early retirement of debt








4,863


2Other income


26





6,277


2Loss before reorganization items and income taxes


(55,499
)

(20
)

(35,685
)

(12
)Reorganization items


(16,591
)

(6
)




Loss before income taxes


(72,090
)

(26
)

(35,685
)

(12
)Income tax (expense) benefit


(3,501
)

(1
)

13,380


5Net loss

$
(75,591
)

(27
)%
$
(22,305
)

(7
)%


Revenues
decreased $24.1 million to $275.2 million in the first quarter of 2010 compared to 2009. We derive our revenues from the following sources:

Local calling services.Local calling services revenues decreased $14.4 million to $108.4 million during the first quarter of
2010
compared to the same period in 2009. This decrease is primarily due to a 12.4% decline in total voice access lines in service at March 31, 2010 compared to March 31, 2009. The revenue
decline was mainly driven by the effects of competition and technology substitution.

Access.Access revenues increased $4.3 million to $97.4 million during the first quarter of 2010 compared to the same period
in 2009.
Of this increase, $5.8 million is attributable to an increase in interstate access revenues, partially offset by a $1.5 million decrease in intrastate access revenues.

Long distance services.Long distance services revenues decreased $12.5 million to $30.9 million in the first quarter of 2010
compared
to the same period in 2009. The decrease was primarily attributable to a decrease in the number of subscriber lines from March 31, 2009 to March 31, 2010.

Data and Internet services.Data and Internet services revenues decreased $1.1 million to $27.1 million in the first quarter
of 2010
compared to the same period in 2009. This decrease is primarily due to a 4.8% decline in high-speed data subscribers at March 31, 2010 compared to March 31, 2009.

Other services.Other services revenues decreased $0.4 million to $11.4 million in the first quarter of 2010 compared to the
same
period in 2009.

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Operating Expenses

Cost of services and sales.Cost of services and sales decreased $18.8 million to $130.6 million in the first quarter of 2010
compared
to the same period in 2009. Included in cost of services and sales for the three months ended March 31, 2009 are $6.1 million of expenses related to the Transition Services Agreement.
Excluding the impact of the Transition Services Agreement, cost of services and sales would have declined $12.7 million.

Selling, general and administrative.Selling, general and administrative expenses increased $6.8 million to $95.1 million in
the first
quarter of 2010 compared to the same period in 2009. The increase is primarily attributable to a $3.4 million increase in bad debt expense.

Depreciation and amortization.Depreciation and amortization expense increased $2.5 million to
$70.3 million in the first quarter of 2010 compared to the same period in 2009, due primarily to increased gross plant asset balances, including capitalized software placed into service upon
termination of the Transition Services Agreement.

Other Results

Interest expense.Interest expense decreased $18.8 million to $34.6 million in the first quarter of 2010 compared to the same
period in
2009. Upon the filing of the Chapter 11 Cases, in accordance with the Reorganizations Topic of the ASC, we ceased the accrual of interest expense on the Notes and the Swaps in accordance with
the Reorganizations Topic of the ASC as it is unlikely that such interest expense will be paid or will become an allowed priority secured or unsecured claim. We have continued to accrue interest
expense on the Pre-petition Credit Facility, as such interest is considered an allowed claim pursuant to the Plan.

Gain on derivative instruments.Gain on derivative instruments represents net gains and losses recognized on the change in fair market
value of
interest rate swap derivatives. During the three months ended March 31, 2009, we recognized non-cash gains of $12.9 million related to our derivative financial instruments.
In connection with the filing of the Chapter 11 Cases, the Swaps were terminated by the counterparties and have been recorded on the consolidated balance sheet at the termination values
provided by the counterparties. Accordingly, we recognized no gain or loss on derivative instruments during the three months ended March 31, 2010.

Gain on early retirement of debt.Gain on early retirement of debt represents a $5.6 million net gain recognized on the repurchase
of
$8.0 million aggregate principal amount of the Old Notes during the three months ended March 31, 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 Pre-petition Credit Facility during the three months ended March 31, 2009. We did not retire any debt during the
three months ended March 31, 2010 and thus did not recognize any gain or loss on early retirement of debt during such period.

Other income.Other income includes non-operating gains and losses such as those
incurred on sale of equipment. Other income decreased $6.3 million to $0.03 million in the first quarter of 2010 compared to the same period in 2009. We recognized a one-time
gain of $5.4 million in the first quarter of 2009 related to the settlement under a transition agreement (the "Transition Agreement") we entered into with Verizon on January 30, 2009, in
connection with the Cutover, as contemplated by the Transition Services Agreement.

Reorganization items.Reorganization items represent expense or income amounts that have been recognized as a direct result of the
Chapter 11
Cases.

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Income taxes.The effective income tax rate is the provision for income taxes stated as a percentage of income before the provision for
income taxes.
The effective income tax rate for the three months ended March 31, 2010 and 2009 was 4.9% expense and 37.5% benefit, respectively. The effective tax rate for the three months ended
March 31, 2010 was primarily impacted by a one-time, non-cash income tax charge of $6.8 million, as a result of the enactment of the Health Care Act. Income tax
benefits during the three months ended March 31, 2010 were partially offset by an increase in our deferred tax valuation allowance.

Net loss.Net loss for the three months ended March 31, 2010 was $75.6 million compared to net loss of $22.3 million for
the
same period in 2009. The difference in net loss between 2010 and 2009 is a result of the factors discussed above.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies

Our critical accounting policies are as follows:



Revenue Recognition.We recognize service revenues based upon usage of our local exchange network and facilities and contract
fees. Fixed fees for
local telephone, long distance, Internet services and certain other services are recognized in the month the service is provided. Revenue from other services that are not fixed fee or that exceed
contracted amounts is recognized when those services are provided. Non-recurring customer activation fees, along with the related costs up to, but not exceeding, the activation fees, are
deferred and amortized over the customer relationship period. We make estimated adjustments, as necessary, to revenue or accounts receivable for known billing errors. At March 31, 2010 and
December 31, 2009, we recorded revenue reserves of $23.7 million and $22.6 million, respectively.

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

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Accounting for Pension and Other Post-retirement Benefits.Some of our employees participate in our pension plans and other
post-retirement benefit plans. In the aggregate, the pension plan benefit obligations exceed the fair value of pension plan assets, resulting in expense. Other post-retirement
benefit plans have larger benefit obligations than plan assets, resulting in expense. Significant pension and other post-retirement benefit plan assumptions, including the discount rate
used, the long term rate of return on plan assets, and medical cost trend rates are periodically updated and impact the amount of benefit plan income, expense, assets and obligations.

Accounting for Income Taxes.Our current and deferred income taxes are affected by events and transactions arising in the normal
course of business,
as well as in connection with the adoption of new
accounting standards and non-recurring items. Assessment of the appropriate amount and classification of income taxes is dependent on several factors, including estimates of the timing and
realization of deferred income tax assets and the timing of income tax payments. Actual payments may differ from these estimates as a result of changes in tax laws, as well as unanticipated future
transactions affecting related income tax balances. We account for tax benefits taken or expected to be taken in our tax returns in accordance with the Income Taxes Topic of the ASC, which requires
the use of a two step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions.

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

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



Goodwill
was $595.1 million at March 31, 2010. We have recorded intangible assets related to the acquired companies' customer relationships and trade names of
$251.3 million as of March 31, 2010. As of March 31, 2010, there was $45.1 million of accumulated amortization recorded. The customer relationships are being amortized over
a weighted average life of approximately 9.7 years. The trade name has an indefinite life and is, therefore, not amortized. The intangible assets are included in intangible assets on our
condensed consolidated balance sheet.

We
are required to perform an impairment review of goodwill and non-amortizable intangible assets as required by the Intangibles-Goodwill and Other Topic of the ASC annually
or when impairment indicators are noted. Goodwill impairment is determined using a two-step process. Step one compares the estimated fair value of our single wireline reporting unit
(calculated using the market approach and the income approach) to its carrying amount, including goodwill. The market approach compares our fair value, as measured by our market capitalization, to our
carrying amount, which represents our stockholders' equity balance. As of March 31, 2010, stockholders' deficit totaled $292.3 million. The income approach compares our fair value, as
measured by discounted expected

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future
cash flows, to our carrying amount. If our carrying amount exceeds our estimated fair value, there is a potential impairment and step two must be performed.

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

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

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

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

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

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

Accounting for Software Development Costs.We capitalize certain costs incurred in connection with developing or obtaining
internal use software in
accordance with the Intangibles-Goodwill and Other Topic of the ASC. Capitalized costs include direct development costs associated with internal use software, including direct labor costs and external
costs of materials and services. Costs incurred during the preliminary project stage, as well as maintenance and training costs, are expensed as incurred.

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

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New Accounting Standards

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

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

Inflation

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

Liquidity and Capital Resources

On October 26, 2009, we filed the Chapter 11 Cases. The matters described herein, to the extent that they relate to
future events or expectations, may be significantly affected by the Chapter 11 Cases. The Chapter 11 Cases involve various restrictions on our activities, limitations on financing, the
need to obtain Bankruptcy Court approval for various matters and uncertainty as to relationships with others with whom we may conduct or seek to conduct business. As a result of the risks and
uncertainties associated with the Chapter 11 Cases, the value of our securities and how our liabilities will ultimately be treated is highly speculative. We urge that appropriate caution be
exercised with respect to existing and future investments in any of the liabilities and/or securities of the Company. See note 1 to the Condensed Consolidated Financial Statements for a further
description of the Chapter 11 Cases, the impact of the Chapter 11 Cases, the proceedings in Bankruptcy Court and our status as a going concern. In addition, see
"Part IItem 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2009 and
"Part IIItem 1A. Risk Factors" contained in 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 liquidity is greatly dependent upon our operating results. We expect that our primary sources of liquidity during the pendency of the
Chapter 11 Cases will be cash flow from operations, cash on hand and funds available under the DIP Credit Agreement. We expect that after the Effective Date, our short term and long term
liquidity needs will continue to arise primarily from: (i) interest and principal payments on our indebtedness; (ii) capital expenditures; and (iii) working capital requirements
as may be needed to support and grow our business. We expect that our primary sources of liquidity after the Effective Date will be cash flow from operations, cash on hand and funds available under
the Exit Facility Loans.

The
Chapter 11 Cases were filed to gain liquidity for our continuing operations while we restructure our balance sheet to allow us to be a viable going concern. Our continuation
as a going concern is contingent upon, among other things, our ability: (i) to comply with the terms and conditions of the DIP Credit Agreement; (ii) to obtain confirmation of the Plan
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

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achieve
these objectives through the Chapter 11 reorganization process, there can be no certainty that we will be successful in doing so.

In
connection with the Chapter 11 Cases, the DIP Borrowers entered into the DIP Credit Agreement. The DIP Credit Agreement provides for a revolving facility in an aggregate
principal amount of up to $75 million, of which up to $30 million is also available in the form of one or more letters of credit that may be issued to third parties for the account of
the Company and its subsidiaries. Pursuant to the Interim Order, the DIP Borrowers were authorized to enter into and immediately draw upon the DIP Credit Agreement on an interim basis, pending a final
hearing before the Bankruptcy Court on November 18, 2009, in an aggregate amount of $20 million. On March 11, 2010 the Bankruptcy Court entered a final order in connection with
the DIP Credit Agreement, permitting the DIP Borrowers access to the total $75 million of the DIP Financing, subject to the terms and conditions of the DIP Credit Agreement and related orders
of the Bankruptcy Court. For a further description of the DIP Credit Agreement and the terms thereof, see note 1 to the Condensed Consolidated Financial Statements. Upon satisfaction of certain
conditions precedent, including the Company successfully exiting from the Chapter 11 Cases, the DIP Financing will roll into a new revolving credit facility with a five-year term.
As of March 31, 2010, the Company had not borrowed any amounts under the DIP Credit Agreement and letters of credit totaling $17.2 million had been issued and were outstanding under the
DIP Credit Agreement.

Cash
and cash equivalents at March 31, 2010 totaled $146.9 million compared to $109.4 million at December 31, 2009, excluding restricted cash of
$3.9 million and $4.0 million, respectively.

Net
cash provided by operating activities was $78.6 million and $46.0 million for the three months ended March 31, 2010 and 2009, respectively.

Net
cash used in investing activities was $45.1 million and $57.4 million for the three months ended March 31, 2010 and 2009, respectively. These cash flows
primarily reflect capital expenditures of $45.1 million and $57.5 million for the three months ended March 31, 2010 and 2009, respectively.

Net
cash provided by financing activities was $4.1 million and $33.7 million for the three months ended March 31, 2010 and 2009, respectively. For the three months
ended March 31, 2010, we drew down
$5.5 million on letters of credit under the Pre-petition Credit Facility and incurred $1.1 million of loan origination costs on the DIP Credit Facility. For the three months
ended March 31, 2009, net proceeds from FairPoint's issuance of long-term debt were $50.0 million, repayment of long-term debt was $5.5 million and
dividends paid to stockholders was $23.0 million.

We
expect our capital expenditures will be approximately $190 million to $210 million in 2010. However, this expectation does not take into account the effect that the
filing of the Chapter 11 Cases will have on the capital expenditure requirements imposed by the PUCs in Maine, 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 and, after the Effective Date, the Exit Facility.

We
expect our contributions to our Company sponsored employee pension plans and post-retirement medical plans will be approximately $1.0 million in 2010.

Our Pre-petition Credit Facility

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

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

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

The
Revolving Credit Facility has a swingline 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 March 31, 2010, we had borrowed $155.5 million under the Revolving Credit Facility, including $5.5 million of funds drawn down under letters of credit during
the three months ended March 31, 2010, and outstanding letters of credit totaled $7.5 million. Upon the event of default under the Pre-petition Credit Facility relating to
the Chapter 11 Cases described herein, the commitments under the Revolving Credit Facility were automatically terminated. Accordingly, as of March 31, 2010, no funds remained available
under the Revolving Credit Facility.

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

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

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

Scheduled
amortization payments on our Pre-petition Credit Facility began in 2009. No principal payments are due on the Notes prior to their maturity. As a result of the
Chapter 11 Cases, we do not expect to make any additional principal or interest payments on our pre-petition debt.

Following
the filing of the Chapter 11 Cases, we have made no payments on our pre-petition debt. During the three months ended March 31, 2009, we prepaid
$3.3 million of principal under the Term Loan A Facility.

Prior
to the filing of the Chapter 11 Cases, we failed to make principal and interest payments due under our Pre-petition Credit Facility on September 30, 2009.
The failure to make the principal payment on the due date and failure to make the interest payment within five days of the due date constituted events of default under our Pre-petition
Credit Facility. An event of default under our Pre-petition Credit Facility permits the lenders under our Pre-petition Credit Facility to accelerate the

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maturity
of the loans outstanding thereunder, seek foreclosure upon any collateral securing such loans and terminate any remaining commitments to lend to us. The occurrence of an event of default
under the Pre-petition Credit Facility constituted an event of default under the Swaps. In addition, we failed to make payments due under the Swaps on September 30, 2009, which
failure resulted in an event of default under the Swaps upon the expiration of a three business day grace period.

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

Our Pre-petition Notes

Spinco issued, and we assumed in the Merger, $551.0 million aggregate principal amount of the Old Notes. The Old Notes mature on
April 1, 2018 and are not redeemable at our option prior to April 1, 2013. Interest is payable on the Old Notes semi-annually, in cash, on April 1 and
October 1. The Old Notes bear interest at a fixed rate of 131/8% and principal is due at maturity. The Old Notes were issued at a discount and, accordingly, at the date of their
distribution, the Old Notes had a carrying value of $539.8 million (principal amount at maturity of $551.0 million less discount of $11.2 million). Following the filing of the
Chapter 11 Cases, the remaining $9.9 million of discount on the Notes was written off in order to adjust the carrying amount of our pre-petition debt to the Bankruptcy Court
approved amount of the allowed claims for our pre-petition debt.

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

Pursuant
to the Exchange Offer, on July 29, 2009, we exchanged $439.6 million in aggregate principal amount of the Old Notes (which amount was equal to approximately 83% of
the then outstanding Old Notes) for $458.5 million in aggregate principal amount of the New Notes (which amount includes New Notes issued to tendering noteholders as payment for accrued and
unpaid interest on the exchanged Old Notes up to, but not including, the Settlement Date). The New Notes mature on April 2, 2018 and bear interest at a fixed rate of 131/8%,
payable in cash, except that the New Notes bore interest at a rate of 15% for the period from July 29, 2009 through and including September 30, 2009. In addition, we were permitted to
pay the interest payable on the New Notes for the Initial Interest Payment Period in the form of cash, by capitalizing such interest and adding it to the principal amount of the New Notes or a
combination of both cash and such capitalization of interest, at our option.

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

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

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

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Following
the filing of the Chapter 11 Cases, we have made no payments on our pre-petition debt. During the three months ended March 31, 2009, we repurchased
$8.0 million in aggregate principal amount of the Old Notes for an aggregate purchase price of $2.2 million in cash. In total, including amounts prepaid under the Term Loan A Facility,
we retired $11.3 million of outstanding debt during the three months ended March 31, 2009.

Prior
to the filing of the Chapter 11 Cases, we failed to make the October 1, 2009 interest payment on the Notes. The failure to make the interest payment on the Notes
constituted an event of default under the Notes upon the expiration of a thirty day grace period. An event of default under the Notes permits the holders of the Notes to accelerate the maturity of the
Notes. In addition, the filing of the Chapter 11 Cases constituted an event of default under the New Notes. See note 1 to the Condensed Consolidated Financial Statements.

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

Other Pre-petition Agreements

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

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toward
state programs rather than invested in our assets. We are required to spend at least $56.4 million over the 60-month period following the closing of the Merger on broadband
infrastructure in New Hampshire, which is expected to result in capital expenditures in New Hampshire in excess of the minimum capital expenditure requirements described above.

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

Additionally,
the orders issued by the state regulatory authorities 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.

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

If
the Regulatory Settlements are not approved by the regulatory authorities in Maine, New Hampshire and Vermont, it is unclear what effect the filing of the Chapter 11 Cases will
have on the requirements, including SQI 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. 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 three months ended March 31, 2009.

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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 March 31, 2010 and the periods in which payments are due:

Payments due by periodTotal

Less than
1 year

1-3
years

3-5
years

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


2,520,959


45,000


126,600


1,799,363


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


610,718


135,587


259,800


215,331


Capital lease obligations


9,212


2,850


3,572


2,790


Operating leases


42,351


10,179


16,137


9,045


6,990Total obligations


3,183,240


193,616


406,109


2,026,529


556,986


(a)Includes
$550.0 million of the Notes. Long-term debt maturities represent the normal contractual payment schedule. All payments have been
stayed by the filing of the Chapter 11 Cases. All obligations under the Pre-petition Credit Facility, the Notes and the Swaps have been classified as liabilities subject to
compromise in the Condensed Consolidated Financial Statements. See note 8 to the Condensed Consolidated Financial Statements for more information.(b)Excludes
amortization of estimated capitalized debt issuance costs.(c)Interest
payments on long-term debt represent the normal contractual interest payment schedule, based on default rates as defined in the
Pre-petition Credit Facility. All payments have been stayed by the filing of the Chapter 11 Cases.


The
following table discloses aggregate information about our derivative financial instruments as of March 31, 2010, the source of carrying value of these instruments and their
maturities.

Carrying Value of Contracts at Period EndTotal

Less than
1 year

1-3
years

3-5
years

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

$
(98,833
)

(98,833
)










(1)In
connection with the filing of the Chapter 11 Cases, the derivative financial instruments were terminated by the counterparties. Accordingly, the
carrying value of the Swaps at March 31, 2010 represents the termination value of the Swaps as determined by the respective counterparties following the event of default described herein. See
note 7 to the Condensed Consolidated Financial Statements for more information.(2)The
Swaps have been classified as liabilities subject to compromise in the Condensed Consolidated Financial Statements. See note 7 to the Condensed
Consolidated Financial Statements for more information.


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Item 3.    Quantitative and Qualitative Disclosures about Market Risk.

As of March 31, 2010, we had total debt of $2,521.0 million, consisting of both fixed rate and variable rate debt with
interest rates ranging from 6.750% to 13.125% per annum, including applicable margins. As of March 31, 2010, the fair value of our debt was approximately $1,734.4 million. Our Term Loan
A Facility and Revolving Credit Facility mature in 2014, our Term Loan B Facility and Delayed Draw Term Loan mature in 2015 and the Notes mature in 2018.

We
use variable and fixed rate debt to finance our operations, capital expenditures and acquisitions. The variable rate debt obligations expose us to variability in interest payments due
to changes in interest rates. We believe it is prudent to limit the variability of a portion of our interest payments. To meet this objective, from time to time, we entered into interest rate swap
agreements to manage fluctuations in cash flows resulting from interest rate risk. These Swaps effectively changed the variable rate on the debt obligations to a fixed rate. Under the terms of the
Swaps, we made a payment if the variable rate was below the fixed rate, or we received a payment if the variable rate was above the fixed rate. Pursuant to our Pre-petition Credit
Facility, we were required to reduce the risk of interest rate volatility with respect to at least 50% of our Term Loan borrowings.

In
connection with the Chapter 11 Cases, all of the Swaps were terminated by the respective counterparties thereto.

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

We
are also exposed to market risk from changes in the fair value of our pension plan assets. For the three months ended March 31, 2010, the actual gain on the pension plan assets
has been approximately 2.5%. Net periodic benefit cost for 2010 assumes a weighted average annualized expected return on plan assets of approximately 8.3%. Should our actual return on plan assets
continue to be significantly lower than our expected return assumption, our net periodic benefit cost will increase in future periods and we may be required to contribute additional funds to our
pension plans after 2010.

Item 4.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

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



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Management
has taken the following steps to begin remediation of the above weaknesses:



In
addition, the following actions are underway:



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

Changes in Internal Control Over Financial Reporting

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

As
indicated above, we continue to significantly expand our internal control over financial reporting in order to encompass the new internal control structure associated with our
Northern New England operations and remediate the identified control deficiencies. Accordingly, we continue to develop a significant number of new processes, systems and related controls governing
various aspects of our financial reporting process, particularly relating to our Northern New England operations and the consolidation of our Northern New England operations with Legacy FairPoint's
operations. The processes we have developed include, but are not limited to, information technology, order provisioning, customer billing, payment processing, credit and collections, inventory
management, accounts payable, payroll, human resource administration, tax, general ledger accounting and external reporting.

With
the exception of the foregoing, there have been no changes in our internal control over financial reporting during the quarter ended March 31, 2010 that have materially
affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART IIOTHER INFORMATION

Item 1.    Legal Proceedings.

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

We
are subject to certain service quality requirements in the states of Maine, New Hampshire and Vermont. Failure to meet these requirements in any of these states may result in
penalties being assessed by the appropriate state regulatory body. As of March 31, 2010, we have recognized an estimated liability of $29.4 million for SQI penalties based on metrics
defined by PUCs in Maine, New Hampshire and Vermont. However, during February 2010, we reached agreements with the state regulatory authorities in each of Maine, New Hampshire and Vermont, which,
among other things, related to the payment of SQI penalties. Term sheets executed with the state regulatory authorities of New Hampshire and Vermont defer fiscal 2008 and 2009 SQI penalties until
December 31, 2010 and include a clause whereby such penalties may be forgiven in part or in whole if we meet certain metrics for the twelve-month period ending December 31, 2010. In
addition, the term sheet executed with the state regulatory authority in Maine deferred our fiscal 2008 and 2009 SQI penalties until March 2010, subject to our right to credit such rebates against
future SQI rebates that we are required to pay, in the event the regulatory settlement in Maine is not approved by the MPUC and the Bankruptcy Court subsequently enters an injunction against our
payment of rebates for fiscal 2008 and 2009. If the Regulatory Settlements are not approved by the regulatory authorities in Maine, New Hampshire and Vermont, it is unclear what effect the filing of
the Chapter 11 Cases will have on the requirements, including SQI 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.

Item 1A.    Risk Factors.

The risk factor presented below amends and restates the corresponding risk factor previously disclosed in
"Part IItem 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2009.

We provide access services to other communications companies, and if these companies were to experience financial difficulties or become insolvent, our business, financial
condition, results of operations and liquidity may be adversely affected.

We originate and terminate calls on behalf of long distance carriers and other interexchange carriers over our network in exchange for
access charges. Interstate and intrastate access charges represented approximately 33.9% of our total revenues in 2009. The recent economic downturn has placed increased financial pressure on some of
these carriers. As a result, we have recently experienced delays in collections from certain of these carriers and, accordingly, have increased our allowance for doubtful accounts. Should one or more
of these carriers experience financial difficulties or become insolvent, our inability to collect from them in a timely manner or at all could have a material adverse impact on our business, financial
condition, results of operations and liquidity.

There
have been no other material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009.

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

We did not sell any unregistered equity securities during the quarter ended March 31, 2010.

Item 3.    Defaults Upon Senior Securities.

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

Item 4.    (Removed and Reserved).

Item 5.    Other Information.

Not applicable.

Item 6.    Exhibits.

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

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SIGNATURES

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

FAIRPOINT COMMUNICATIONS, INC.Date: June 18, 2010

By:

/s/ LISA R. HOODName:

Lisa R. HoodTitle:

Senior Vice President and
Corporate Controller, Interim
Chief Financial Officer


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Exhibit Index

Exhibit No.

Description2.1

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

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

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

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

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

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

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

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

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

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

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

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

Transition Services Agreement, dated as of January 15, 2007, by and among Verizon Information Technologies LLC, Northern New England Telephone Operations Inc., Enhanced Communications of Northern New
England Inc. and FairPoint.(1)2.14

Amendment No. 1 to the Transition Services Agreement, dated as of March 31, 2008, by and among FairPoint, Northern New England Telephone Operations LLC, Enhanced Communications of Northern New
England Inc. and Verizon Information Technologies LLC.(6)2.15

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

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


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Exhibit No.

Description2.17

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

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

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

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

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

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

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

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

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

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

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

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

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

Transition Agreement, dated as of January 30, 2009, by and among Verizon Communications Inc., Verizon New England Inc., Verizon Information Technologies LLC, FairPoint, Northern New England
Telephone Operations LLC, Telephone Operating Company of Vermont LLC and Enhanced Communications of Northern New England Inc.(11)3.1

Eighth Amended and Restated Certificate of Incorporation of FairPoint.(12)3.2

Eighth Amended and Restated Certificate of Incorporation of FairPoint.(12)4.1

Amended and Restated By Laws of FairPoint.(12)4.2

Indenture, dated as of March 31, 2008, by and between Northern New England Spinco Inc. and U.S. Bank National Association.(6)4.3

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


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Exhibit No.

Description4.4

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)4.5

Form of 131/8% Senior Note due 2018 (included in Exhibit 4.1).(6)4.6

Indenture, dated as of July 29, 2009, by and between FairPoint Communications, Inc. and U.S. Bank National Association.(13)4.7

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

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

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

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

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

Deposit Agreement, dated as of March 31, 2008, by and among Northern New England Telephone Operations LLC, Telephone Operating Company of Vermont LLC and Lehman Commercial Paper Inc.(6)10.6

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.(15)10.7

First Amendment to Debtor-in-Possession Credit Agreement, dated as of December 1, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.(16)10.8

Second Amendment to Debtor-in-Possession Credit Agreement, dated as of December 10, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.(16)10.9

Third Amendment to Debtor-in-Possession Credit Agreement, dated as of December 15, 2009, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.(16)10.10

Fourth Amendment to Debtor-in-Possession Credit Agreement, dated as of January 13, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.(16)


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Exhibit No.

Description10.11

Fifth Amendment to Debtor-in-Possession Credit Agreement, dated as of January 28, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(16)10.12

Sixth Amendment to Debtor-in-Possession Credit Agreement, dated as of January 29, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.(16)10.13

Seventh Amendment to Debtor-in-Possession Credit Agreement, dated as of February 8, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.(16)10.14

Eighth Amendment to Debtor-in-Possession Credit Agreement, dated as of February 24, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.(16)10.15

Ninth Amendment to Debtor-in-Possession Credit Agreement, dated as of February 26, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.(16)10.16

Tenth Amendment to Debtor-in-Possession Credit Agreement, dated as of March 9, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as administrative
agent, and the lenders party thereto.(16)10.17

Eleventh Amendment to Debtor-in-Possession Credit Agreement, dated as of April 30, 2010, by and among FairPoint Communications, Inc., FairPoint Logistics, Inc., Bank of America N.A., as
administrative agent, and the lenders party thereto.(16)10.18

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.(15)10.19

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.(15)10.20

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.(15)10.21

Amended and Restated Tax Sharing Agreement, dated as of November 9, 2000, by and among FairPoint and its Subsidiaries.(17)10.22

Employment Agreement, dated as of June 11, 2009, by and between FairPoint and David L. Hauser.(18)10.23

Registration Rights Letter Agreement, dated as of July 1, 2009, by and between FairPoint and David L. Hauser.(18)10.24

Change in Control and Severance Agreement, dated as of March 14, 2007, by and between FairPoint and Peter G. Nixon.(19)10.25

Change in Control and Severance Agreement, dated as of March 14, 2007, by and between FairPoint and Shirley J. Linn.(19)10.26

Change in Control and Severance Agreement, dated as of September 3, 2008, by and between FairPoint and Alfred C. Giammarino.(20)10.27

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


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Exhibit No.

Description10.28

FairPoint Amended and Restated 2000 Employee Stock Incentive Plan.(22)10.29

FairPoint 2005 Stock Incentive Plan.(12)10.30

FairPoint Communications, Inc. 2008 Annual Incentive Plan.(23)10.31

FairPoint Communications, Inc. 2008 Long Term Incentive Plan.(23)10.32

Nonqualified Deferred Compensation Adoption Agreement.(11)10.33

Nonqualified Deferred Compensation Plan Document.(11)10.34

Form of February 2005 Restricted Stock Agreement.(24)10.35

Form of Director Restricted Stock AgreementFairPoint Communications, Inc. 2005 Stock Incentive Plan.(25)10.36

Form of Director Restricted Unit AgreementFairPoint Communications, Inc. 2005 Stock Incentive Plan.(25)10.37

Form of Non-Director Restricted Stock AgreementFairPoint Communications, Inc. 2005 Stock Incentive Plan.(26)10.38

Form of Non-Director Restricted Stock AgreementFairPoint Communications, Inc. 2008 Long Term Incentive Plan.(20)10.39

Form of Performance Unit Award Agreement 2008-2009 Award (Performance Unit Award, dated as of April 1, 2008, by and between FairPoint and Eugene B. Johnson).(27)10.40

Form of Performance Unit Award Agreement 2008-2010 Award.(23)10.41

Form of Performance Unit Award Agreement 2009-2011 Award.(28)10.42

Form of Director Restricted Unit AgreementFairPoint Communications, Inc. 2008 Long Term Incentive Plan.(28)10.43

FairPoint Communications, Inc. Restricted Stock Award Agreement, dated as of July 1, 2009, by and between FairPoint and David L. Hauser.(18)10.44

FairPoint Communications, Inc. Non-Qualified Stock Option Award Agreement, dated as of July 1, 2009, by and between FairPoint and David L. Hauser.(18)10.45

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)10.46

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)10.47

Stipulation filed with the Maine Public Utilities Commission, dated December 12, 2007.(29)10.48

Amended Stipulation filed with the Maine Public Utilities Commission dated December 21, 2007(6)10.49

Stipulation filed with the Vermont Public Service Board, dated January 8, 2008.(30)10.50

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


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Exhibit No.

Description10.51

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)10.52

Letter, dated as of May 12, 2009, from the Staff of the New Hampshire Public Utilities Commission to FairPoint.(18)11

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

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

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

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

Certification required by 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*99.1

Order of the Maine Public Utilities Commission, dated February 1, 2008.(31)99.2

Order of the Vermont Public Service Board, dated February 15, 2008.(32)99.3

Order of the New Hampshire Public Utilities Commission, dated February 25, 2008.(5)


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


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


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