Exhibit 10.1


 


FAIRPOINT
COMMUNICATIONS, INC.


 


2008
ANNUAL INCENTIVE PLAN


 


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TABLE OF CONTENTS


 


	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE
  I PURPOSES

  	
  3

  
	
   

  	
   

  
	
  ARTICLE
  II POWERS OF THE COMMITTEE

  	
  3

  
	
   

  	
   

  
	
  2.1 POWER TO GRANT AWARDS

  	
  3

  
	
   

  	
   

  
	
  2.2 ADMINISTRATION

  	
  3

  
	
   

  	
   

  
	
  2.3 DELEGATION BY THE COMMITTEE

  	
  3

  
	
   

  	
   

  
	
  2.4 PARTICIPANTS BASED OUTSIDE THE UNITED
  STATES

  	
  3

  
	
   

  	
   

  
	
  ARTICLE
  III ELIGIBILITY

  	
  3

  
	
   

  	
   

  
	
  ARTICLE
  IV INCENTIVE AWARDS

  	
  4

  
	
   

  	
   

  
	
  4.1 GENERAL

  	
  4

  
	
   

  	
   

  
	
  4.2 PERFORMANCE CRITERIA

  	
  4

  
	
   

  	
   

  
	
  4.3 TERMINATION OF EMPLOYMENT

  	
  4

  
	
   

  	
   

  
	
  4.4 PAYMENT OF AWARDS

  	
  5

  
	
   

  	
   

  
	
  ARTICLE
  V FORFEITURE AND RECOUPMENT FOR FINANCIAL REPORTING MISCONDUCT

  	
  5

  
	
   

  	
   

  
	
  ARTICLE
  VI SECTION 409 A OF THE CODE

  	
  5

  
	
   

  	
   

  
	
  ARTICLE
  VII AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN

  	
  5

  
	
   

  	
   

  
	
  ARTICLE
  VIII DEFINITIONS

  	
  6

  
	
   

  	
   

  
	
  8.1 CERTAIN DEFINITIONS

  	
  6

  
	
   

  	
   

  
	
  8.2 GENDER AND NUMBER

  	
  7

  
	
   

  	
   

  
	
  ARTICLE
  IX MISCELLANEOUS PROVISIONS

  	
  7

  
	
   

  	
   

  
	
  9.1 NONTRANSFERABILITY OF AWARDS

  	
  7

  
	
   

  	
   

  
	
  9.2 BENEFICIARY DESIGNATION

  	
  7

  
	
   

  	
   

  
	
  9.3 NO GUARANTEE OF EMPLOYMENT OR
  PARTICIPATION

  	
  7

  
	
   

  	
   

  
	
  9.4 TAX WITHHOLDING

  	
  7

  
	
   

  	
   

  
	
  9.5 INDEMNIFICATION

  	
  8

  
	
   

  	
   

  
	
  9.6 EFFECTIVE DATE

  	
  8

  
	
   

  	
   

  
	
  9.7 NO LIMITATION ON COMPENSATION

  	
  8

  
	
   

  	
   

  
	
  9.8 GOVERNING LAW

  	
  8

  
	
   

  	
   

  
	
  9.9 SEVERABILITY; BLUE PENCIL

  	
  8

  
	
   

  	
   

  
	
  9.10 NO IMPACT ON BENEFITS

  	
  8

  
	
   

  	
   

  
	
  9.11 NO CONSTRAINT ON CORPORATE ACTION

  	
  8

  
	
   

  	
   

  
	
  9.12 HEADINGS AND CAPTIONS

  	
  8

  



 


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FAIRPOINT COMMUNICATIONS, INC.


 


2008 ANNUAL INCENTIVE PLAN


 


ARTICLE I


 


Purposes


 


FairPoint Communications, Inc.
desires to adopt the FairPoint Communications, Inc. 2008 Annual Incentive
Plan to provide annual incentive compensation to employees based on the
performance of FairPoint Communications, Inc. consistent with the “performance-based
compensation” requirements of Section 162(m) of the Code.


 


ARTICLE II


 


Powers of the Committee


 


 2.1  Power to
Grant Awards.  The
Committee shall determine the Participants to whom Awards shall be granted and
the terms and conditions of any and all such Awards. The Committee may
establish different terms and conditions for different Participants receiving
the same type of Award and for the same Participant for each Award such
Participant may receive, whether or not granted at different times.


 


 2.2  Administration.  The Committee shall be responsible for the
administration of the Plan, including, without limitation, determining which
Participants receive Awards and the other terms and conditions of each such
Award. The Committee shall have the responsibility of construing and
interpreting the Plan and of establishing, amending and rescinding such rules and
regulations as it may deem necessary or desirable for the proper administration
of the Plan. Any decision or action taken or to be taken by the Committee,
arising out of or in connection with the construction, administration,
interpretation and effect of the Plan and of its rules and regulations,
shall, to the greatest extent permitted by applicable law, be within its
absolute discretion (except as otherwise specifically provided herein) and
shall be conclusive and binding upon the Company and its Subsidiaries, all
Participants and any person claiming under or through any Participant.


 


 2.3  Delegation by the Committee.  The Committee may delegate its authority
under this Plan; provided that
the Committee shall in no event delegate its authority with respect to the
compensation of any “covered employee” (as determined under Section 162(m) of
the Code and regulations thereunder) of the Company or any other individual
whose compensation the Board or Committee reasonably believes may become
subject to Section 162(m) of the Code.


 


 2.4  Participants Based Outside the United States.  The Committee, in order to conform with
provisions of local laws and regulations in foreign countries in which the
Company or its Subsidiaries operate, shall have sole discretion to (i) modify
the terms and conditions of Awards granted to Participants employed outside the
United States, (ii) establish subplans with modified exercise procedures
and such other modifications as may be necessary or advisable under the
circumstances presented by local laws and regulations, and (iii) take any
action which it deems advisable to obtain, comply with or otherwise reflect any
necessary governmental regulatory procedures, exemptions or approvals with
respect to the Plan or any subplan established hereunder.


 


ARTICLE III


 


Eligibility


 


Awards may be granted to any
Employee who is designated as a Participant from time to time by the Committee.
The Committee shall determine which Employees shall be Participants, and the
terms, conditions, and limitations applicable to each Award not inconsistent
with the Plan. Designation by the 


 


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Committee as a Participant for an Award in
one period shall not confer on a Participant the right to participate in the
Plan for any other period.


 


ARTICLE IV


 


Incentive Awards


 


 4.1.  General.  The Committee shall have the authority to
grant Awards to any Participant and to determine the other terms and conditions
of such Awards. The Committee, at the time an Award is made, shall specify the
terms and conditions which govern the Award, which terms and conditions shall
prescribe that the Award shall be earned only upon, and to the extent that,
Performance Criteria as described in Section 4.2 are satisfied within a
designated time.


 


 4.2.  Performance Criteria.


 


(a)           Within 90 days after each
Performance Period begins (or such other date as may be required or permitted
under Section 162(m) of the Code, if applicable), the Committee shall
establish the performance objective or objectives for the applicable
Performance Period that must be satisfied in order for an Award to be vested
and payable (the “Performance Criteria”).
Any such Performance Criteria will be based upon the relative or comparative
achievement of one or more of the following criteria, or such other criteria,
as may be determined by the Committee: (i) revenue growth; (ii) earnings
before interest, taxes, depreciation and amortization; (iii) earnings
before interest, taxes and amortization; (iv) operating income; (v) pre-
or after-tax income; (vi) cash flow; (vii) cash flow per share; (viii) net
earnings; (ix) earnings per share; (x) return on equity;
(xi) return on invested capital; (xii) return on assets;
(xiii) economic value added (or an equivalent metric); (xiv) share
price performance; (xv) total stockholder return; (xvi) improvement
in or attainment of expense levels; (xvii) improvement in or attainment of
working capital levels; or (xviii) debt reduction. Any of the Performance
Criteria set forth above may measure performance on a Company-wide basis or
with respect to one or more business units, divisions or Subsidiaries, and
either in absolute terms, relative to the performance of one or more similarly
situated companies, relative to the performance of an index covering a peer
group of companies, or other external measures of the selected performance
criteria. Any Performance Criteria may measure performance on an individual
basis, as appropriate.


 


(b)           When establishing Performance
Criteria for the applicable Performance Period, the Committee may exclude any
or all “extraordinary items” as determined under U.S. generally acceptable
accounting principles including, without limitation, the charges or costs
associated with restructurings of the Company, discontinued operations, other
unusual or nonrecurring items, and the cumulative effects of accounting
changes, and as identified in the Company’s financial statements, notes to the
Company’s financial statements or management’s discussion and analysis of
financial condition and results of operations contained in the Company’s most
recent annual report filed with the U.S. Securities and Exchange Commission
pursuant to the Exchange Act.


 


(c)           The Performance Criteria related to
an Award shall be achieved upon the determination by the Committee that the
objective or objectives for the applicable Performance Period have been
attained, in whole or in part. The Committee may provide at the time of grant
that in the event the objective or objectives are attained in part, a specified
portion (which may be zero) of the Award will vest and become payable and the
remaining portion shall be forfeited. The Committee shall have the right to
reduce or eliminate the portion of an Award that might otherwise vest and
become payable hereunder based on individual performance or any other factors
that the Committee, in its discretion, shall deem appropriate.


 


4.3  Termination
of Employment. 
Unless otherwise determined by the Committee at or after the date of
grant and except as provided in Article V, in the event that a Participant’s
employment is 


 


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terminated by the Company without Cause or by
reason of a Qualifying Termination of Employment during the Performance Period,
any Award shall become vested and payable at the end of the Performance Period
as to that amount that is equal to that percentage, if any, of such Award that
would have been earned had the Participant’s employment not so terminated prior
to the expiration of the Performance Period times a fraction, the numerator of
which is the number of days employed during the Performance Period and the
denominator of which is the total number of days during the Performance Period.
Unless otherwise determined by the Committee at or after the date of grant, in
the event that a Participant’s employment terminates because of death during
the Performance Period, any Award shall become vested and payable at the end of
the Performance Period as to that amount that is equal to that percentage, if
any, of such Award that would have been earned had the Participant’s employment
not so terminated prior to the expiration of the Performance Period. Unless
otherwise determined by the Committee at or after the date of grant, in the
event a Participant’s employment is terminated for any reason other than by the
Company without Cause, death or a Qualifying Termination of Employment during
the Performance Period, any Award by such Participant shall be forfeited and
cancelled as of the date of such termination of employment.


 


 4.4  Payment of Awards.  Awards shall be paid to Participants in a
single lump sum in cash at a time determined by the Committee, but in no event
later than two and one-half months after the end of the fiscal year in which
the Performance Period ends. In no event shall a Participant receive an Award
payment in any fiscal year that exceeds the lesser of (i) $2,500,000 or (ii) 300%
of the Employee’s base salary (prior to any salary reduction or deferral
elections) as of the date of grant of the Award.


 


ARTICLE V


 


Forfeiture and Recoupment for Financial
Reporting Misconduct


 


If within twelve months of
the payment of any Award made under the Plan, the Company is required to
prepare an accounting restatement due to material noncompliance by the Company
with any financial reporting requirement under the securities laws, then the
Participant, whether or not he engaged in any misconduct, shall forfeit and
disgorge to the Company the payment of any Award or portion thereof that would
not have been earned hereunder absent such materially non-complying financial
reporting.


 


ARTICLE VI


 


Section 409A of the Code


 


In connection with a
Participant’s termination of employment, the payment, settlement or
exercisability of an Award held by a Participant who the Committee reasonably
believes is a “specified employee” (within the meaning of Section 409A of
the Code) shall not be made before the first business day that is six months
and one day after the date of such Participant’s termination of employment (or,
if earlier, upon death) if the Committee reasonably believes an Award to be
subject to Section 409A(a)(2)(B) of the Code. Notwithstanding
anything to the contrary in the Plan, the Committee may in its absolute
discretion alter or amend any of the provisions of this Plan if such alteration
or amendment would be required to comply with Section 409A of the Code or
any regulations promulgated thereunder.


 


ARTICLE VII


 


Amendment, Modification, and Termination of
Plan


 


The Board or the Committee
at any time may terminate or suspend the Plan, and from time to time may amend
or modify the Plan, provided that no amendment, modification, or termination of
the 


 


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Plan shall in any manner adversely affect any
Award theretofore granted under the Plan, without the consent of the
Participant. Unless earlier terminated, the Plan shall terminate on the tenth
anniversary of the date it is approved by the Company’s stockholders.


 


ARTICLE VIII


 


Definitions


 


8.1  Certain
Definitions. 
Capitalized terms used herein without definition shall have the
respective meanings set forth below:


 


“Act” means the Securities Exchange Act of 1934, as amended.


 


“Award” means an incentive award which, subject to such terms
and conditions as may be prescribed by the Committee, entitles a Participant to
receive a cash payment from the Company or a Subsidiary pursuant to Article IV.


 


“Board” means the Board of Directors of the Company.


 


“Cause” means, unless otherwise provided in an Award, (i) the
refusal or neglect of the Participant to perform substantially all of his or
her employment-related duties, (ii) the Participant’s personal dishonesty,
incompetence, willful misconduct or breach of fiduciary duty, (iii) the
Participant’s conviction of a crime constituting a felony (or a crime or
offense of equivalent magnitude in any jurisdiction) or his or her willful
violation of any other law, rule, or regulation (other than a traffic violation
or other offense or violation outside of the course of employment which in no
way adversely affects the Company or its reputation or the ability of the
Participant to perform his or her employment related duties or to represent the
Company) or (iv) the material breach by the Participant of any applicable
written policy of the Company or any Subsidiary; provided that, with respect to any Participant who is a
party to an employment agreement with the Company or a Subsidiary, “Cause”
shall have the meaning specified in such Participant’s employment agreement.
The determination as to whether “Cause” has occurred shall be made by the
Committee, which shall have the authority to waive the consequences under the
Plan of the existence or occurrence of any of the events, acts or omissions
constituting “Cause.”


 


“Code” means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute, and applicable regulations.


 


“Committee” means the Compensation Committee of the Board, or
when Section 162(m) of the Code or Rule 16b promulgated under
the Act would require action to be taken by a committee of “outside directors”
or “Non-Employee Directors,” as the case may be, the “Committee” shall, if
appropriate, be deemed to refer to a subcommittee of the Compensation Committee
that consists of two or more members meeting such requirements, or the full
Board in the absence of such a subcommittee.


 


“Company” means FairPoint Communications, Inc., a
Delaware corporation, and any successor thereto.


 


“Disability” means, unless otherwise provided in an Award, a
long term disability within the meaning of the long term disability or other
similar program then applicable to a Participant or, in the absence of any such
program, as determined by the Committee; provided
that with respect to any Participant who is a party to an employment agreement
with the Company or a Subsidiary, “Disability” shall have the meaning, if any,
specified in such agreement.


 


“Employee” means any officer or employee, including a member
of the Board, employed by the Company or a Subsidiary on a regular, full time
basis.


 


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“Normal Retirement” means a termination of the Participant’s
employment after attaining age 60 and completing at least 10 years of
service.


 


“Participant” means any Employee or prospective Employee
designated by the Committee to receive an Award under the Plan.


 


“Performance Criteria” has the meaning given in Section 4.2.


 


“Performance Period” means the period, as determined by the
Committee, during which the performance of the Company, any Subsidiary, any
business unit and any individual is measured to determine whether and the
extent to which the applicable performance measures have been achieved; provided, that the duration of any
Performance Period shall be at least twelve months.


 


“Plan” means the FairPoint Communications, Inc. 2008
Annual Incentive Plan, as set forth herein and as amended from time to time.


 


“Qualifying Termination of Employment” means a termination of
a Participant’s employment with the Company or any of its Subsidiaries by
reason of the Participant’s Disability, early retirement with the consent of
the Committee or Normal Retirement.


 


“Subsidiary” means any corporation in which the Company owns,
directly or indirectly, stock representing 50% or more of the voting power of
all classes of stock entitled to vote and any other business organization,
regardless of form, in which the Company possesses directly or indirectly 50%
or more of the total combined equity interests in such organization.


 


 8.2  Gender and Number.  Except when otherwise indicated by the
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.


 


ARTICLE IX


 


Miscellaneous Provisions


 


 9.1  Nontransferability of Awards.  No Award shall be assignable or transferable
except by will or the laws of descent and distribution. Except to the extent
required by law, no right or interest of any Participant shall be subject to
any lien, obligation or liability of the Participant.


 


 9.2  Beneficiary Designation.  Each Participant under the Plan may from time
to time name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid or by whom any
right under the Plan is to be exercised in case of his death. Each designation
will revoke all prior designations by the same Participant, shall be in a form
prescribed by the Committee, and will be effective only when filed by the
Participant in writing with the Committee during his lifetime. In the absence
of any such designation, benefits remaining unpaid at the Participant’s death
shall be paid to or exercised by the Participant’s surviving spouse, if any, or
otherwise to or by his or her estate.


 


 9.3  No Guarantee of Employment or Participation.  Nothing in the Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate any
Participant’s employment at any time, nor to confer upon any Participant any
right to continue in the employ of the Company or any Subsidiary. No Employee
shall have a right to be selected as a Participant, or, having been so
selected, to receive any future Awards.


 


 9.4  Tax Withholding.  The Company shall have the right to deduct
from all amounts paid to a Participant in cash (whether under this Plan or
otherwise) any taxes required by law to be withheld in respect of Awards under
this Plan.


 


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 9.5  Indemnification.  Each person who is or shall have been a member
of the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit, or proceeding to which he may be made a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company’s approval, or paid by him in satisfaction of any
judgment in any such action, suit, or proceeding against him, provided he shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may be
entitled under the Company’s Articles of Incorporation or By-laws, by contract,
as a matter of law, or otherwise.


 


 9.6  Effective Date.  The Plan shall be effective upon its approval
by the Company’s stockholders.


 


 9.7  No Limitation on Compensation.  Nothing in the Plan shall be construed to
limit the right of the Company to establish other plans or to pay compensation
to its employees, in cash or property, in a manner which is not expressly
authorized under the Plan.


 


 9.8  Governing Law.  The Plan shall be construed in accordance
with and governed by the laws of the State of Delaware, without reference to
principles of conflict of laws which would require application of the law of
another jurisdiction, except to the extent that the corporate law of the State
of Delaware specifically and mandatorily applies.


 


 9.9  Severability; Blue Pencil.  In the event that any one or more of the
provisions of this Plan shall be or become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby. If, in the opinion
of any court of competent jurisdiction such covenants are not reasonable in any
respect, such court shall have the right, power and authority to excise or
modify such provision or provisions of these covenants as to the court shall
appear not reasonable and to enforce the remainder of these covenants as so
amended.


 


 9.10  No Impact On Benefits.  Except as may otherwise be specifically
stated under any employee benefit plan, policy or program, no amount payable in
respect of any Award shall be treated as compensation for purposes of
calculating a Participant’s right under any such plan, policy or program.


 


 9.11  No Constraint on Corporate Action.  Nothing in this Plan shall be construed (i) to
limit, impair or otherwise affect the Company’s right or power to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, or to merge or consolidate, or dissolve, liquidate, sell,
or transfer all or any part of its business or assets or (ii) to limit the
right or power of the Company or any Subsidiary to take any action which such
entity deems to be necessary or appropriate.


 


 9.12  Headings and Captions.  The headings and captions herein are provided
for reference and convenience only, shall not be considered part of this Plan,
and shall not be employed in the construction of this Plan.


 


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