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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the fiscal year ended December 31, 2010.
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from            to
 Commission File Number 001-32408
 
 FairPoint Communications, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    13-3725229(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)521 East Morehead Street, Suite 500
    
    28202Charlotte, North Carolina
    
    (Zip code)(Address of Principal Executive Offices)
 
 Registrants Telephone Number, Including Area Code:
(704) 344-8150
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Exchange on Which RegisteredCommon Stock, par value $0.01 per share
    
    The Nasdaq Stock Market LLC
(Nasdaq Capital Market)
 Securities registered pursuant to Section 12(g) of the Act:
None
 o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  þ o
  None
 
 *
    
    The Registrant is not currently required to file any such Interactive Data Files.




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##### 



ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2010
  
 Item
    
    PageNumber
    
    NumberIndexPART I1. Business
    
    
    51A. Risk Factors
    
    
    311B. Unresolved Staff Comments
    
    
    432. Properties
    
    
    433. Legal Proceedings
    
    
    444. (Removed and Reserved)
    
    
    44PART II5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    456. Selected Financial Data
    
    
    477. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    507A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    688. Financial Statements and Supplementary Data
    
    
    709. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    1339A. Controls and Procedures
    
    
    1339B. Other Information
    
    
    135PART III10. Directors, Executive Officers and Corporate Governance
    
    
    13711. Executive Compensation
    
    
    14112. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    15613. Certain Relationships and Related Transactions, and Director Independence
    
    
    15914. Principal Accounting Fees and Services
    
    
    159PART IV15. Exhibits, Financial Statement Schedules
    
    
    160Signatures
    
    
    161Exhibit Index
    
    
    162EX-14.1EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2EX-99.5
  2




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PART I
 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
  
    
    risks related to our ability to meet our expectations with respect to our
post-restructuring operating and financial objectives and the assumptions and business
plan associated therewith;
    
    risks related to our reported financial information and operating results including
with respect to our adoption of fresh start accounting and our actual results as compared
to projected financial results;
    
    future performance generally and our share price as a result thereof;
    
    restrictions imposed by the agreements governing our indebtedness;
    
    our ability to satisfy certain financial covenants included in the agreements
governing our indebtedness;
    
    financing sources and availability, and future interest expense;
    
    our ability to refinance our indebtedness on commercially reasonable terms, if at
all;
    
    anticipated business development activities and future capital expenditures;
    
    the effects of regulation, including restrictions and obligations imposed by
federal and state regulators as a condition to the approval of the Merger and the Plan
(each as defined herein);
    
    material adverse changes in economic and industry conditions and labor matters,
including workforce levels and labor negotiations, and any resulting financial or
operational impact, in the markets we serve;
    
    material technological developments and changes in the communications industry,
including disruption of our third party suppliers provisioning of critical products or
services;
    
    the effects of competition on the markets we serve;
    
    use by customers of alternative technologies and the loss of access lines;
    
    availability and levels of regulatory support payments;
    
    availability of net operating loss (NOL) carryforwards to offset anticipated tax
liabilities;
    
    our ability to meet obligations to our Company-sponsored pension plans and
post-retirement healthcare plans; and
    
    changes in accounting assumptions that regulatory agencies, including the
Securities and Exchange Commission (the SEC), may require or that result from changes
in the accounting rules or their application, which could result in an impact on
earnings.
  3




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EXPLANATORY NOTE
 Overview of Restatement
   Background of the Restatement
    Project Abandonment Adjustment
  Costs Capitalized to Property, Plant and Equipment Adjustment
  Application of Overhead Costs Adjustment
  4




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Other Adjustments
  Controls and
Procedures
    
 ITEM 1. BUSINESS
 Except as otherwise required by the context, references in this Annual Report to:
 
    
    FairPoint Communications refers to FairPoint Communications, Inc., excluding its
subsidiaries;
    
    FairPoint, the Company, we, us or our refer to the combined business of
FairPoint Communications, Inc. and all of its subsidiaries after giving effect to the
merger on March 31, 2008, with Northern New England Spinco Inc. (Spinco), a subsidiary of
Verizon Communications Inc. (Verizon), which transaction is referred to herein as the
Merger;
    
    Northern New England operations refers to the local exchange business acquired from
Verizon and certain of its subsidiaries after giving effect to the Merger;
    
    Legacy FairPoint or Telecom Group refers to FairPoint, exclusive of our acquired
Northern New England operations; and
    
    Verizon Northern New England business refers to the local exchange business of Verizon
New England Inc. (Verizon
New England) in Maine, New Hampshire and Vermont and the customers of Verizon and its
subsidiaries (other than Cellco Partnership) (collectively, the
Verizon Group) related long distance
and Internet service provider business in those states prior to the Merger.
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Emergence from Chapter 11 Proceedings
    Plan of Reorganization
 General
   
    
    (i) The lenders under the Credit Agreement, dated as of March 31, 2008, by and among
FairPoint Communications, Spinco, 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 the lenders party thereto
(as amended, supplemented or otherwise modified from time to time, the Pre-Petition Credit
Facility), (ii) the administrative agent under the Pre-Petition Credit Facility (other
than certain indemnity and reimbursement rights of the administrative agent which survived)
and (iii) holders of other claims against us arising under the Pre-Petition Credit Facility
or ancillary agreements (including swap agreements) (collectively, Pre-Petition Credit
Facility Claims) to receive the following in full and complete satisfaction of such
Pre-Petition Credit Facility Claims: (i) a pro rata share of a $1,000.0 million term loan
facility (the Exit Term Loan), (ii) a pro rata share of certain cash payments, (iii) a
pro rata share of 23,620,718 shares of our new common stock, par value $0.01 per share (the
New Common Stock or Common Stock) and (iv) a pro rata share of a 55% interest in the
FairPoint Litigation Trust (the Litigation Trust);
    
    Holders of allowed unsecured claims against FairPoint Communications, including the
Pre-Petition Notes, as defined below, (the FairPoint Communications Unsecured Claims) to
receive the following in full and complete satisfaction of such FairPoint Communications
Unsecured Claims: (i) a pro rata share of 2,101,676 shares of New Common Stock, (ii) a pro
rata share of a 45% interest in the Litigation Trust and (iii) a pro rata share of the
warrants issued by us in connection with a Warrant Agreement (the Warrant Agreement) that
we entered into with The Bank of New York Mellon, as warrant agent, on the Effective Date;
and
    
    Holders of allowed unsecured claims against our subsidiaries and holders of certain
unsecured convenience claims against us to receive payment in full in cash in the amount of
their allowed claims.
  
    
    Certain of our employees and a consultant of ours to receive (a) cash bonuses made
pursuant to the FairPoint
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Communications, Inc. 2010 Success Bonus Plan (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 FairPoint Communications, Inc. 2010
Long Term Incentive Plan (the Long Term Incentive Plan); and
    
    Members of our board to be appointed on the Effective Date (the New Board) to receive
options to purchase New Common Stock pursuant to the terms of the Long Term Incentive Plan.
  
    
    Except as otherwise provided in the Plan, all existing claims against, and equity
interests in, us that arose prior to the Effective Date were released, terminated,
extinguished and discharged;
    
    In consideration of the services of the Released Parties (as defined in the Plan), we
and all persons who held, or may have held, claims against, or equity interests in, us
prior to the Effective Date released the Released Parties (as defined in the Plan) from
claims, causes of action and liabilities related to us;
    
    None of the Company, the Released Parties (as defined in the Plan) or the Litigation
Trustee (as defined below) shall have or incur any liability relating to or arising out of
the Chapter 11 Cases; and
    
    Except as otherwise provided in the Plan, all persons are permanently enjoined from
asserting claims, liabilities, causes of action, interest or remedies that are released or
discharged pursuant to the Plan.
 Termination of Material Agreements
  
    
    The Pre-Petition Credit Facility (except that the Pre-Petition Credit Facility continues
in effect solely for the purposes of allowing creditors under the Pre-Petition Credit
Facility to receive distributions under the Plan and to preserve certain rights of the
administrative agent), and all notes, security agreements, swap agreements and other
agreements associated therewith;
    
    Each of the respective indentures governing (i) the 13-1/8% Senior Notes due April 1,
2018 (the Old Notes), which were issued pursuant to the Indenture, dated as of March 31,
2008, by and between Spinco and U.S. Bank National Association, as amended (the Old
Indenture), and (ii) the 13-1/8% Senior Notes due April 2, 2018 (the New Notes and,
together with the Old Notes, the Pre-Petition Notes), which were issued pursuant to the
Indenture, dated as of July 29, 2009, by and between FairPoint Communications, Inc. and
U.S. Bank National Association (the New Indenture) (except to the extent to allow us or
the relevant Pre-Petition Notes indenture trustee, as applicable, to make distributions
pursuant to the Plan on account of claims related to such Pre-Petition Notes); and
    
    Our Debtor-in-Possession Credit Agreement, dated as of October 27, 2009 (as amended, the
DIP Credit Agreement), by and among FairPoint Communications and FairPoint Logistics,
Inc. (FairPoint Logistics, and together with FairPoint Communications, the DIP
Borrowers), certain financial institutions (the DIP Lenders) and Bank of America, N.A.,
as the administrative agent for the DIP Lenders, which was terminated by its conversion
into the new $75.0 million Exit Revolving Facility, and all notes, security agreements and
other agreements related to the DIP Credit Agreement.
 Exit Credit Agreement
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Certificate of Incorporation and By-laws
  Departure and Appointment of Directors
   8




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Registration Rights Agreement
  Warrant Agreement
  Litigation Trust Agreement
  New Long Term Incentive Plan and Success Bonus Plan
  9




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Regulatory Settlements
  Reporting Requirements
  Plan Injunction
  10




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Fresh Start Accounting
  Impact on Net Operating Loss Carryforwards (NOLs)
   Cutover-Related Issues
  11




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Restatements
   Our Business
    12




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Our Services
  Generation of Revenue
   13




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Voice Services
   Network Access Charges / Intercarrier Compensation
  Intrastate Access Charges.
 Interstate Access Charges.
 Universal Service Fund High-Cost Loop.
 Data and Internet Services (HSD)
  14




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Other Services
  Enhanced Services.
 Billing and Collection.
 Directory Services.
 Cable TV and Video.
 Our Markets
     15




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State
    
    Access Line EquivalentsMaine
    
    
    507,118New Hampshire
    
    
    414,768Vermont
    
    
    284,469Florida
    
    
    50,343New York
    
    
    46,886Washington
    
    
    42,893Missouri
    
    
    13,823Ohio
    
    
    12,703Virginia
    
    
    8,520Kansas
    
    
    6,620Illinois
    
    
    6,142Idaho
    
    
    6,051Pennsylvania
    
    
    5,946Oklahoma
    
    
    4,190Colorado
    
    
    3,744Other States(1)
    
    
    3,074Total:
    
    
    1,417,290
 
 (1)
    
    Includes Massachusetts, Georgia and Alabama. Sales and Marketing
   Information Technology and Support Systems
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Network Architecture and Technology
     Competition
  Wireless Competitors
  Wireline and Cable Competitors
  17




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Other Competitors
 VoIP
 Internet Service Providers
 Satellite
 Strategic Alliances
 Recipients of Government Stimulus
 Other.
 Employees
  18




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Intellectual Property
  Regulatory Environment
   Federal Regulation
   19




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Interstate Access Charges
    Universal Service Support
    20




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Universal Service Contributions
  21




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Local Service Competition
       22




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Long-Distance Operations
  Other Obligations under Federal Law
    Broadband and Internet Regulation
    23




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State Regulation
    24




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Regulatory Conditions to the Merger, as Modified in Connection with the Plan
  New Hampshire Regulatory Settlement
  Service Quality Requirements:
 
    
    We will commit to meet the broadband build out and capital investment requirements
and continue operating under the service quality index (SQI) service quality program
of the January 23, 2008 Settlement Agreement (the NH 2008 Settlement) among Verizon,
the Company and the staff of the NHPUC and Order No. 24,823 in Docket DT 07-011 (the NH
2008 Order), subject to certain modifications described in the New Hampshire Regulatory
Settlement.
    
    SQI penalties for 2009 were deferred until December 31, 2010. If we met specified
service levels on average in five performance areas over the twelve calendar months in
2010, the 2009 penalties would be waived. If we met the service levels for some but not
all of these five performance areas, the penalties would be reduced by 20% for each
performance area specified for which we met specified service levels on average over the
12 calendar months in 2010. As of December 31, 2010 we expect to receive a 60% penalty
waiver. The amount of the waiver is subject to the review and approval of the NHPUC.
 Broadband Commitments:
 
    
    We have agreed to adhere to the broadband coverage commitments prescribed in the NH
2008 Order; however, certain broadband build-out commitments with a deadline of April 1,
2010 were extended to December 31, 2010. We believe that we have fulfilled this
broadband coverage commitment as of December 31, 2010, although we are in the process of
confirming such compliance.
    
    We confirmed our commitment to spend a total of at least $56.4 million on our New
Hampshire broadband build-out by March 31, 2015 and we have spent $51.7 million as of
December 31, 2010.
    
    We have the option to resell terrestrial (non-satellite) based service providers
broadband service offerings in order to fulfill our broadband build out and/or service
requirements with respect to the last eight percent (8%) of our broadband availability
requirements as contained within the NH 2008 Settlement, provided that the services meet
or exceed all requirements of the NH 2008 Order, and the resold services are purchased
through and serviced by us.
    
    Pricing restrictions regarding stand-alone DSL service will terminate on April 1,
2011; provided, however, that we will continue to honor the for life pricing that
Verizon had offered to certain customers.
    
    The first $500,000 of any penalty amounts resulting from any failure to meet
broadband commitments will be paid to the New Hampshire Telecommunications Planning and
Development Fund. Any penalties above $500,000 will be invested within three years of
the date of the penalty as additional expenditures for our network, subject to NHPUC
approval.
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Expenditure Commitments:
 
    
    We reconfirmed our commitment to spend $285.4 million in capital expenditures through
March 31, 2013, of which $211.7 million has been spent through December 31, 2010;
provided, however, that the amounts expended toward the $56.4 million broadband
commitment described above may be applied to the $285.4 million capital expenditure
commitment.
    
    We will reduce our $65.0 million other expenditure commitment by $10.0 million and
reallocate the $10.0 million to recurring maintenance capital expenditures to be spent
on or before March 31, 2013. This $10.0 million increases the $285.4 million capital
expenditure commitment to $295.4 million.
    
    We may further reduce our $65.0 million other expenditure commitment by up to $10.5
million to the extent such amounts are needed and are actually expended beyond the
original $56.4 million broadband commitment in order to achieve 95% broadband
availability.
    
    We may further reduce our $65.0 million other expenditure commitment by $4.5
million of capital expenditures already expended in excess of amounts estimated to
develop our Next Generation Network.
    
    We will have from April 1, 2010 to March 31, 2015 to meet whatever other
expenditure commitment remains after the preceding reductions, which will be spent on
network enhancing activities.
 Financial Commitments:
 
    
    Certain of the financial conditions of the NH 2008 Settlement and the NH 2008 Order
are replaced by the terms of the New Hampshire Regulatory Settlement and are satisfied
or rendered moot by the debt reductions resulting from the Plan.
 Management Commitments:
 
    
    Our board of directors is required to consist of a supermajority of newly appointed
independent directors, and at least one member of the board of directors will reside in
northern New England. We are in compliance with this obligation.
    
    Our board of directors is required to appoint a regulatory sub-committee that will
monitor compliance with the terms of the NH 2008 Order, as modified by the New Hampshire
Regulatory Settlement, and all other regulatory matters involving the States of Vermont,
New Hampshire and Maine. We appointed a regulatory committee on the Effective Date.
    
    We are required to maintain a state president who will provide a senior regulatory
presence in New Hampshire and is able to reasonably respond to various future
Company-based NHPUC dockets or regulatory issues relating to telecommunications. We
fulfilled this obligation in February of 2010.
    
    We agreed to seek to have a Chief Information Officer in place by June 30, 2010. We
fulfilled this obligation in March of 2010.
    
    We have agreed that the 2010 Annual Incentive Plan and the Success Bonus will be
based on a combination of EBITDAR (EBITDA plus restructuring costs) and service metrics
goals and the weighting for each of these categories will be computed and clearly stated
for the incentive and bonus plans for each individual and for us in total.
 Other:
 
    
    We are required to reimburse the State of New Hampshire for certain costs and
expenses.
    
    During the first two years following the Effective Date of the Plan, we are barred
from paying dividends if we are in material breach of the New Hampshire Regulatory
Settlement until we cure such breach.
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Maine Regulatory Settlement
  General:
 
    
    We will comply with the MPUCs February 1, 2008 Order issued in Docket Nos. 2007-67
and 2005-155, and all stipulations approved thereby (the ME 2008 Merger Order),
including provisions regarding broadband build-out,
capital investment, the SQI program and other provisions of the ME 2008 Merger Order,
subject to certain modifications described in the Maine Regulatory Settlement.
 Service Quality Requirements:
 
    
    We and the MPUC agreed to submit a joint consent order to the Bankruptcy Court which
provides for the implementation of the SQI rebates for the 2008-2009 SQI year, starting
with bills issued in March 2010.
 Broadband Commitments:
 
    
    The deadline for the initial 83% broadband build-out requirement was extended from
April 1, 2010 to December 31, 2010. We believe that we have fulfilled this broadband
coverage commitment as of December 31, 2010, although we are in the process of
confirming such compliance. An additional interim requirement of 85% is established
with a July 31, 2012 deadline, and the final requirement, with a March 31, 2013
deadline, will be reduced from 90% to 87%. However, if we fail to meet any of these
requirements, we shall be further required to achieve 90% by March 31, 2014. We further
agreed that by March 31, 2013, we would achieve 82% for lines in UNE Zone 3. If we meet
the 87% requirement by March 31, 2013, we will contribute $100,000 to the ConnectME
Authority on July 1, 2013.
    
    In meeting our broadband build-out requirements beyond 85%, we may resell the
broadband service offerings of other non-satellite providers in order to meet our
build-out and/or service requirements, provided that the services meet or exceed all
requirements of the ME 2008 Merger Order, the resold services are purchased through and
serviced by us, and the MPUC staff approves the provider(s).
 Financial Commitments:
 
    
    The financial conditions in the ME 2008 Merger Order were replaced by the terms of
the Maine Regulatory Settlement, which provided that such financial conditions were
satisfied or were rendered moot by the debt reductions resulting from the Plan.
 Management Commitments:
 
    
    Our New Board is required to consist of a supermajority of newly appointed
independent directors and at least one member of the New Board will reside in northern
New England. We are in compliance with this obligation.
    
    The New Board is required to appoint a regulatory sub-committee that will monitor
compliance with the terms of the ME 2008 Merger Order, as modified by the Maine
Regulatory Settlement, and all other regulatory matters involving the States of Vermont,
New Hampshire and Maine. We appointed a regulatory committee on the Effective Date.
    
    We agreed to seek to have a Chief Information Officer in place by June 30, 2010. We
fulfilled this obligation in March of 2010.
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
    
    We have agreed that the 2010 Annual Incentive Plan and the Success Bonus will be
based on a combination of EBITDAR (EBITDA plus restructuring costs) and service metrics
and the weighting for each of these categories will be computed and clearly stated for
the incentive and bonus plans for each individual and for us in total, and that we will
disclose such metrics to the MPUC and the Office of the Public Advocate of the State of
Maine (the Maine Public Advocate).
 Other:
 
    
    We are required to reimburse the MPUC and Maine Public Advocate for certain costs and
expenses.
 Vermont Regulatory Settlement
  Service Quality Requirements:
 
    
    In general, all of the service quality programs contained in the January 8, 2008
settlement agreement among Verizon, the Company and the Department of Public Service
(DPS) (the VT 2008 Settlement) and the February 15, 2008 Order RE: MODIFIED PROPOSAL
IN Docket Number 7270 (the VT 2008 Order) will remain in place subject to certain
modifications described in the Vermont Regulatory Settlement.
    
    SQI penalties for 2008 and 2009 were deferred until December 31, 2010. If we met
specified service levels on average in ten performance areas over the twelve calendar
months in 2010, the 2008 and 2009 penalties would be waived. If we met the service
levels for some but not all of these ten performance areas, the penalties would be
reduced by 10% for each performance area specified for which we met specified service
levels on average over the 12 calendar months in 2010. As of December 31, 2010 we
expect to receive at least an 80% penalty waiver. The amount of the waiver is subject
to the review and approval of the Vermont Board.
 Broadband Commitments:
 
    
    We will undertake to deploy broadband services to 95% of all access lines in those
exchanges that have been identified for 100% broadband availability in the VT 2008 Order
(the 100% Exchanges) by June 30, 2011. With respect to the remaining 5% of lines in
the 100% Exchanges, we will deploy broadband to any requesting customer using an
extended service interval of 90 days from the date of the receipt of the order from the
customer, provided such order is made no sooner than June 30, 2011. Failure to meet
such requirements will require us to waive certain service charges.
    
    We also will request that the Vermont Board authorize us to use high-cost USF funds
for three consecutive years to upgrade local loop plant and infrastructure in order to
improve our service quality and network reliability. If the Vermont Board authorizes us
to use the high-cost USF funds, and to the extent permitted by FCC rules, we may invest
the high-cost USF funds in network infrastructure that will support the deployment of
broadband services to an additional 5% of access lines on a timeline that varies
depending on the date of the Vermont Boards authorization.
    
    We will have the option to resell terrestrial (non-satellite) based service
providers broadband service offerings in order to fulfill our broadband build-out
and/or service requirements as contained in the VT 2008 Order, provided that the
services meet or exceed all requirements of the VT 2008 Order as modified by the Vermont
Regulatory Settlement and the resold services are purchased through and serviced by us.
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
    
    Penalty amounts resulting from any failure to meet broadband deployment requirements
will be managed by us with funds deposited into an escrow account with an escrow agent,
which will reimburse us for costs incurred for additional network projects completed
within 18 months of the date of the penalty, such projects subject to the approval of
the DPS.
 Capital Investment Commitments:
 
    
    We will meet the capital investment requirements of the VT 2008 Order.
 Financial Commitments:
 
    
    Certain of the financial conditions of the VT 2008 Settlement and the VT 2008 Order
are replaced by the terms of the Vermont Regulatory Settlement and are satisfied or
rendered moot by the debt reductions resulting from the Plan.
 Management Commitments:
 
    
    Our New Board is required to consist of a supermajority of newly appointed
independent directors and at least one member of the New Board will reside in northern
New England. We are in compliance with this obligation.
    
    The New Board is required to appoint a regulatory sub-committee that will monitor
compliance with the terms of the VT 2008 Order, as modified by the Vermont Regulatory
Settlement, and all other regulatory matters involving the States of Vermont, New
Hampshire and Maine. We appointed a regulatory committee on the Effective Date.
    
    We are required to maintain a state president who will provide a senior regulatory
presence in Vermont and be able to reasonably respond to various future Company-based
dockets or regulatory issues relating to telecommunications. We fulfilled this
obligation in January of 2010.
    
    We agreed to seek to have a Chief Information Officer in place by June 30, 2010. We
fulfilled this obligation in March of 2010.
    
    We have agreed that the 2010 Annual Incentive Plan and the Success Bonus will be
based on a combination of EBITDAR (EBITDA plus restructuring costs) and service metrics
goals and the weighting for each of these categories will be computed and clearly stated
for the incentive and bonus plans for each individual and for us in total.
 Other:
 
    
    We are required to reimburse the State of Vermont for certain costs and expenses.
    
    During the first two years following the Effective Date of the Plan, we are barred
from paying dividends if we are in material breach of the Vermont Regulatory Settlement
until we cure such breach.
 Other Regulatory Matters
 Maine  Retail Regulation
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Maine  Unbundling of Network Elements
  New Hampshire
    Vermont
  30




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Local Government Authorizations
  Environmental Regulations
  Other Information
 www.sec.gov
 
 ITEM 1A. RISK FACTORS
  Risks Related to Our Emergence from Chapter 11 Bankruptcy Protection
 Our actual financial results may vary significantly from the projections filed with the
Bankruptcy Court.
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Our bankruptcy proceedings, which improved our capital structure, contemplated that we would
implement our strategy and business plan based upon assumptions and analyses developed by us. There
is no guarantee that we will be able to achieve these objectives, which could have a material
adverse effect on our business, financial condition, results of operation, liquidity and/or the
market price of our Common Stock.
  Because our future consolidated financial statements will reflect fresh start accounting
adjustments made upon emergence from bankruptcy, and because of the effects of the transactions
that became effective pursuant to the Plan, financial information in our future financial
statements will not be comparable to our financial information from prior periods, including the
statements contained herein.
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Risks Related to our Common Stock and Our Substantial Indebtedness
 The price of our Common Stock may be volatile and may fluctuate substantially, which could
negatively affect holders of our Common Stock.
   Concentration of ownership among stockholders may prevent new investors from influencing
significant corporate decisions.
  Future sales or the possibility of future sales of a substantial amount of our Common Stock
may depress the price of our Common Stock.
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We do not expect to pay any cash dividends for the foreseeable future.
  Although we successfully consummated the Plan, we have substantial indebtedness which could
have a negative impact on our financing options and liquidity position.
   
    
    require us to dedicate a significant portion of our cash flow from operations to
paying the principal of and interest on our indebtedness, thereby limiting the
availability of our cash flow to fund future capital expenditures, working capital and
other corporate purposes;
    
    limit our ability to obtain additional financing in the future for working capital,
capital expenditures or acquisitions;
    
    limit our ability to refinance our indebtedness on terms acceptable to us or at all;
    
    restrict us from making strategic acquisitions or cause us to make non-strategic
divestitures;
    
    limit our flexibility in planning for, or reacting to, changes in our business and
the communications industry generally;
    
    place us at a competitive disadvantage compared with competitors that have a less
significant debt burden; and
    
    make us more vulnerable to economic downturns and limit our ability to withstand
competitive pressures.
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We are a holding company and rely on dividends, interest and other payments, advances and
transfers of funds from our operating subsidiaries and investments to meet our debt service and
other obligations and to pay dividends, if any, on our Common Stock.
  
    
    the laws of their jurisdiction of organization;
    
    the rules and regulations of state and federal regulatory authorities;
    
    agreements of those subsidiaries, including agreements governing their indebtedness;
and
    
    regulatory restrictions.
  To operate and expand our business, service our indebtedness and meet our other cash needs, we
will require a significant amount of cash, which may not be available to us. We may not generate
sufficient funds from operations to repay or refinance our indebtedness at maturity or otherwise or
to fund our operations.
   
    
    sales of assets;
    
    reduction or delay of capital expenditures, strategic acquisitions, investments and
alliances; or
    
    negotiations with our lenders to restructure the applicable debt.
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Our financing arrangements subject us to various restrictions that could limit our operating
flexibility, our ability to make payment on our debt and to fund dividends, if any, on our Common
Stock.
  
    
    incur additional debt and issue preferred stock;
    
    pay dividends in the future or make other distributions on our stock or repurchase or
redeem stock;
    
    create liens;
    
    redeem or prepay certain debt;
    
    make certain investments;
    
    engage in specified sales of assets;
    
    enter into transactions with affiliates;
    
    enter new lines of business;
    
    engage in consolidation, mergers and acquisitions; and
    
    make certain capital expenditures.
   Limitations on our ability to use NOL carryforwards, and other factors requiring us to pay
cash to satisfy our tax liabilities in future periods, may affect our ability to repay our
indebtedness.
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Our actual operating results may differ significantly from our guidance.
     Risks Related to Our Business
 We provide services to customers over access lines, and if we lose access lines, our business,
financial condition, results of operations, liquidity and/or the market price of our Common Stock
may be materially adversely affected.
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We provide access services to other communications companies, and if these companies were to
find alternative means of providing services, become insolvent or experience substantial financial
difficulties, our business, financial condition, results of operations, liquidity and/or the market
price of our Common Stock may be materially adversely affected.
  We are subject to competition that may materially adversely impact our business, financial
condition, results of operations, liquidity and/or the market price of our Common Stock.
    
    
    loss of customers (given the likelihood that when we lose customers for local service, we will
also lose them for all related services);
    
    reduced network usage by existing customers who may use alternative providers for voice and
data services;
    
    reductions in the service prices that may be necessary to meet competition; and
    
    increases in marketing expenditures and discount and promotional campaigns.
 We may not be able to successfully integrate new technologies, respond effectively to customer
requirements or provide new services.
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The geographic concentration of our operations in Maine, New Hampshire and Vermont make our
business susceptible to local economic and regulatory conditions and consumer trends, and an
economic downturn, recession or unfavorable regulatory action in any of those states may materially
adversely affect our business, financial condition, results of operations, liquidity and/or the
market price of our Common Stock.
   We depend on third party providers for certain of our billing functions, information
technology services, including network support and improvements, and for the provision of our
long-distance and bandwidth services.
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A network disruption could cause delays or interruptions of service, which could cause us to
lose customers.
  
    
    physical damage to access lines;
    
    widespread power surges or outages;
    
    software defects in critical systems;
    
    disruptions beyond our control; and
    
    capacity limitations resulting from changes in our customers usage patterns.
  Our success will depend on our ability to attract and retain qualified management and other
personnel.
  A significant portion of our workforce is represented by labor unions and therefore subject to
collective bargaining agreements. If disputes arise, or if we are unable to successfully
renegotiate these agreements at an appropriate time, workers subject to these agreements could
engage in strikes or other work stoppages or slowdowns, which could materially adversely impact our
business, financial condition, results of operations, liquidity and/or the market price of our
Common Stock.
  We have identified material weaknesses in our internal controls over financial reporting which
existed as of December 31, 2010. If the steps we take to remedy these material weaknesses are not
successful or we otherwise fail to maintain an effective system of internal controls, such a
failure could result in additional material misstatements in our financial statements, prevent us
from providing timely financial statements or prevent us from meeting our reporting requirements
both with the SEC and under our debt obligations, cause investors to lose confidence in our
reported financial information and have a negative effect on the market price of our Common Stock.
  40




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
    
    Our information technology controls were not adequate. Specifically, our change
management processes were not consistently followed to ensure all changes were
appropriately authorized. In addition, access to our information systems was not
appropriately restricted.
    
    Our management oversight and review procedures designed to monitor the accuracy of
period-end accounting activities were ineffective. Specifically, our account reconciliation
processes were not adequate to properly identify and resolve discrepancies between our
billing system and our general ledger in a timely manner. In addition, project accounting
controls were not adequate to ensure charges to capital projects were appropriate or that
projects were closed in a timely manner. Furthermore, procedures for the review of our
income tax provision and supporting schedules were not adequate to identify and correct
errors in a timely manner.
  We will be exposed to risks relating to evaluations of internal control systems required by
Section 404 of the Sarbanes-Oxley Act.
   Our financial condition and results of operations could be adversely affected if assets held
in our Company sponsored pension plans suffer significant losses in market value.
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Risks Relating to Our Regulatory Environment
 We are subject to significant regulations that could change in a manner adverse to us.
  Risk of loss or reduction of network access charge revenues
  Risk of loss or reduction of Universal Service Fund support
  Risk of loss of statutory exemption from burdensome interconnection rules imposed on ILECs
 42




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Risks posed by costs of regulatory compliance
    Risk of losses from rate reduction
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  43




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ITEM 3. LEGAL PROCEEDINGS
   
 ITEM 4. (REMOVED AND RESERVED)
 44




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 General
   Year Ended December 31, 2010
    
    High
    
    
    LowFirst quarter
    
    $
    0.07
    
    
    $
    0.02Second quarter
    
    
    0.13
    
    
    
    0.03Third quarter
    
    
    0.05
    
    
    
    0.03Fourth quarter
    
    
    0.03
    
    
    
    0.02
 Year Ended December 31, 2009
    
    High
    
    
    LowFirst quarter
    
    $
    3.07
    
    
    $
    0.36Second quarter
    
    
    1.82
    
    
    
    0.52Third quarter
    
    
    0.92
    
    
    
    0.41Fourth quarter
    
    
    0.44
    
    
    
    0.03
   Per ShareYear Ended
    
    DividendDecember 31, 2008
    
    Declared
    
    Date Declared
    
    Record Date
    
    Date PaidFourth quarter
    
    0.25750
    
    December 5, 2008
    
    December 31, 2008
    
    January 16, 2009
  45




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Performance Graph
  Comparison
of Cumulative Total Return Among 
FairPoint Communications, S&P   500  and S&P   500 Telcom
 
 Securities Authorized for Issuance under Equity Compensation Plans
  46




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##### Table of Contents



Equity Compensation Plan Information (1)
 (a)
    
    
    (b)
    
    
    (c)Number of securitiesremaining availableNumber of securities
    
    
    
    
    
    
    for future issuanceto be issued upon
    
    
    Weighted average
    
    
    under equityexercise of
    
    
    exercise price of
    
    
    compensation plansoutstanding options,
    
    
    outstanding options,
    
    
    excluding securitiesPlan Category
    
    warrants and rights(2)
    
    
    warrants and rights(2)
    
    
    reflected in column (a) (3)Equity compensation plans approved by
our stockholders
    
    
    433,441
    
    
    $
    15.20
    
    
    
    8,805,011Equity compensation plans not approved
by our stockholders
    
    
    533,334
    
    
    $
    0.95
    
    
    
    11,466,666Total
    
    
    966,775
    
    
    $
    7.34
    
    
    
    20,271,677
 
 (1)
    
    On the Effective Date, in accordance with the Plan, all equity
compensation plans in effect at the end of the most recently completed
fiscal year were terminated and all awards thereunder, including those
set forth in this table, were cancelled and extinguished.(2)
    
    Includes 47,373 options to purchase shares of our Old Common Stock
under the FairPoint Communications, Inc. (formerly MJD Communications,
Inc.) 1998 Stock Incentive Plan, 130,935 options to purchase shares of
our Old Common Stock under the FairPoint Communications, Inc. 2000
Employee Stock Incentive Plan, 533,334 options to purchase shares of
our Old Common Stock under the FairPoint Communications, Inc. 2009 CEO
Compensation Plan, 79,781 restricted units granted under the FairPoint
Communications, Inc. 2005 Stock Incentive Plan and 175,352 restricted
units granted under the FairPoint Communications, Inc. 2008 Long Term
Incentive Plan.(3)
    
    Includes 8,980,363 shares under the FairPoint Communications, Inc.
2008 Long Term Incentive Plan and 12,000,000 shares under the
FairPoint Communications, Inc. 2009 CEO Compensation Plan. Repurchase of Equity Securities
  Unregistered Sales of Equity Securities
  
 ITEM 6. SELECTED FINANCIAL DATA
  47




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48




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Year Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Statement of Operations:Revenues
    
    $
    1,070,986
    
    
    $
    1,119,090
    
    
    $
    1,274,619
    
    
    $
    1,197,465
    
    
    $
    1,193,392Operating expenses:Cost of services and sales
    
    
    525,728
    
    
    
    515,394
    
    
    
    576,786
    
    
    
    555,954
    
    
    
    540,305Selling, general and administrative expenses
    
    
    365,373
    
    
    
    417,512
    
    
    
    384,388
    
    
    
    288,762
    
    
    
    283,089Depreciation and amortization
    
    
    289,824
    
    
    
    275,334
    
    
    
    255,032
    
    
    
    233,231
    
    
    
    258,515Total operating expenses
    
    
    1,180,925
    
    
    
    1,208,240
    
    
    
    1,216,206
    
    
    
    1,077,947
    
    
    
    1,081,909Income (loss) from operations
    
    
    (109,939
    )
    
    
    (89,150
    )
    
    
    58,413
    
    
    
    119,518
    
    
    
    111,483Interest expense(1)
    
    
    (140,896
    )
    
    
    (204,919
    )
    
    
    (162,040
    )
    
    
    (70,581
    )
    
    
    (65,741
    )Gain (loss) on derivative instruments
    
    
    
    
    
    
    12,320
    
    
    
    (11,800
    )
    
    
    
    
    
    
    Gain on early retirement of debt
    
    
    
    
    
    
    12,357
    
    
    
    
    
    
    
    
    
    
    
    Other income, net
    
    
    2,715
    
    
    
    2,000
    
    
    
    3,494
    
    
    
    3,350
    
    
    
    3,531Income (loss) before reorganization items and
income taxes
    
    
    (248,120
    )
    
    
    (267,392
    )
    
    
    (111,933
    )
    
    
    52,287
    
    
    
    49,273Reorganization items
    
    
    (41,120
    )
    
    
    (53,018
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    (289,240
    )
    
    
    (320,410
    )
    
    
    (111,933
    )
    
    
    52,287
    
    
    
    49,273Income tax (expense) benefit
    
    
    7,661
    
    
    
    79,014
    
    
    
    43,408
    
    
    
    (19,459
    )
    
    
    (17,322
    )Net income (loss)
    
    $
    (281,579
    )
    
    $
    (241,396
    )
    
    $
    (68,525
    )
    
    $
    32,828
    
    
    $
    31,951Basic shares outstanding
    
    
    89,424
    
    
    
    89,271
    
    
    
    80,443
    
    
    
    53,761
    
    
    
    53,761Diluted shares outstanding
    
    
    89,424
    
    
    
    89,271
    
    
    
    80,443
    
    
    
    53,761
    
    
    
    53,761Basic and diluted earnings (loss) per share
    
    $
    (3.15
    )
    
    $
    (2.70
    )
    
    $
    (0.85
    )
    
    $
    0.61
    
    
    $
    0.59Cash dividends per share
    
    $
    
    
    
    $
    0.2575
    
    
    $
    0.773
    
    
    $
    
    
    
    $
    Operating Data:Capital expenditures
    
    $
    197,795
    
    
    $
    178,752
    
    
    $
    296,992
    
    
    $
    149,458
    
    
    $
    213,808Access line equivalents(2)
    
    
    1,417,290
    
    
    
    1,545,976
    
    
    
    1,721,709
    
    
    
    1,600,971
    
    
    
    1,703,375Residential access lines
    
    
    712,591
    
    
    
    802,668
    
    
    
    926,610
    
    
    
    882,933
    
    
    
    966,267Business access lines
    
    
    327,812
    
    
    
    357,605
    
    
    
    392,496
    
    
    
    371,041
    
    
    
    390,379Wholesale access lines(3)
    
    
    87,142
    
    
    
    97,161
    
    
    
    107,243
    
    
    
    124,123
    
    
    
    149,998HSD subscribers
    
    
    289,745
    
    
    
    288,542
    
    
    
    295,360
    
    
    
    222,874
    
    
    
    196,731Summary Cash Flow Data:Net cash provided by operating
activities
    
    $
    191,626
    
    
    $
    150,323
    
    
    $
    57,505
    
    
    $
    264,504
    
    
    $
    340,590Net cash used in investing activities
    
    
    (197,268
    )
    
    
    (177,391
    )
    
    
    (283,332
    )
    
    
    (137,216
    )
    
    
    (212,542
    )Net cash provided by (used in) financing
activities
    
    
    1,784
    
    
    
    66,098
    
    
    
    296,152
    
    
    
    (127,288
    )
    
    
    (128,048
    )Balance Sheet Data (at period end):Cash, excluding restricted cash of $4,098, $4,036
and $68,503 at December 31, 2010, 2009 and 2008
    
    $
    105,497
    
    
    $
    109,355
    
    
    $
    70,325
    
    
    $
    
    
    
    $
    Property, plant and equipment, net
    
    
    1,859,700
    
    
    
    1,950,435
    
    
    
    2,013,515
    
    
    
    1,628,066
    
    
    
    1,701,425Total assets
    
    
    2,973,794
    
    
    
    3,172,122
    
    
    
    3,335,940
    
    
    
    1,938,172
    
    
    
    2,044,796Total long-term debt(4)
    
    
    2,520,959
    
    
    
    2,515,446
    
    
    
    2,470,253
    
    
    
    
    
    
    
    Total stockholders equity (deficit)
    
    
    (587,418
    )
    
    
    (218,427
    )
    
    
    23,786
    
    
    
    1,119,162
    
    
    
    1,211,913
 
 (1)
    
    Interest expense includes amortization of debt issue costs aggregating $2.0 million and $3.8 million for
the fiscal years ended December 31, 2010 and 2009, respectively, as well as amortization of debt discount
of $0.5 million for the fiscal year ended December 31, 2009. Debt issue costs of $23.8 million on the
Pre-Petition Credit Facility and following the filing of the Chapter 11 Cases, $9.9 million of discount on
the Pre-Petition Notes were 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. These write-offs
are included in Reorganization items for the year ended December 31, 2009. 49




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(2)
    
    Total access line equivalents includes voice access lines and HSD lines, which include DSL lines, wireless
broadband, cable modem and fiber-to-the-premises.(3)
    
    Wholesale access lines include residential and business resale lines and unbundled network element
platform (UNEP) lines.(4)
    
    Long-term debt at December 31, 2010 and 2009 is included in Liabilities subject to compromise (see note 2
to the consolidated financial statements for further information). ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     Overview
     50




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Fresh Start Accounting
  51




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Basis of Presentation
   Revenues
  
    
    Voice services.We receive revenues from our telephone operations from the provision
of local exchange, long distance, local private line, wire maintenance, voice messaging
and value-added services. Included in long-distance services revenue are revenues received
from regional toll calls. Value-added services are a family of services that expand the
utilization of the network, including products such as caller ID, call waiting and call
return. The provision of local exchange services not only includes retail revenues but
also includes local wholesale revenues from UNEs, interconnection revenues from CLECs and
wireless carriers, and some data transport revenues. Local calling services revenues also
include Universal Service Fund payments for high-cost loop support, local switching
support, long-term support and ICLS.
    
    Access.We receive revenues for the provision of network access, including interstate
access and intrastate access.Network access revenues are earned from end-user customers and long-distance and other
competing carriers who use our local exchange facilities to provide usage services to their
customers. Switched access revenues are derived from fixed and usage-based charges paid by
carriers for access to our local network. Special access revenues originate from carriers and
end-users that buy dedicated local and interexchange capacity to support their private
networks.Interstate access revenues are earned on charges to long-distance carriers and other
customers for access to our networks in connection with the origination and termination of
interstate telephone calls both to and from our customers. Interstate access charges to
long-distance carriers and other customers are based on access rates filed with the FCC.Intrastate access revenues consist primarily of charges paid by long-distance companies and
other customers for access to our networks in connection with the origination and termination
of intrastate telephone calls both to and from our customers. Intrastate access charges to
long-distance carriers and other customers are based on access rates filed with the state
regulatory agencies.
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
    
    Data and Internet services.We receive revenues from monthly recurring charges for
services, including HSD, Internet and other services.
    
    Other services.We receive
revenues from other services, including video services (including cable television and
video-over-DSL), billing and collection, directory services, public (coin) telephone and
the sale and maintenance of customer premise equipment.
  Year Ended December 31,
    
    
    Year Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008Revenue (In thousands)
    
    
    % of RevenueVoice services
    
    $
    531,623
    
    
    $
    581,653
    
    
    $
    747,621
    
    
    
    50
    %
    
    
    52
    %
    
    
    59
    %Access
    
    
    381,089
    
    
    
    380,502
    
    
    
    370,809
    
    
    
    36
    
    
    
    34
    
    
    
    29Data and Internet services
    
    
    110,223
    
    
    
    109,942
    
    
    
    114,906
    
    
    
    10
    
    
    
    10
    
    
    
    9Other services
    
    
    48,051
    
    
    
    46,993
    
    
    
    41,283
    
    
    
    4
    
    
    
    4
    
    
    
    3Total
    
    $
    1,070,986
    
    
    $
    1,119,090
    
    
    $
    1,274,619
    
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  December 31,
    
    
    December 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2008Access Line Equivalents:Residential access lines
    
    
    712,591
    
    
    
    802,668
    
    
    
    926,610Business access lines
    
    
    327,812
    
    
    
    357,605
    
    
    
    392,496Wholesale access lines(1)
    
    
    87,142
    
    
    
    97,161
    
    
    
    107,243Total switched access lines
    
    
    1,127,545
    
    
    
    1,257,434
    
    
    
    1,426,349HSD subscribers
    
    
    289,745
    
    
    
    288,542
    
    
    
    295,360Total access line equivalents
    
    
    1,417,290
    
    
    
    1,545,976
    
    
    
    1,721,709
 
 (1)
    
    Wholesale access lines include residential and business resale lines and unbundled network
element platform (UNEP) lines. Operating Expenses
  
    
    Cost of Services and Sales. Cost of services and sales includes the following
costs directly attributable to a service or product: salaries and wages, benefits,
materials and supplies, contracted services, network access and transport costs, customer
provisioning costs, computer systems support and cost of products sold. Aggregate
customer care costs, which include billing and service provisioning, are allocated
between cost of services and sales and selling, general and administrative expenses.
    
    Selling, General and Administrative Expense. Selling, general and administrative
expense includes salaries and wages and benefits not directly attributable to a service
or product, bad debt charges, taxes other than income, advertising and sales commission
costs, customer billing, call center and information technology costs, professional
service fees and rent for administrative space. Also included in selling, general and
administrative expenses are non-cash expenses related to stock based compensation. Stock
based compensation consists of compensation charges incurred in connection with the
employee stock options, stock units and non-vested restricted stock granted to executive
officers, other employees and directors.
 53




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
    
    Depreciation and amortization. Depreciation and amortization includes depreciation
of our communications network and equipment and amortization of intangible assets.
  Acquisitions and Dispositions
  Results of Operations
  Year Ended December 31,
    
    
    Year Ended December 31,
    
    
    Year Ended December 31,2010
    
    

% of revenue
    
    
    2009
    
    

% of revenue
    
    
    2008
    
    

% of revenueRevenues
    
    $
    1,070,986
    
    
    
    100.0
    %
    
    $
    1,119,090
    
    
    
    100.0
    %
    
    $
    1,274,619
    
    
    
    100.0
    %Operating expensesCost of services and sales
    
    
    525,728
    
    
    
    49.1
    
    
    
    515,394
    
    
    
    46.1
    
    
    
    576,786
    
    
    
    45.3Selling, general and
administrative expense
    
    
    365,373
    
    
    
    34.1
    
    
    
    417,512
    
    
    
    37.3
    
    
    
    384,388
    
    
    
    30.2Depreciation and amortization
    
    
    289,824
    
    
    
    27.1
    
    
    
    275,334
    
    
    
    24.6
    
    
    
    255,032
    
    
    
    20.0Total operating expenses
    
    
    1,180,925
    
    
    
    110.3
    
    
    
    1,208,240
    
    
    
    108.0
    
    
    
    1,216,206
    
    
    
    95.5Income (loss) from operations
    
    
    (109,939
    )
    
    
    (10.3
    )
    
    
    (89,150
    )
    
    
    (8.0
    )
    
    
    58,413
    
    
    
    4.5Other income (expense):Interest expense
    
    
    (140,896
    )
    
    
    (13.2
    )
    
    
    (204,919
    )
    
    
    (18.3
    )
    
    
    (162,040
    )
    
    
    (12.7
    )Gain (loss) on derivative
instruments
    
    
    
    
    
    
    
    
    
    
    12,320
    
    
    
    1.1
    
    
    
    (11,800
    )
    
    
    (0.9
    )Gain on early retirement of debt
    
    
    
    
    
    
    
    
    
    
    12,357
    
    
    
    1.1
    
    
    
    
    
    
    
    Other income, net
    
    
    2,715
    
    
    
    0.3
    
    
    
    2,000
    
    
    
    0.2
    
    
    
    3,494
    
    
    
    0.3Total other expense
    
    
    (138,181
    )
    
    
    (12.9
    )
    
    
    (178,242
    )
    
    
    (15.9
    )
    
    
    (170,346
    )
    
    
    (13.3
    )Loss before reorganization items
and income taxes
    
    
    (248,120
    )
    
    
    (23.2
    )
    
    
    (267,392
    )
    
    
    (23.9
    )
    
    
    (111,933
    )
    
    
    (8.8
    )Reorganization items
    
    
    (41,120
    )
    
    
    (3.8
    )
    
    
    (53,018
    )
    
    
    (4.7
    )
    
    
    
    
    
    
    Loss before income taxes
    
    
    (289,240
    )
    
    
    (27.0
    )
    
    
    (320,410
    )
    
    
    (28.6
    )
    
    
    (111,933
    )
    
    
    (8.8
    )Income tax benefit
    
    
    7,661
    
    
    
    0.7
    
    
    
    79,014
    
    
    
    7.0
    
    
    
    43,408
    
    
    
    3.4Net loss
    
    $
    (281,579
    )
    
    
    (26.3
    )%
    
    $
    (241,396
    )
    
    
    (21.6
    )%
    
    $
    (68,525
    )
    
    
    (5.4
    )%
 54




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##### Table of Contents



Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
 Revenues
  Voice services.
 Access.
 Data and Internet services.
 Other services.
 Operating Expenses
 Cost of services and sales
 Selling, general and administrative.
 Depreciation and amortization.
 55




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##### Table of Contents



Other Results
 Interest expense.
 Gain (loss) on derivative instruments.
 Gain on early retirement of debt.
 Other income (expense).
 Reorganization items.
 Income taxes.
 Net loss.
 56




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##### Table of Contents



Year Ended December 31, 2009 Compared with Year Ended December 31, 2008
 Revenues
  Voice services.
 Access.
 Data and Internet services.
 Other services.
 Operating Expenses
 Cost
of services and sales
 57




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##### Table of Contents



Selling, general and administrative.
 Depreciation and amortization.
  Other Results
 Interest expense.
 Gain (loss) on derivative instruments.
 Gain on early retirement of debt.
 Other income (expense).
 Reorganization items.
 58




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##### Table of Contents



Income taxes.
 Net income (loss).
 Liquidity and Capital Resources
        59




---



##### Table of Contents



Exit Credit Agreement
    60




---



##### Table of Contents



Our DIP Facility
    Our Pre-Petition Credit Facility
    61




---



##### Table of Contents



Our Pre-Petition Notes
   62




---



##### Table of Contents



1 8
         Other Pre-Petition Agreements
   63




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##### Table of Contents



Off-Balance Sheet Arrangements
  Summary of Contractual Obligations
   Payments due by periodLessthan
    
    
    1-3
    
    
    3-5
    
    
    More thanTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 years(Dollars in thousands)Contractual obligations:Long-term debt,
including current
maturities (a)
    
    $
    2,520,959
    
    
    $
    58,725
    
    
    $
    351,600
    
    
    $
    1,560,638
    
    
    $
    549,996Interest payments on
long-term debt
obligations (b)(c)
    
    
    518,034
    
    
    
    135,355
    
    
    
    254,150
    
    
    
    128,529
    
    
    
    Capital lease obligations
    
    
    6,669
    
    
    
    1,893
    
    
    
    3,178
    
    
    
    1,598
    
    
    
    Operating leases
    
    
    38,229
    
    
    
    10,442
    
    
    
    16,292
    
    
    
    7,672
    
    
    
    3,823Total obligations
    
    $
    3,083,891
    
    
    $
    206,415
    
    
    $
    625,220
    
    
    $
    1,698,437
    
    
    $
    553,819
 
 (a)
    
    Includes $550.0 million of the Pre-Petition Notes. Long-term debt
maturities represent the normal contractual payment schedule.
Following the filing of the Chapter 11 Cases, we did not make any
payments on our pre-petition debt. All obligations under the
Pre-Petition Credit Facility and the Pre-Petition Notes have been
classified as liabilities subject to compromise in the consolidated
financial statements as of December 31, 2010 and 2009. See note 9 to
the 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. Following the filing of the Chapter 11
Cases, we did not make any payments on our pre-petition debt.  64




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##### Table of Contents



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)
    
    Upon filing for Chapter 11 bankruptcy protection, the derivative
financial instruments were terminated by the counterparties.
Accordingly, the carrying value of the Swaps at December 31, 2010
represents the termination value of the Swaps as determined by the
respective counterparties following the event of default described
herein. See note 8 to the consolidated financial statements for more
information.(2)
    
    The Swaps have been classified as liabilities subject to compromise in
the consolidated financial statements. See note 8 to the consolidated
financial statements for more information. Critical Accounting Policies
  
    
    Revenue recognition;
    
    Allowance for doubtful accounts;
    
    Accounting for pension and other post-retirement benefits;
    
    Accounting for income taxes;
    
    Depreciation of property, plant and equipment;
    
    Valuation of long-lived assets, including goodwill;
    
    Accounting for software development costs; and
    
    Purchase accounting.
 Revenue Recognition.
 65




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##### Table of Contents



Allowance for Doubtful Accounts.
 Accounting for Pension and Other Post-retirement Benefits.
 Accounting for Income Taxes.
 Depreciation of Property, Plant and Equipment.
 Valuation of Long-lived Assets, Including Goodwill.
 
    
    significant underperformance relative to expected historical or projected future
operating results;
    
    significant regulatory changes that would impact future operating revenues;
    
    significant negative industry or economic trends; and
    
    significant changes in the overall strategy in which we operate our overall
business.
   66




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##### Table of Contents



Accounting for Software Development Costs.
 Purchase Accounting. Accounting for Business Combinations
 New Accounting Standards
  67




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##### Table of Contents



Inflation
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       68




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO FINANCIAL STATEMENTS
 PageFAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES:Report of Management on Internal Control Over Financial Reporting
70Report of Independent Registered Public Accounting Firm
71CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008:Consolidated Balance Sheets as of December 31, 2010 and 2009
72Consolidated Statements of Operations for the Years Ended December 31, 2010, 2009 and 2008
73Consolidated Statements of Stockholders Equity (Deficit) for the Years Ended December 31, 2010, 2009 and
2008
74Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2010, 2009 and 2008
75Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, 2009 and 2008
76Notes to Consolidated Financial Statements for the Years Ended December 31, 2010, 2009 and 2008
77
 69




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##### Table of Contents



Report of Management on Internal Control Over Financial Reporting
   1.
    
    Our information technology controls were not adequate. Change management
processes were not consistently followed to ensure all changes were appropriately
approved. Also, access to our information systems was not appropriately restricted.2.
    
    Our management oversight and review procedures designed to monitor the accuracy
of period-end accounting activities were ineffective. Specifically, our account
reconciliation processes were not adequate to properly identify and resolve
discrepancies between our billing system and our general ledger in a timely manner. In
addition, project accounting controls were not adequate to ensure charges to capital
projects were appropriate or that projects were closed in a timely manner. Also,
procedures for the review of our income tax provision and supporting schedules were not
adequate to identify and correct errors in a timely manner.
 /s/         Paul H. SunuPaul H. SunuChief Executive Officer/s/    Ajay SabherwalAjay SabherwalExecutive Vice President and Chief Financial Officer 70




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Report of Independent Registered Public Accounting Firm
     Ernst & Young LLP
 
 71




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##### Table of Contents



FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
(Debtors-In-Possession)


Consolidated Balance Sheets
 December 31, 2010 and 2009
(in thousands, except share data)
 2010
    
    
    2009AssetsCurrent assets:Cash
    
    $
    105,497
    
    
    $
    109,355Restricted cash
    
    
    2,420
    
    
    
    2,558Accounts receivable, net
    
    
    125,170
    
    
    
    154,095Materials and supplies
    
    
    22,193
    
    
    
    18,884Prepaid expenses
    
    
    18,841
    
    
    
    15,198Other
current assets
    
    
    6,092
    
    
    
    8,844Deferred income tax, net
    
    
    31,400
    
    
    
    75,713Total current assets
    
    
    311,613
    
    
    
    384,647Property, plant, and equipment, net
    
    
    1,859,700
    
    
    
    1,950,435Goodwill
    
    
    595,120
    
    
    
    595,120Intangibles assets, net
    
    
    189,247
    
    
    
    211,819Prepaid pension asset
    
    
    2,960
    
    
    
    8,808Debt issue costs, net
    
    
    119
    
    
    
    680Restricted cash
    
    
    1,678
    
    
    
    1,478Other assets
    
    
    13,357
    
    
    
    19,135Total assets
    
    $
    2,973,794
    
    
    $
    3,172,122Liabilities and Stockholders DeficitLiabilities not subject to compromise:Current portion of capital lease obligations
    
    $
    1,321
    
    
    $
    Accounts payable
    
    
    66,557
    
    
    
    61,681Accrued interest payable
    
    
    3
    
    
    
    36Other accrued liabilities
    
    
    63,279
    
    
    
    44,004Total current liabilities
    
    
    131,160
    
    
    
    105,721Capital lease obligations
    
    
    3,943
    
    
    
    Accrued pension obligation
    
    
    92,246
    
    
    
    51,438Employee benefit obligations
    
    
    344,463
    
    
    
    261,420Deferred income taxes
    
    
    67,381
    
    
    
    115,742Unamortized investment tax credits
    
    
    4,310
    
    
    
    4,788Other long-term liabilities
    
    
    12,398
    
    
    
    15,100Total long-term liabilities
    
    
    524,741
    
    
    
    448,488Total liabilities not subject to compromise
    
    
    655,901
    
    
    
    554,209Liabilities subject to compromise
    
    
    2,905,311
    
    
    
    2,836,340Total liabilities
    
    
    3,561,212
    
    
    
    3,390,549Stockholders deficit:Common stock, $0.01 par value, 200,000,000 shares
authorized, issued and outstanding 89,440,334 and 90,002,026
shares at December 31, 2010 and 2009, respectively
    
    
    894
    
    
    
    900Additional paid-in capital
    
    
    725,786
    
    
    
    725,312Retained deficit
    
    
    (1,101,294
    )
    
    
    (819,715
    )Accumulated other comprehensive loss
    
    
    (212,804
    )
    
    
    (124,924
    )Total stockholders deficit
    
    
    (587,418
    )
    
    
    (218,427
    )Total liabilities and stockholders deficit
    
    $
    2,973,794
    
    
    $
    3,172,122
  72




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##### Table of Contents



FAIRPOINT
COMMUNICATIONS, INC. AND SUBSIDIARIES 
(Debtors-In-Possession)
 
 Consolidated Statements of Operations
 Years ended December 31, 2010, 2009 and 2008
(in thousands, except per share data)
 2010
    
    
    2009
    
    
    2008Revenues
    
    $
    1,070,986
    
    
    $
    1,119,090
    
    
    $
    1,274,619Operating expenses:Cost of services and sales, excluding depreciation and amortization
    
    
    525,728
    
    
    
    515,394
    
    
    
    576,786Selling, general and administrative expense, excluding depreciation
and amortization
    
    
    365,373
    
    
    
    417,512
    
    
    
    384,388Depreciation and amortization
    
    
    289,824
    
    
    
    275,334
    
    
    
    255,032Total operating expenses
    
    
    1,180,925
    
    
    
    1,208,240
    
    
    
    1,216,206Income (loss) from operations
    
    
    (109,939
    )
    
    
    (89,150
    )
    
    
    58,413Other income (expense):Interest expense
    
    
    (140,896
    )
    
    
    (204,919
    )
    
    
    (162,040
    )Gain (loss) on derivative instruments
    
    
    
    
    
    
    12,320
    
    
    
    (11,800
    )Gain on early retirement of debt
    
    
    
    
    
    
    12,357
    
    
    
    Other
income, net
    
    
    2,715
    
    
    
    2,000
    
    
    
    3,494Total other expense
    
    
    (138,181
    )
    
    
    (178,242
    )
    
    
    (170,346
    )Loss before reorganization items and income taxes
    
    
    (248,120
    )
    
    
    (267,392
    )
    
    
    (111,933
    )Reorganization items
    
    
    (41,120
    )
    
    
    (53,018
    )
    
    
    Loss before income taxes
    
    
    (289,240
    )
    
    
    (320,410
    )
    
    
    (111,933
    )Income tax benefit
    
    
    7,661
    
    
    
    79,014
    
    
    
    43,408Net loss
    
    $
    (281,579
    )
    
    $
    (241,396
    )
    
    $
    (68,525
    )Weighted average shares outstanding:Basic
    
    
    89,424
    
    
    
    89,271
    
    
    
    80,443Diluted
    
    
    89,424
    
    
    
    89,271
    
    
    
    80,443Loss per share:Basic
    
    $
    (3.15
    )
    
    $
    (2.70
    )
    
    $
    (0.85
    )Diluted
    
    
    (3.15
    )
    
    
    (2.70
    )
    
    
    (0.85
    )
  73




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FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
(Debtors-In-Possession)


Consolidated Statements of Stockholders Equity (Deficit)
Years ended December 31, 2010, 2009 and 2008
(in thousands)
 AccumulatedAdditional
    
    
    Retained
    
    
    other
    
    
    TotalCommon Stock
    
    
    paid-in
    
    
    earnings
    
    
    comprehensive
    
    
    stockholdersShares
    
    
    Amount
    
    
    capital
    
    
    (deficit)
    
    
    loss
    
    
    equity (deficit)Balance at December 31, 2007
    
    
    53,761
    
    
    $
    538
    
    
    $
    484,383
    
    
    $
    634,241
    
    
    $
    
    
    
    $
    1,119,162Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68,525
    )
    
    
    
    
    
    
    (68,525
    )Acquisition of FairPoint
    
    
    35,265
    
    
    
    352
    
    
    
    315,938
    
    
    
    
    
    
    
    
    
    
    
    316,290Exercise of restricted units
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of restricted shares
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock cancelled for withholding
tax
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeiture of restricted shares
    
    
    (71
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    4,408
    
    
    
    
    
    
    
    
    
    
    
    4,408Dividends declared
    
    
    
    
    
    
    
    
    
    
    (69,010
    )
    
    
    
    
    
    
    
    
    
    
    (69,010
    )Return of capital to Verizon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,160,000
    )
    
    
    
    
    
    
    (1,160,000
    )Issuance of bonds to Verizon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (539,831
    )
    
    
    
    
    
    
    (539,831
    )Contributions by Verizon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    381,890
    
    
    
    
    
    
    
    381,890Net liabilities contributed back to Verizon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124,439
    
    
    
    
    
    
    
    124,439Employee benefit adjustment to
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,467
    
    
    
    (134,504
    )
    
    
    (85,037
    )Balance at December 31, 2008
    
    
    88,996
    
    
    $
    890
    
    
    $
    735,719
    
    
    $
    (578,319
    )
    
    $
    (134,504
    )
    
    $
    23,786Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (241,396
    )
    
    
    
    
    
    
    (241,396
    )Issuance of 2008 Interim Awards
    
    
    502
    
    
    
    5
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of restricted shares
    
    
    524
    
    
    
    5
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    Restricted stock cancelled for withholding
tax
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted units cancelled for withholding
tax
    
    
    
    
    
    
    
    
    
    
    (430
    )
    
    
    
    
    
    
    
    
    
    
    (430
    )Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    2,052
    
    
    
    
    
    
    
    
    
    
    
    2,052Net assets contributed back to Verizon
    
    
    
    
    
    
    
    
    
    
    (12,019
    )
    
    
    
    
    
    
    
    
    
    
    (12,019
    )Employee benefit adjustment to
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,580
    
    
    
    9,580Balance at December 31, 2009
    
    
    90,002
    
    
    $
    900
    
    
    $
    725,312
    
    
    $
    (819,715
    )
    
    $
    (124,924
    )
    
    $
    (218,427
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (281,579
    )

    
    
    
    
    
    
    (281,579
    )Restricted stock cancelled for withholding
tax
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeiture of restricted shares
    
    
    (549
    )
    
    
    (6
    )
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    468
    
    
    
    
    
    
    
    
    
    
    
    468Employee benefit adjustment to
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (87,880
    )
    
    
    (87,880
    )Balance at December 31, 2010
    
    
    89,440
    
    
    $
    894
    
    
    $
    725,786
    
    
    $
    (1,101,294
    )
    
    $
    (212,804
    )
    
    $
    (587,418
    )
  74




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##### Table of Contents



FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
(Debtors-In-Possession)
 
 Consolidated Statements of Comprehensive Loss
Years ended December 31, 2010, 2009 and 2008
(in thousands)
 2010
    
    
    2009
    
    
    2008Net loss
    
    $
    (281,579
    )
    
    $
    (241,396
    )
    
    $
    (68,525
    )Other comprehensive (loss) income, net of taxes:Defined benefit pension and post-retirement plans (net of $4.6 million tax expense,
$5.4 million tax expense and $56.4 million tax benefit, respectively)
    
    
    (87,880
    )
    
    
    9,580
    
    
    
    (134,504
    )Total other comprehensive (loss) income
    
    
    (87,880
    )
    
    
    9,580
    
    
    
    (134,504
    )Comprehensive loss
    
    $
    (369,459
    )
    
    $
    (231,816
    )
    
    $
    (203,029
    )
  75




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##### Table of Contents



FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES
(Debtors-In-Possession)

Consolidated Statements of Cash Flows
Years ended December 31, 2010, 2009 and 2008
(in thousands)
 2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (281,579
    )
    
    $
    (241,396
    )
    
    $
    (68,525
    )Adjustments to reconcile net income to net cash provided by
operating activities excluding impact of acquisitions:Deferred income taxes
    
    
    (7,915
    )
    
    
    (78,722
    )
    
    
    (33,466
    )Provision for uncollectible revenue
    
    
    20,525
    
    
    
    48,402
    
    
    
    25,234Depreciation and amortization
    
    
    289,824
    
    
    
    275,334
    
    
    
    255,032Non-cash interest expense
    
    
    
    
    
    
    31,137
    
    
    
    Post-retirement expenses
    
    
    33,216
    
    
    
    34,151
    
    
    
    37,782Pension expenses
    
    
    10,017
    
    
    
    24,274
    
    
    
    906(Gain) loss on derivative instruments
    
    
    
    
    
    
    (12,320
    )
    
    
    11,800Gain on early retirement of debt, excluding cash fees
    
    
    
    
    
    
    (12,477
    )
    
    
    Loss on abandoned projects
    
    
    15,132
    
    
    
    
    
    
    
    Non-cash reorganization items
    
    
    (20,004
    )
    
    
    43,964
    
    
    
    Other non cash items
    
    
    4,045
    
    
    
    4,468
    
    
    
    (20,577
    )Changes in assets and liabilities arising from operations:Accounts receivable
    
    
    12,706
    
    
    
    (24,799
    )
    
    
    (34,693
    )Prepaid and other assets
    
    
    (6,834
    )
    
    
    19,063
    
    
    
    (12,713
    )Accounts payable and accrued liabilities
    
    
    (10,802
    )
    
    
    (12,435
    )
    
    
    (110,264
    )Accrued interest payable
    
    
    137,111
    
    
    
    61,312
    
    
    
    18,562Other assets and liabilities, net
    
    
    (3,816
    )
    
    
    (9,633
    )
    
    
    4,648Other
    
    
    
    
    
    
    
    
    
    
    (16,221
    )Total adjustments
    
    
    473,205
    
    
    
    391,719
    
    
    
    126,030Net cash provided by operating activities
    
    
    191,626
    
    
    
    150,323
    
    
    
    57,505Cash flows from investing activities:Acquired cash balance, net
    
    
    
    
    
    
    
    
    
    
    11,401Net capital additions
    
    
    (197,795
    )
    
    
    (178,752
    )
    
    
    (296,992
    )Net proceeds from sales of investments and other assets
    
    
    527
    
    
    
    1,361
    
    
    
    2,259Net cash used in investing activities
    
    
    (197,268
    )
    
    
    (177,391
    )
    
    
    (283,332
    )Cash flows from financing activities:Loan origination costs
    
    
    (1,475
    )
    
    
    (3,046
    )
    
    
    (29,238
    )Proceeds from issuance of long-term debt
    
    
    5,513
    
    
    
    50,000
    
    
    
    1,930,000Repayments of long-term debt
    
    
    
    
    
    
    (20,848
    )
    
    
    (687,491
    )Contributions from Verizon
    
    
    
    
    
    
    
    
    
    
    373,590Restricted
cash
    
    
    (62
    )
    
    
    65,114
    
    
    
    (68,503
    )Repayment of capital lease obligations
    
    
    (2,192
    )
    
    
    (2,126
    )
    
    
    (2,247
    )Dividends paid to stockholders
    
    
    
    
    
    
    (22,996
    )
    
    
    (1,219,959
    )Net cash provided by financing activities
    
    
    1,784
    
    
    
    66,098
    
    
    
    296,152Net increase (decrease) in cash
    
    
    (3,858
    )
    
    
    39,030
    
    
    
    70,325Cash, beginning of period
    
    
    109,355
    
    
    
    70,325
    
    
    
    Cash, end of period
    
    $
    105,497
    
    
    $
    109,355
    
    
    $
    70,325Supplemental disclosure of cash flow information:Interest paid, net of capitalized interest
    
    $
    1,005
    
    
    $
    106,861
    
    
    $
    124,721Income taxes paid, net of refunds
    
    
    361
    
    
    
    (563
    )
    
    
    (9,313
    )Non-cash equity consideration
    
    
    
    
    
    
    
    
    
    
    316,290Non-cash issuance of senior notes
    
    
    
    
    
    
    18,911
    
    
    
    551,000Capital additions included in accounts payable or liabilities
subject to compromise at period-end
    
    
    1,961
    
    
    
    31,621
    
    
    
    Reorganization costs paid
    
    
    41,699
    
    
    
    1,182
    
    
    
    
  76




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FairPoint Communications, Inc. and Subsidiaries
(DEBTORS-IN-POSSESSION)
Notes to Consolidated Financial Statements
 Except as otherwise required by the context, references in notes to the consolidated financial
statements to:
 
    
    FairPoint Communications refers to FairPoint Communications, Inc., excluding its
subsidiaries;
    
    FairPoint, the Company, we, us or our refer to the combined business of
FairPoint Communications, Inc. and all of its subsidiaries after giving effect to the
merger on March 31, 2008, with Northern New England Spinco Inc. (Spinco), a subsidiary of
Verizon Communications Inc. (Verizon), which transaction is referred to herein as the
Merger;
    
    Northern New England operations refers to the local exchange business acquired from
Verizon and all of its subsidiaries after giving effect to the Merger;
    
    Legacy FairPoint or Telecom Group refers to FairPoint, exclusive of our acquired
Northern New England operations; and
    
    Verizon Northern New England business refers to the local exchange business of Verizon
New England Inc. (Verizon New England) in Maine, New Hampshire and Vermont and the
customers of Verizon and its subsidiaries (other than Cellco Partnership) (collectively,
the Verizon Group) related long distance and Internet service provider business in those
states prior to the Merger.
 (1) ORGANIZATION, PRINCIPLES OF CONSOLIDATION & LIQUIDITY; CHAPTER 11 CASES
 (a) Organization
  (b) Principles of Consolidation and Basis of Presentation
  77




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Historical Verizon Northern New England business
     Verizon New England:
 VLD:
 VOL:
 78




---



##### Table of Contents



VSSI:
  Financial Reporting in Reorganization
 In re FairPoint Communications, Inc.
  (2) REORGANIZATION
    79




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##### Table of Contents



Reorganization Items
  Year ended December 31,2010
    
    
    2009Professional fees (a)
    
    $
    (59,870
    )
    
    $
    (8,365
    )Success bonus (b)
    
    
    (1,111
    )
    
    
    (689
    )Non-cash allowed claim adjustments (c)
    
    
    (977
    )
    
    
    (43,964
    )Cancellation of debt income, net (d)
    
    
    20,838
    
    
    
    Total reorganization items
    
    $
    (41,120
    )
    
    $
    (53,018
    )
 
 (a)
    
    Professional fees relate to legal, financial advisory and other professional costs directly
associated with the reorganization process.(b)
    
    Success bonus represents charges incurred relating to the Success Bonus Plan in accordance
with the plan of reorganization and terms of the Term Sheet.(c)
    
    The carrying values of certain liabilities subject to compromise were adjusted to the value
of the claim allowed by the Bankruptcy Court.(d)
    
    Net gains associated with the settlement of liabilities subject to compromise. Liabilities Subject to Compromise
   2010
    
    
    2009Senior secured credit facility
    
    $
    1,970,963
    
    
    $
    1,965,450Senior Notes
    
    
    549,996
    
    
    
    549,996Interest rate swap
    
    
    98,833
    
    
    
    98,833Accrued interest
    
    
    211,550
    
    
    
    74,406Accounts payable
    
    
    57,640
    
    
    
    93,049Other accrued liabilities
    
    
    16,129
    
    
    
    42,461Capital lease obligations
    
    
    
    
    
    
    7,627Other long-term liabilities
    
    
    200
    
    
    
    787Employee benefit obligations
    
    
    
    
    
    
    3,731Liabilities subject to compromise
    
    $
    2,905,311
    
    
    $
    2,836,340
 80




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##### Table of Contents



Magnitude of Potential Claims
      (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a) Use of Estimates
  81




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(b) Revenue Recognition
         82




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##### Table of Contents



(c) Maintenance and Repairs
  (d) Cash and Cash Equivalents
  (e) Restricted Cash
    (f) Accounts Receivable
   83




---



##### Table of Contents



2010
    
    
    2009
    
    
    2008Balance, beginning of period
    
    $
    58,358
    
    
    $
    20,340
    
    
    $
    25,585Acquisition of Legacy FairPoint
    
    
    
    
    
    
    
    
    
    
    1,832Contributed back to Verizon
    
    
    
    
    
    
    
    
    
    
    (9,356
    )Provision charged to expense
    
    
    20,525
    
    
    
    48,402
    
    
    
    25,234Provision charged to other accounts (a)
    
    
    (586
    )
    
    
    (91
    )
    
    
    5,419Amounts
written off, net of recoveries
    
    
    (37,689
    )
    
    
    (10,293
    )
    
    
    (28,374
    )Balance, end of period
    
    $
    40,608
    
    
    $
    58,358
    
    
    $
    20,340
 
 (a)
    
    Provision charged to other accounts includes accruals charged to
accounts payable for anticipated uncollectible charges on purchase of
accounts receivable from others which were billed by the Company. (g) Credit Risk
   (h) Materials and Supplies
  (i) Property, Plant, and Equipment
    Average Lives
(In Years)Buildings
    
    
    45Central office equipment
    
    
    5  11Outside communications plantCopper cable
    
    
    15  18Fiber cable
    
    
    25Poles and conduit
    
    
    30  50Furniture, vehicles and other
    
    
    3  15
 84




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##### Table of Contents



(j) Long-Lived Assets
    (k) Computer Software and Interest Costs
   85




---



##### Table of Contents



(l) Debt Issue Costs
     86




---



##### Table of Contents



(m) Advertising Costs
  (n) Goodwill and Other Intangible Assets
 ,
       87




---



##### Table of Contents



(o) Income Taxes
     (p) Stock-based Compensation Plans
  (q) Employee Benefit Plans
  88




---



##### Table of Contents



(r) Business Segments
 .
 (s) Purchase Accounting
 Accounting for Business Combinations
 (t) New Accounting Pronouncements
    (4) Certain Transactions
 (a) Merger
  89




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##### Table of Contents



(b) Dividends
   (5) Acquisitions and Dispositions
   
    
    the issuance of additional shares of Spinco common stock that were distributed in a
spin-off, referred to as the distribution;
    
    a special cash payment of $1,160.0 million to the Verizon Group; and
    
    the issuance by Spinco to the Verizon Group of the Old Notes.
    90




---



##### Table of Contents



Cash
    
    $
    11,401Current assets
    
    
    57,178Property, plant, and equipment
    
    
    303,261Investments
    
    
    8,748Excess cost over fair value of net assets acquired
    
    
    595,120Intangible assets
    
    
    251,678Other assets
    
    
    127,034Current liabilities
    
    
    (179,146
    )Long-term debt
    
    
    (687,491
    )Other liabilities
    
    
    (171,493
    )Total net purchase price
    
    $
    316,290
  Pro formayear endedDecember 31,2008(unaudited)Revenue
    
    $
    1,341,623Net loss
    
    $
    (87,582
    )Loss per common share:Basic
    
    $
    (1.09
    )Diluted
    
    $
    (1.09
    )
 (6) Goodwill and Other Intangible Assets
  Balance, December 31, 2008
    
    $
    619,372Adjustment to deferred income taxes
    
    
    (24,252
    )Balance, December 31, 2009
    
    $
    595,120No adjustment
    
    
    Balance, December 31, 2010
    
    $
    595,120
 91




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##### Table of Contents



December 31,2010
    
    
    2009Customer lists (weighted average 9.7 years):Gross carrying amount
    
    $
    208,504
    
    
    $
    208,504Less accumulated amortization
    
    
    (62,073
    )
    
    
    (39,501
    )Net customer lists
    
    
    146,431
    
    
    
    169,003Trade names (indefinite life):Gross carrying amount
    
    
    42,816
    
    
    
    42,816Total intangible assets, net
    
    $
    189,247
    
    
    $
    211,819
  (7) Property, Plant, and Equipment
  Estimated
    
    

December 31,life
    
    
    2010
    
    
    2009(in years)Land
    
    
    
    
    
    $
    23,880
    
    
    $
    23,871Buildings and leasehold improvements
    
    
    2  45
    
    
    
    328,822
    
    
    
    313,766Central office equipment
    
    
    5  11
    
    
    
    2,467,286
    
    
    
    2,388,216Outside communications plant
    
    
    15  50
    
    
    
    3,009,886
    
    
    
    2,908,287Furniture, vehicles and other work
equipment
    
    
    3  15
    
    
    
    350,242
    
    
    
    326,157Plant under construction
    
    
    
    
    
    
    50,619
    
    
    
    144,541Other
    
    
    
    
    
    
    43,877
    
    
    
    35,359Total property, plant, and
equipment
    
    
    
    
    
    
    6,274,612
    
    
    
    6,140,197Accumulated depreciation
    
    
    
    
    
    
    (4,414,912
    )
    
    
    (4,189,762
    )Net property, plant, and equipment
    
    
    
    
    
    $
    1,859,700
    
    
    $
    1,950,435
  (8) Interest Rate Swap Agreements
   92




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93




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##### Table of Contents



(9) Long-term Debt
  December 31,2010
    
    
    2009Senior secured Pre-Petition Credit Facility,
variable rates ranging from 6.75% to 7.00%
(weighted average rate of 6.94%) at December
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
    
    
    $
    2,515,446
      Year ending December 31,2011
    
    $
    58,7252012
    
    
    63,3002013
    
    
    288,3002014
    
    
    134,4502015
    
    
    1,426,188Thereafter
    
    
    549,996$
    2,520,959
 94




---



##### Table of Contents



Pre-Petition Credit Facility
        95




---



##### Table of Contents



96




---



##### Table of Contents



Old Notes
     Issuance of New Notes and Payment of Consent Fee
  97




---



##### Table of Contents



Debtor-in-Possession Financing
 DIP Credit Agreement
  98




---



##### Table of Contents



Interest Rate and Fees.
  Voluntary Prepayments.
 Covenants. th
 99




---



##### Table of Contents



Events of Default.
 DIP Pledge Agreement
  DIP Subsidiary Guaranty
  DIP Security Agreement
    Exit Credit Agreement
  100




---



##### Table of Contents



(10) Employee Benefit Plans
     101




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##### Table of Contents



Obligations and funded status
  Qualified Pension
    
    
    Post-retirement HealthcareYear ended December 31,
    
    
    Year ended December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Fair value of plan assets:Fair value of plan assets at beginning of year
    
    $
    162,604
    
    
    $
    184,300
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    18,180
    
    
    
    26,339
    
    
    
    (1
    )
    
    
    Plan settlements
    
    
    
    
    
    
    (47,857
    )
    
    
    
    
    
    
    Employer contributions
    
    
    
    
    
    
    
    
    
    
    1,735
    
    
    
    389Benefits paid
    
    
    (4,310
    )
    
    
    (178
    )
    
    
    (1,520
    )
    
    
    (389
    )Fair value of plan assets at end of year
    
    
    176,474
    
    
    
    162,604
    
    
    
    214
    
    
    
    Projected benefit obligation:Projected benefit obligation at beginning of year
    
    $
    205,234
    
    
    $
    222,393
    
    
    $
    260,330
    
    
    $
    221,286Service cost
    
    
    11,187
    
    
    
    10,923
    
    
    
    14,321
    
    
    
    13,020Interest cost
    
    
    12,963
    
    
    
    13,269
    
    
    
    16,347
    
    
    
    13,889Plan amendments
    
    
    
    
    
    
    Plan settlements
    
    
    
    
    
    
    (47,857
    )
    
    
    
    
    
    
    Benefits paid
    
    
    (4,310
    )
    
    
    (178
    )
    
    
    (1,520
    )
    
    
    (389
    )Actuarial loss
    
    
    40,686
    
    
    
    6,684
    
    
    
    55,423
    
    
    
    12,524Projected benefit obligation at end of year
    
    
    265,760
    
    
    
    205,234
    
    
    
    344,901
    
    
    
    260,330Plan assets less than projected benefit obligation
    
    $
    (89,286
    )
    
    $
    (42,630
    )
    
    $
    (344,687
    )
    
    $
    (260,330
    )Accumulated benefit obligation
    
    $
    265,688
    
    
    $
    204,946
    
    
    
    N/A
    
    
    
    N/AAmounts recognized in the consolidated balance sheets:Non-current assets
    
    $
    2,960
    
    
    $
    8,808
    
    
    $
    
    
    
    $
    Current liabilities
    
    
    
    
    
    
    
    
    
    
    (2,515
    )
    
    
    (961
    )Non-current liabilities
    
    
    (92,246
    )
    
    
    (51,438
    )
    
    
    (342,172
    )
    
    
    (259,369
    )Net amount recognized
    
    $
    (89,286
    )
    
    $
    (42,630
    )
    
    $
    (344,687
    )
    
    $
    (260,330
    )Amounts recognized in accumulated other comprehensive
income (loss):Prior service cost
    
    $
    (17,141
    )
    
    $
    (18,665
    )
    
    $
    (29,426
    )
    
    $
    (33,715
    )Net actuarial loss
    
    
    (117,749
    )
    
    
    (80,666
    )
    
    
    (127,660
    )
    
    
    (75,707
    )Net amount recognized in accumulated other
comprehensive loss
    
    $
    (134,890
    )
    
    $
    (99,331
    )
    
    $
    (157,086
    )
    
    $
    (109,422
    )
  102




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##### Table of Contents



(In thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash and cash equivalents
    
    $
    5,111
    
    
    $
    5,111
    
    
    $
    
    
    
    $
    Equity securities
    
    
    85,886
    
    
    
    85,886
    
    
    
    
    
    
    
    Fixed income securities
    
    
    63,546
    
    
    
    21,823
    
    
    
    41,723
    
    
    
    Hedge funds
    
    
    21,931
    
    
    
    
    
    
    
    
    
    
    
    21,931Total
    
    $
    176,474
    
    
    $
    112,820
    
    
    $
    41,723
    
    
    $
    21,931
  (In thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash and cash equivalents
    
    $
    18,972
    
    
    $
    18,972
    
    
    $
    
    
    
    $
    Equity securities
    
    
    41,569
    
    
    
    41,569
    
    
    
    
    
    
    
    Fixed income securities
    
    
    52,045
    
    
    
    
    
    
    
    52,045
    
    
    
    Hedge funds
    
    
    14,202
    
    
    
    
    
    
    
    
    
    
    
    14,202Funds receivable from Verizon
    
    
    33,553
    
    
    
    
    
    
    
    
    
    
    
    33,553Other assets
    
    
    2,263
    
    
    
    
    
    
    
    
    
    
    
    2,263Total
    
    $
    162,604
    
    
    $
    60,541
    
    
    $
    52,045
    
    
    $
    50,018
 103




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##### Table of Contents



Funds Receivable(In thousands)
    
    Hedge Funds
    
    
    from Verizon
    
    
    Other Assets
    
    
    TotalBalance at December 31, 2008
    
    $
    
    
    
    $
    32,094
    
    
    $
    
    
    
    $
    32,094Actual gain (loss) on plan assets
    
    
    (798
    )
    
    
    1,459
    
    
    
    
    
    
    
    661Purchases and sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transfers in and/or out of Level 3
    
    
    15,000
    
    
    
    
    
    
    
    2,263
    
    
    
    17,263Balance at December 31, 2009
    
    $
    14,202
    
    
    $
    33,553
    
    
    $
    2,263
    
    
    $
    50,018Actual gain (loss) on plan assets
    
    
    (171
    )
    
    
    
    
    
    
    68
    
    
    
    (103
    )Purchases and sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transfers in and/or out of Level 3
    
    
    7,900
    
    
    
    (33,553
    )
    
    
    (2,331
    )
    
    
    (27,984
    )Balance at December 31, 2010
    
    $
    21,931
    
    
    $
    
    
    
    $
    
    
    
    $
    21,931
       104




---



##### Table of Contents



Net periodic benefit cost
 Qualified Pension
    
    
    Post-retirement HealthcareNine months
    
    
    
    
    
    
    
    
    
    
    Nine monthsYear ended December 31,
    
    
    ended December 31,
    
    
    Year ended December 31,
    
    
    ended 
December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008Service cost
    
    $
    11,187
    
    
    $
    10,923
    
    
    $
    6,741
    
    
    $
    14,321
    
    
    $
    13,020
    
    
    $
    7,018Interest cost
    
    
    12,963
    
    
    
    13,269
    
    
    
    9,383
    
    
    
    16,347
    
    
    
    13,889
    
    
    
    8,196Expected return on plan
assets
    
    
    (16,664
    )
    
    
    (20,575
    )
    
    
    (15,745
    )
    
    
    (3
    )
    
    
    
    
    
    
    Amortization of prior
service cost
    
    
    1,524
    
    
    
    1,452
    
    
    
    632
    
    
    
    4,289
    
    
    
    4,293
    
    
    
    3,219Amortization of
actuarial loss
    
    
    2,087
    
    
    
    813
    
    
    
    
    
    
    
    3,474
    
    
    
    3,487
    
    
    
    261Settlement loss
    
    
    
    
    
    
    18,420
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    11,097
    
    
    $
    24,302
    
    
    $
    1,011
    
    
    $
    38,428
    
    
    $
    34,689
    
    
    $
    18,694
   Qualified Pension
    
    
    Post-retirement HealthcareNine months
    
    
    
    
    
    
    
    
    
    
    Nine monthsYear ended December 31,
    
    
    ended 
December 31,
    
    
    Year ended December 31,
    
    
    ended 
December 31,(In thousands)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008Amounts recognized
in other
comprehensive income
(loss):New prior service
cost
    
    $
    
    
    
    $
    
    
    
    $
    13,454
    
    
    $
    
    
    
    $
    
    
    
    $
    123Net loss arising
during the year
    
    
    39,170
    
    
    
    920
    
    
    
    94,340
    
    
    
    55,427
    
    
    
    12,524
    
    
    
    37,675Amortization or
curtailment of
prior service
cost
    
    
    (1,524
    )
    
    
    (1,452
    )
    
    
    (632
    )
    
    
    (4,289
    )
    
    
    (4,293
    )
    
    
    (3,219
    )Amortization or
settlement
recognition of net
loss
    
    
    (2,087
    )
    
    
    (19,233
    )
    
    
    
    
    
    
    (3,474
    )
    
    
    (3,487
    )
    
    
    (261
    )Total amount
recognized in other
comprehensive loss
    
    $
    35,559
    
    
    $
    (19,765
    )
    
    $
    107,162
    
    
    $
    47,664
    
    
    $
    4,744
    
    
    $
    34,318Estimated amounts
that will be
amortized from
accumulated other
comprehensive loss
in the next fiscal
year:Prior service cost
    
    $
    (126
    )
    
    $
    (1,524
    )
    
    $
    (1,452
    )
    
    $
    (357
    )
    
    $
    (4,290
    )
    
    $
    (4,292
    )Net actuarial
loss
    
    
    (365
    )
    
    
    (1,115
    )
    
    
    (623
    )
    
    
    (475
    )
    
    
    (3,110
    )
    
    
    (2,656
    )Total amount
estimated to be
amortized from
accumulated other
comprehensive loss
in the next fiscal
year
    
    $
    (491
    )
    
    $
    (2,639
    )
    
    $
    (2,075
    )
    
    $
    (832
    )
    
    $
    (7,400
    )
    
    $
    (6,948
    )
  105




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##### Table of Contents



Assumptions
  December 31,2010
    
    
    2009Qualified PensionDiscount rate
    
    
    5.56
    %
    
    
    6.00
    %Rate of future increases in compensation
    
    
    3.00
    %
    
    
    4.00
    %Post-retirement HealthcareDiscount rate
    
    
    5.65
    %
    
    
    6.13
    %Rate of future increases in compensation
    
    
    4.00
    %
    
    
    4.00
    %
  Year ended December 31,
    
    
    Nine months ended2010
    
    
    2009
    
    
    December 31, 2008Qualified PensionDiscount rate
    
    
    6.00
    %
    
    
    5.94
    %
    
    
    6.80
    %Expected return on plan assets
    
    
    8.32
    %
    
    
    8.32
    %
    
    
    8.38
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %Post-retirement HealthcareDiscount rate
    
    
    6.13
    %
    
    
    5.95
    %
    
    
    6.80
    %Rate of compensation increase
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %Healthcare cost trend rate assumed for participants
under 65 next year
    
    
    7.70
    %
    
    
    8.00
    %
    
    
    9.50
    %Healthcare cost trend rate assumed for participants
over 65 next year
    
    
    8.20
    %
    
    
    8.50
    %
    
    
    10.50
    %Rate that the cost trend rates ultimately declines to
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    5.00
    %Year that the rates reach the terminal rate
    
    
    2029
    
    
    
    2029
    
    
    
    2014
  Three months endedMarch 31, 2008Qualified PensionDiscount rate
    
    
    6.50
    %Expected return on plan assets
    
    
    8.50
    %Rate of compensation increase
    
    
    4.00
    %Post-retirement HealthcareDiscount rate
    
    
    6.00
    %Rate of compensation increase
    
    
    4.00
    %
 106




---



##### Table of Contents



Management Plan
    
    
    Associate Plan
    
    
    Total PensionCash and cash equivalents (1)
    
    
    1.3
    %
    
    
    0.8
    %
    
    
    0.9
    %Equity securities
    
    
    41.9
    %
    
    
    69.8
    %
    
    
    63.1
    %Fixed income securities
    
    
    56.8
    %
    
    
    29.4
    %
    
    
    36.0
    %100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Cash and cash equivalents includes only those amounts that are held in the respective
plans trusts as cash and cash equivalent instruments. Amounts pending purchase or settlement of
equity or fixed income securities are classified within equity securities or fixed income
securities, as appropriate.   Post-retirement(In thousands)
    
    Healthcare1% increase in the medical trend rate:Effect on
total service cost and interest cost components
    
    $
    7,278Effect on benefit obligation
    
    $
    80,3421% decrease in the medical trend rate:Effect on
total service cost and interest cost components
    
    $
    (5,589
    )Effect on benefit obligation
    
    $
    (61,572
    )
 107




---



##### Table of Contents



Post-retirement(In thousands)
    
    HealthcareChange in projected benefit obligation$
    (20,794
    )Change in each component of net periodic cost:Service cost
    
    $
    (866
    )Interest cost
    
    
    (947
    )Net amortization and deferral of prior service cost
    
    
    16Net amortization and deferral of actuarial loss
    
    
    (349
    )Total change in net periodic cost
    
    $
    (2,146
    )
 Estimated future benefit payments
  Post-retirement(In thousands)
    
    Qualified Pension
    
    
    HealthcareExpected employer contributions for 2011
    
    $
    6,821
    
    
    $
    2,515Expected benefit payments:2011
    
    $
    9,815
    
    
    $
    2,5152012
    
    
    3,444
    
    
    
    3,3562013
    
    
    12,667
    
    
    
    4,3712014
    
    
    13,909
    
    
    
    5,3202015
    
    
    4,802
    
    
    
    6,6412016-2020
    
    
    43,077
    
    
    
    59,159Expected subsidy:2011
    
    
    
    
    
    $
    122012
    
    
    
    
    
    
    212013
    
    
    
    
    
    
    332014
    
    
    
    
    
    
    522015
    
    
    
    
    
    
    822016-2020
    
    
    
    
    
    
    1,321
 401(k) savings plans
  108




---



##### Table of Contents



(11) Income Taxes
  2010
    
    
    2009
    
    
    2008Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    8,027State and local
    
    
    (732
    )
    
    
    (240
    )
    
    
    1,498Total current income tax (expense) benefit
    
    
    (732
    )
    
    
    (240
    )
    
    
    9,525Investment tax credits
    
    
    478
    
    
    
    532
    
    
    
    417Deferred:Federal
    
    
    3,246
    
    
    
    69,704
    
    
    
    30,269State and local
    
    
    4,669
    
    
    
    9,018
    
    
    
    3,197Total deferred income tax benefit
    
    
    7,915
    
    
    
    78,722
    
    
    
    33,466Total income tax benefit
    
    $
    7,661
    
    
    $
    79,014
    
    
    $
    43,408
   2010
    
    
    2009
    
    
    2008Statutory
Federal income tax (benefit) rate
    
    
    (35.0
    )%
    
    
    (35.0
    )%
    
    
    (35.0
    )%State income tax (expense) benefit, net
of Federal income tax expense
    
    
    (2.9
    )
    
    
    (2.9
    )
    
    
    (2.7
    )Post-petition interest
    
    
    16.6
    
    
    
    2.7
    
    
    
    Investment tax credits
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.4
    )Medicare subsidy
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (1.0
    )Restructuring charges
    
    
    2.6
    
    
    
    1.3
    
    
    
    Medicare subsidy impact of law change
    
    
    2.4
    
    
    
    
    
    
    
    Other, net
    
    
    0.2
    
    
    
    1.0
    
    
    
    0.3Valuation allowance
    
    
    14.0
    
    
    
    8.5
    
    
    
    Effective
income tax (benefit) rate
    
    
    (2.6
    )%
    
    
    (24.7
    )%
    
    
    (38.8
    )%
 109




---



##### Table of Contents



2010
    
    
    2009Deferred tax assets:Federal and state tax loss
carryforwards
    
    $
    230,398
    
    
    $
    165,982Employee benefits
    
    
    179,904
    
    
    
    136,242Allowance for doubtful accounts
    
    
    16,288
    
    
    
    26,539Investment tax credits
    
    
    1,729
    
    
    
    1,925Alternative minimum tax and other state
credits
    
    
    7,315
    
    
    
    6,095Basis in interest rate swaps
    
    
    7,087
    
    
    
    33,181Bond issuance costs
    
    
    10,980
    
    
    
    13,154Service quality rebate reserve
    
    
    8,333
    
    
    
    11,044Other, net
    
    
    15,008
    
    
    
    9,009Total gross deferred tax assets
    
    
    477,042
    
    
    
    403,171Deferred tax liabilities:Property, plant, and equipment
    
    
    319,244
    
    
    
    321,856Goodwill and other intangible
assets
    
    
    81,165
    
    
    
    88,011Other, net
    
    
    7,060
    
    
    
    6,119Total gross deferred tax liabilities
    
    
    407,469
    
    
    
    415,986Net deferred tax assets (liabilities) before
valuation allowance
    
    
    69,573
    
    
    
    (12,815
    )Valuation allowance
    
    
    (105,554
    )
    
    
    (27,214
    )Net deferred tax liabilities
    
    $
    (35,981
    )
    
    $
    (40,029
    )
     110




---



##### Table of Contents



Accounting for Contingencies,
 Balance as of December 31, 2008
    
    $
    8,594Additions for tax positions related to the current year
    
    
    Additions for tax positions related to acquired companies
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    Reductions as a result of audit settlements
    
    
    (3,219
    )Reductions due to lapse of statute of limitations
    
    
    Balance as of December 31, 2009
    
    $
    5,375Additions for tax positions related to the current year
    
    
    Additions for tax positions related to acquired companies
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    Reductions as a result of audit settlements
    
    
    Reductions due to lapse of statute of limitations
    
    
    Balance as of December 31, 2010
    
    $
    5,375
    111




---



##### Table of Contents



(12) Accumulated Other Comprehensive Loss
  As of December 31,2010
    
    
    2009Accumulated other comprehensive loss, net of taxes:Defined benefit pension and post-retirement healthcare plans
    
    $
    (212,804
    )
    
    $
    (124,924
    )Total other accumulated comprehensive loss
    
    $
    (212,804
    )
    
    $
    (124,924
    )
  (13) Earnings Per Share
  112




---



##### Table of Contents



Year
ended
December 31,2010
    
    
    2009Weighted average number of common shares used for basic
earnings per share
    
    
    89,424
    
    
    
    89,271Effect of potential dilutive shares
    
    
    
    
    
    
    Weighted average number of common shares and potential
dilutive shares used for diluted earnings per share
    
    
    89,424
    
    
    
    89,271Anti-dilutive shares excluded from the above reconciliation
    
    
    983
    
    
    
    2,750
  (14) Stockholders Deficit
   (15) Stock-Based Compensation
    Year ended December 31,2010
    
    
    2009
    
    
    2008Amounts charged against income, before
income tax benefit
    
    $
    468
    
    
    $
    2,052
    
    
    $
    4,408Amount of
related income tax benefit recognized in income
    
    
    (188
    )
    
    
    (825
    )
    
    
    (1,758
    )Total net income impact
    
    $
    280
    
    
    $
    1,227
    
    
    $
    2,650
 113




---



##### Table of Contents



(a) 1998 Stock Incentive Plan
      WeightedaverageOptions
    
    
    exerciseoutstanding
    
    
    priceOutstanding at March 31, 2008
    
    
    47,373
    
    
    $
    36.94Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    47,373
    
    
    $
    36.94Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    47,373
    
    
    $
    36.94Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2010
    
    
    47,373
    
    
    $
    36.94Stock options available for grant at
December 31, 2010
    
    
    
    
    
    
    
 Options outstanding
    
    Options exercisableAggregateNumber
    
    Remaining
    
    Intrinsic
    
    Numberoutstanding at
    
    contractual
    
    Value
    
    exercisable atExercise price
    
    December 31, 2010
    
    life (years)
    
    (In thousands)
    
    December 31, 2010$36.94
    
    47,373
    
    1.0
    
    
    
    47,373
 114




---



##### Table of Contents



(b) 2000 Employee Stock Incentive Plan
     WeightedaverageOptions
    
    
    exerciseoutstanding
    
    
    priceOutstanding at March 31, 2008
    
    
    208,687
    
    
    $
    36.94Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    208,687
    
    
    $
    36.94Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (77,752
    )
    
    $
    36.94Outstanding at December 31, 2009
    
    
    130,935
    
    
    $
    36.94Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2010
    
    
    130,935
    
    
    $
    36.94Stock
options available for grant at December 31, 2010
    
    
    
    
    
    
    
  115




---



##### Table of Contents



(c) 2005 Stock Incentive Plan
    Weightedaverage grantUnits
    
    
    date fair valueStock units
    
    outstanding
    
    
    per shareOutstanding at March 31, 2008
    
    
    29,544
    
    
    $
    15.04Granted
    
    
    43,965
    
    
    
    9.86Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    73,509
    
    
    $
    11.94Granted
    
    
    6,272
    
    
    
    3.02Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    79,781
    
    
    $
    11.24Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2010
    
    
    79,781
    
    
    $
    11.24
  116




---



##### Table of Contents



Weightedaverage grantShares
    
    
    date fair valueNon-vested stock
    
    outstanding
    
    
    per shareNon-vested at March 31, 2008
    
    
    412,807
    
    
    $
    16.88Granted
    
    
    
    
    
    
    Vested
    
    
    (164,296
    )
    
    
    18.28Forfeited
    
    
    (85,250
    )
    
    
    17.25Non-vested at December 31, 2008
    
    
    163,261
    
    
    $
    15.27Granted
    
    
    
    
    
    
    Vested
    
    
    (101,269
    )
    
    
    15.92Forfeited
    
    
    (11,993
    )
    
    
    17.76Non-vested at December 31, 2009
    
    
    49,999
    
    
    $
    13.36Granted
    
    
    
    
    
    
    Vested
    
    
    (20,451
    )
    
    
    13.52Forfeited
    
    
    (12,882
    )
    
    
    13.52Non-vested at December 31, 2010
    
    
    16,666
    
    
    $
    13.02
  (d) 2008 Long Term Incentive Plan
      117




---



##### Table of Contents



Weightedaverage grantUnits
    
    
    date fair valueStock units
    
    outstanding
    
    
    per shareOutstanding at March 31, 2008
    
    
    
    
    
    $
    Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    
    
    
    $
    Granted
    
    
    175,352
    
    
    
    1.79Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    175,352
    
    
    $
    1.79Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2010
    
    
    175,352
    
    
    $
    1.79
   Weightedaverage grantShares
    
    
    date fair valueNon-vested stock
    
    outstanding
    
    
    per shareNon-vested at March 31, 2008
    
    
    
    
    
    $
    Granted
    
    
    50,000
    
    
    
    8.45Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Non-vested at December 31, 2008
    
    
    50,000
    
    
    $
    8.45Granted
    
    
    
    
    
    
    Vested
    
    
    (16,873
    )
    
    
    8.45Forfeited
    
    
    (8,127
    )
    
    
    8.45Non-vested at December 31, 2009
    
    
    25,000
    
    
    $
    8.45Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    (25,000
    )
    
    
    8.45Non-vested at December 31, 2010
    
    
    
    
    
    $
    
  (e) 2009 CEO Compensation Plan
  118




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##### Table of Contents



Weightedaverage grantShares
    
    
    date fair valueNon-vested stock
    
    outstanding
    
    
    per shareNon-vested at December 31, 2008
    
    
    
    
    
    $
    Granted
    
    
    523,810
    
    
    
    0.64Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Non-vested at December 31, 2009
    
    
    523,810
    
    
    $
    0.64Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    (523,810
    )
    
    
    0.64Non-vested at December 31, 2010
    
    
    
    
    
    $
    
 (f) Verizon Northern New England Business Stock-based Compensations Plans
  Restricted Stock Units
  119




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##### Table of Contents



Performance Share Units
  Stock Options
   (16) Transactions with Affiliates
 (a) Construction Services
  (b) Verizon Northern New England business transactions with Affiliates
     120




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##### Table of Contents



(17) Quarterly Financial Information (Unaudited)
 Overview of Restatement
   Background of the Restatement
   121




---



##### Table of Contents



Project Abandonment Adjustment
  Costs Capitalized to Property, Plant and Equipment Adjustment
  Application of Overhead Costs Adjustment
   Other Adjustments
  Controls and
Procedures
     122




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##### Table of Contents



First
    
    
    Second
    
    
    Third
    
    
    Fourthquarter
    
    
    quarter
    
    
    quarter
    
    
    quarter(in thousands, except per share data)Restated
    
    
    Restated
    
    
    Restated2010:Revenue
    
    $
    270,801
    
    
    $
    271,563
    
    
    $
    260,630
    
    
    $
    267,992Net loss
    
    $
    (86,330
    )
    
    $
    (54,178
    )
    
    $
    (66,084
    )
    
    $
    (74,987
    )Loss per shareBasic
    
    $
    (0.97
    )
    
    $
    (0.61
    )
    
    $
    (0.74
    )
    
    $
    (0.84
    )Diluted
    

    $
    (0.97
    )
    
    $
    (0.61
    )
    
    $
    (0.74
    )
    
    $
    (0.84
    )
 First
    
    
    Second
    
    
    Third
    
    
    Fourthquarter
    
    
    quarter
    
    
    quarter
    
    
    quarter(in thousands, except per share data)2009:Revenue (1)
    
    $
    298,200
    
    
    $
    282,506
    
    
    $
    268,194
    
    
    $
    270,190Net Loss
    
    $
    (22,305
    )
    
    $
    (28,163
    )
    
    $
    (75,202
    )
    
    $
    (115,726
    )Loss per shareBasic
    
    $
    (0.25
    )
    
    $
    (0.32
    )
    
    $
    (0.84
    )
    
    $
    (1.29
    )Diluted
    
    $
    (0.25
    )
    
    $
    (0.32
    )
    
    $
    (0.84
    )
    
    $
    (1.29
    )
 
 (1)
    
    Activity for the year ended December 31, 2009 has been recast to reflect the
reclassification of certain PAP penalties from bad debt expense to a reduction of revenue
(see note 3(a) for further information). 123




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##### Table of Contents



Three months ended March 31, 2010Asrecasted
    
    
    Adjustments
    
    
    Restated(in thousands, except per share data)Revenues
    
    $
    274,368
    
    
    $
    (3,567
    )
    
    $
    270,801Operating expenses:Cost of services and sales,
excluding depreciation and
amortization
    
    
    130,435
    
    
    
    7,034
    
    
    
    137,469Selling, general and administrative
expense, excluding depreciation
and amortization
    
    
    94,483
    
    
    
    (899
    )
    
    
    93,584Depreciation and amortization
    
    
    70,345
    
    
    
    1,037
    
    
    
    71,382Total operating expenses
    
    
    295,263
    
    
    
    7,172
    
    
    
    302,435Loss from operations
    
    
    (20,895
    )
    
    
    (10,739
    )
    
    
    (31,634
    )Other income (expense):Interest expense
    
    
    (34,630
    )
    
    
    
    
    
    
    (34,630
    )Other
income, net
    
    
    26
    
    
    
    
    
    
    
    26Total other expense
    
    
    (34,604
    )
    
    
    
    
    
    
    (34,604
    )Loss before reorganization items and income taxes
    
    
    (55,499
    )
    
    
    (10,739
    )
    
    
    (66,238
    )Reorganization items
    
    
    (16,591
    )
    
    
    
    
    
    
    (16,591
    )Loss before income taxes
    
    
    (72,090
    )
    
    
    (10,739
    )
    
    
    (82,829
    )Income tax expense
    
    
    (3,501
    )
    
    
    
    
    
    
    (3,501
    )Net loss
    
    $
    (75,591
    )
    
    $
    (10,739
    )
    
    $
    (86,330
    )Weighted average shares outstanding:Basic
    
    
    89,424
    
    
    
    
    
    
    
    89,424Diluted
    
    
    89,424
    
    
    
    
    
    
    
    89,424Loss per share:Basic
    
    $
    (0.85
    )
    
    $
    (0.12
    )
    
    $
    (0.97
    )Diluted
    
    $
    (0.85
    )
    
    $
    (0.12
    )
    
    $
    (0.97
    )
 124




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##### Table of Contents



Three months ended June 30, 2010Asrecasted
    
    
    Adjustments
    
    
    Restated(in thousands, except per share data)Revenues
    
    $
    273,992
    
    
    $
    (2,429
    )
    
    $
    271,563Operating expenses:Cost of services and sales,
excluding depreciation and
amortization
    
    
    114,480
    
    
    
    18,731
    
    
    
    133,211Selling, general and administrative
expense, excluding depreciation and amortization
    
    
    98,454
    
    
    
    (1,392
    )
    
    
    97,062Depreciation and amortization
    
    
    70,559
    
    
    
    913
    
    
    
    71,472Total operating expenses
    
    
    283,493
    
    
    
    18,252
    
    
    
    301,745Loss from operations
    
    
    (9,501
    )
    
    
    (20,681
    )
    
    
    (30,182
    )Other income (expense):Interest expense
    
    
    (35,721
    )
    
    
    
    
    
    
    (35,721
    )Other income
(expense), net
    
    
    (3,138
    )
    
    
    3,243
    
    
    
    105Total other expense
    
    
    (38,859
    )
    
    
    3,243
    
    
    
    (35,616
    )Loss before reorganization items and income taxes
    
    
    (48,360
    )
    
    
    (17,438
    )
    
    
    (65,798
    )Reorganization items
    
    
    1,549
    
    
    
    (174
    )
    
    
    1,375Loss before income taxes
    
    
    (46,811
    )
    
    
    (17,612
    )
    
    
    (64,423
    )Income tax
benefit
    
    
    10,245
    
    
    
    
    
    
    
    10,245Net loss
    
    $
    (36,566
    )
    
    $
    (17,612
    )
    
    $
    (54,178
    )Weighted average shares outstanding:Basic
    
    
    89,424
    
    
    
    
    
    
    
    89,424Diluted
    
    
    89,424
    
    
    
    
    
    
    
    89,424Loss per share:Basic
    
    $
    (0.41
    )
    
    $
    (0.20
    )
    
    $
    (0.61
    )Diluted
    
    $
    (0.41
    )
    
    $
    (0.20
    )
    
    $
    (0.61
    )
 125




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##### Table of Contents



Three months ended September 30, 2010As originallyreported
    
    
    Adjustments
    
    
    Restated(in thousands, except per share data)Revenues
    
    $
    258,510
    
    
    $
    2,120
    
    
    $
    260,630Operating expenses:Cost of services and sales,
excluding depreciation and
amortization
    
    
    115,914
    
    
    
    2,851
    
    
    
    118,765Selling, general and administrative
expense, excluding depreciation
and amortization
    
    
    99,523
    
    
    
    (111
    )
    
    
    99,412Depreciation and amortization
    
    
    73,693
    
    
    
    (1,329
    )
    
    
    72,364Total operating expenses
    
    
    289,130
    
    
    
    1,411
    
    
    
    290,541(Loss) income from operations
    
    
    (30,620
    )
    
    
    709
    
    
    
    (29,911
    )Other income (expense):Interest expense
    
    
    (35,358
    )
    
    
    
    
    
    
    (35,358
    )Other
income, net
    
    
    2,207
    
    
    
    
    
    
    
    2,207Total other expense
    
    
    (33,151
    )
    
    
    
    
    
    
    (33,151
    )(Loss) income before reorganization items and income taxes
    
    
    (63,771
    )
    
    
    709
    
    
    
    (63,062
    )Reorganization items
    
    
    (9,635
    )
    
    
    (717
    )
    
    
    (10,352
    )Loss before income taxes
    
    
    (73,406
    )
    
    
    (8
    )
    
    
    (73,414
    )Income tax
benefit
    
    
    7,330
    
    
    
    
    
    
    
    7,330Net loss
    
    $
    (66,076
    )
    
    $
    (8
    )
    
    $
    (66,084
    )Weighted average shares outstanding:Basic
    
    
    89,424
    
    
    
    
    
    
    
    89,424Diluted
    
    
    89,424
    
    
    
    
    
    
    
    89,424(Loss) earnings per share:Basic
    
    $
    (0.74
    )
    
    $
    
    
    
    $
    (0.74
    )Diluted
    
    $
    (0.74
    )
    
    $
    
    
    
    $
    (0.74
    )
 (18) Fair Value Measurements
 Fair
Value Measurements
   126




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##### Table of Contents



(19) Revenue Concentrations
   (20) Commitments and Contingencies
 (a) Leases
  Capital
    
    
    OperatingLeases
    
    
    LeasesYear ending December 31:2011
    
    $
    1,893
    
    
    $
    10,4422012
    
    
    1,679
    
    
    
    8,8892013
    
    
    1,499
    
    
    
    7,4032014
    
    
    1,493
    
    
    
    5,1002015
    
    
    105
    
    
    
    2,572Thereafter
    
    
    
    
    
    
    3,823Total minimum lease
payments
    
    $
    6,669
    
    
    $
    38,229Less interest and executory cost
    
    
    (1,405
    )Present value of minimum lease payments
    
    
    5,264Less current installments
    
    
    (1,321
    )Long-term obligations at December 31, 2010
    
    $
    3,943
   (b) Legal Proceedings
   127




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##### Table of Contents



(c) Service Quality Penalties
   (d) Performance Assurance Plan Credits
   (e) Capital Expenditure Obligations
  128




---



##### Table of Contents



(f) Volume Purchase Commitment
  (21) Reorganization and Fresh Start Accounting Pro Forma Adjustments (Unaudited)
       129




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##### Table of Contents



FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES  Pro Forma Reorganized Condensed Consolidated Balance Sheet
As of December 31, 2010
(in thousands, except share data)
 Pro FormaReorganization
    
    
    Fresh Start
    
    
    ReorganizedDecember 31, 2010
    
    
    Adjustments
    
    
    Adjustments
    
    
    December 31, 2010(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)AssetsCurrent assets:Cash
    
    $
    105,497
    
    
    
    (92,559)
    (a)
    
    
    
    
    
    $
    12,938Restricted cash
    
    
    2,420
    
    
    
    77,882
    (a)
    
    
    
    
    
    
    80,302Accounts receivable, net
    
    
    125,170
    
    
    
    
    
    
    
    
    
    
    
    125,170Materials and supplies
    
    
    22,193
    
    
    
    
    
    
    
    (1,665)
    (c)
    
    
    20,528Prepaid
expenses
    
    
    18,841
    
    
    
    
    
    
    
    (2,347)
    (c)
    
    
    16,494Other
current assets
    
    
    6,092
    
    
    
    
    
    
    
    (4,672)
    (c)
    
    
    1,420Deferred income tax, net
    
    
    31,400
    
    
    
    
    
    
    
    
    
    
    
    31,400Total current assets
    
    
    311,613
    
    
    
    (14,677
    )
    
    
    (8,684
    )
    
    
    288,252Property, plant, and equipment, net
    
    
    1,859,700
    
    
    
    
    
    
    
    (83,600)
    (c)
    
    
    1,776,100Goodwill
    
    
    595,120
    
    
    
    
    
    
    
    (322,781)
    (c,d)
    
    
    272,339Intangible assets, net
    
    
    189,247
    
    
    
    
    
    
    
    (31,837)
    (c)
    
    
    157,410Prepaid pension asset
    
    
    2,960
    
    
    
    
    
    
    
    
    
    
    
    2,960Debt issue costs, net
    
    
    119
    
    
    
    2,248
    (a,b)
    
    
    
    
    
    
    2,367Restricted cash
    
    
    1,678
    
    
    
    
    
    
    
    
    
    
    
    1,678Other assets
    
    
    13,357
    
    
    
    
    
    
    
    (776)
    (c)
    
    
    12,581Total assets
    
    $
    2,973,794
    
    
    
    (12,429
    )
    
    
    (447,678
    )
    
    $
    2,513,687Liabilities and Stockholders Equity
(Deficit)Liabilities not subject to compromise:Current portion of capital lease obligations
    
    $
    1,321
    
    
    
    
    
    
    
    
    
    
    $
    1,321Accounts payable
    
    
    66,557
    
    
    
    (6,457)
    (a)
    
    
    
    
    
    
    60,100Claims payable and estimated claims accrual
    
    
    
    
    
    
    93,583
    (a)
    
    
    
    
    
    
    93,583Accrued interest payable
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Other accrued liabilities
    
    
    63,279
    
    
    
    (1,800)
    (a)
    
    
    (4,671)
    (c)
    
    
    56,808Total current liabilities
    
    
    131,160
    
    
    
    85,326
    
    
    
    (4,671
    )
    
    
    211,815Capital lease obligations
    
    
    3,943
    
    
    
    
    
    
    
    
    
    
    
    3,943Accrued pension obligation
    
    
    92,246
    
    
    
    
    
    
    
    
    
    
    
    92,246Employee benefit obligations
    
    
    344,463
    
    
    
    
    
    
    
    
    
    
    
    344,463Deferred income taxes
    
    
    67,381
    
    
    
    336,401
    (a)
    
    
    (61,265)
    (c,e)
    
    
    342,517Unamortized investment tax credits
    
    
    4,310
    
    
    
    
    
    
    
    (4,310)
    (c,e)
    
    
    Other long-term liabilities
    
    
    12,398
    
    
    
    (2,094)
    (a)

    
    
    9,914
    (c)
    
    
    20,218Long-term debt, net of current portion
    
    
    
    
    
    
    1,000,000
    (a,b)
    
    
    
    
    
    
    1,000,000Total long-term liabilities
    
    
    524,741
    
    
    
    1,334,307
    
    
    
    (55,661
    )
    
    
    1,803,387Total liabilities not subject to compromise
    
    
    655,901
    
    
    
    1,419,633
    
    
    
    (60,332
    )
    
    
    2,015,202Liabilities subject to compromise
    
    
    2,905,311
    
    
    
    (2,905,311)
    (a)
    
    
    
    
    
    
    Total liabilities
    
    
    3,561,212
    
    
    
    (1,485,678
    )
    
    
    (60,332
    )
    
    
    2,015,202Stockholders equity (deficit):Common stock, predecessor
    
    
    894
    
    
    
    (894)
    (a)
    
    
    
    
    
    
    Additional paid-in capital, predecessor
    
    
    725,786
    
    
    
    (725,786)
    (a)
    
    
    
    
    
    
    Common stock, successor
    
    
    
    
    
    
    253
    (a)
    
    
    
    
    
    
    253Additional paid-in capital, successor
    
    
    
    
    
    
    481,882
    (a)
    
    
    
    
    
    
    481,882Warrants, successor
    
    
    
    
    
    
    16,350
    (a)
    
    
    
    
    
    
    16,350Retained deficit
    
    
    (1,101,294
    )
    
    
    1,701,444
    (a)
    
    
    (600,150)
    (c)
    
    
    Accumulated other comprehensive loss
    
    
    (212,804
    )
    
    
    
    
    
    
    212,804
    (c)
    
    
    Total stockholders equity (deficit)
    
    
    (587,418
    )
    
    
    1,473,249
    
    
    
    (387,346
    )
    
    
    498,485Total
liabilities and stockholders equity (deficit)
    
    $
    2,973,794
    
    
    
    (12,429
    )
    
    
    (447,678
    )
    
    $
    2,513,687
 
 (a)
    
    Represents amounts recorded for the implementation of the Plan on the Effective Date.
This includes the settlement of liabilities subject to compromise, distributions of cash,
authorization and partial distribution of shares of New Common 130




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Stock, designation of restricted cash to satisfy allowed claims, the cancellation of
predecessor Old Common Stock resulting in a gain of approximately $1,341.0 million on
extinguishment of obligations pursuant to the Plan and the related
tax effects.(b)
    
    Records the issuance of senior secured debt and related debt financing. Debt issuance
costs of $2.4 million related to both the Exit Term Loan and the Exit Revolving Facility
are recorded in Debt issue costs, net and will be amortized over the terms of the
respective agreements.(c)
    
    Records the adjustments for fresh start accounting. This includes the adjustment of
inventory and property, plant and equipment to appraised values. Fresh start adjustments
for intangible assets, goodwill, and stockholders equity are also included and are based
on valuation studies. The fresh start adjustments also include the elimination of the
predecessor retained deficit and accumulated other comprehensive loss.(d)
    
    The goodwill of the predecessor has been eliminated and the reorganization value of the
assets and liabilities in excess of fair market value has been allocated to long-term
assets as shown above. The excess of the Companys reorganization value over the fair
value of its assets is estimated to be approximately $272.3 million and is recorded as
goodwill.(e)
    
    Records the impact of fresh
start accounting on the Companys deferred taxes. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures
  (b) Material Weaknesses in Internal Control Over Financial Reporting
   131




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Internal Control  Integrated Framework
 1.
    
    Our information technology controls were not adequate. Specifically, our change
management processes were not consistently followed to ensure all changes were
appropriately authorized. In addition, access to our information systems was not
appropriately restricted.2.
    
    Our management oversight and review procedures designed to monitor the accuracy
of period-end accounting activities were ineffective. Specifically, our account
reconciliation processes were not adequate to properly identify and resolve
discrepancies between our billing system and our general ledger in a timely manner. In
addition, project accounting controls were not adequate to ensure charges to capital
projects were appropriate or that projects were closed in a timely manner. Furthermore,
procedures for the review of our income tax provision and supporting schedules were not
adequate to identify and correct errors in a timely manner.
  (c) Changes in Internal Control Over Financial Reporting
  
    
    Improved controls over system access requests to ensure all requests are appropriately approved prior to processing.
    
    Enhanced password requirements related to the Oracle system to be in compliance with established guidelines.
    
    Improved reconciliation procedures over inventory, accounts payable, and payroll.
  
    
    Limited access to the privileged system account for our retail billing system.
    
    Revised user access responsibilities within the HR module of the Oracle system to
eliminate segregation of duties issues in that module.
   132




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ITEM 9B. OTHER INFORMATION
  133




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PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   We do not intend to hold an annual meeting of stockholders during 2011. In accordance with
the Second Amended and Restated 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.
 Director Independence
  Directors
  Edward D. Horowitz Chairman of the Board of Directors
 Todd W. Arden
 Dennis J. Austin
 134




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##### Table of Contents



Michael J. Mahoney
 Michael K. Robinson
 Paul H. Sunu
 David L. Treadwell
 Wayne Wilson
 Committees of the Board of Directors
  Audit Committee
  135




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Compensation Committee
    Corporate Governance and Nominating Committee
  136




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Regulatory Committee
    Attendance of Directors
  Security Ownership of Certain Beneficial Owners
  Corporate Governance
 Code of Business Conduct and Ethics.
 137




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##### Table of Contents



Code of Ethics for Financial Professionals.
 Corporate Governance Guidelines.
 Policies Relating to our Board of Directors
 Nomination and Selection of Directors
  Communications with Board of Directors
     138




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##### Table of Contents



Lead Director and Private Sessions
  Director Attendance at Annual Meeting of Stockholders
  
 ITEM 11. EXECUTIVE COMPENSATION
 Compensation Discussion and Analysis
 General Program Objectives
     139




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Specific Principles for Determining Executive Compensation
  Element:
    
    Reason for ElementSalary
    
    The compensation committee
establishes the base salaries for
our NEOs as fixed amounts to
provide a reliable indication of
the minimum amount of
compensation each NEO will
receive in a given year.Annual Incentives
    
    We maintain an Annual Incentive
Plan under which our NEOs and
other key employees may earn
annual cash incentives based on
corporate and individual
performance. The Annual Incentive
Plan is designed to provide an
incentive for executives to
attain short-term goals. The
compensation committee
establishes and approves the
goals of the Chief Executive
Officer and the Chief Executive
Officer approves the goals of the
other NEOs and the compensation
committee reviews them.Long Term Incentives/Equity Awards
    
    We adopted the 2010 Long Term
Incentive Plan effective as of
the Effective Date that allows
for a variety of stock-based
awards to link employee
compensation to stockholders
interests and encourage the
creation of long-term value for
our stockholders by increasing
the retention of qualified key
employees.Deferred Compensation
    
    We have maintained a
Non-Qualified Deferred
Compensation Plan, which we refer
to as the NQDC Plan, which covers
certain employees. The NQDC Plan
allows senior management
employees to defer additional
compensation beyond the
contribution limitations of the
401(k) plan. Company matching
contributions are made according
to the same percentage of
deferrals as is made under our
401(k) plan, but only with
respect to compensation that
exceeds the limits for the 401(k)
plan, up to the maximum allowed
contribution.Welfare Benefits
    
    We provide, on equal terms for
all employees, group term life
insurance, group health
insurance, and short-term and
long-term disability insurance.Post-employment Benefits
    
    Retirement. We maintain a 401(k)
retirement savings plan that in
2010 included an employer
matching contribution up to an
amount equal to 5% of each
participants compensation.Severance and Change in Control
Benefits. We provide severance
benefits to certain NEOs at
levels that we consider
conservative yet competitive when
compared to those offered by our
peers. We believe that such
benefits are necessary and
appropriate in order to attract
and retain qualified NEOs.Success Bonus Plan
    
    We adopted the Success Bonus Plan
effective as of the Effective
Date that allowed us to pay
one-time cash bonuses to our NEOs
and other key employees based on
certain performance measures,
subject to upward or downward
adjustment to reflect the timing
of the Effective Date.
 140




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##### Table of Contents



Method for Determining Amounts
 Base Salary
  Annual Incentive Compensation Awards
  Deferred Compensation
  Retirement and Welfare Benefits
  Post-employment Severance and Change-in-Control Benefits
  Executive Compensation Decisions for 2010
   141




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##### Table of Contents



Base Salary
  Annual Incentive Compensation Awards
      Compensation of Messrs. Hauser and Sunu
  142




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##### Table of Contents



Tax Considerations
  143




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##### Table of Contents



Summary Compensation Table
  (a)
    
    (b)
    
    
    (c)
    
    
    (d)
    
    
    (e)
    
    
    (f)
    
    
    (g)
    
    
    (h)
    
    
    (i)
    
    
    (j)Change inPensionValue andNon-Equity
    
    
    NonqualifiedIncentive
    
    
    DeferredStock
    
    
    Option
    
    
    Plan
    
    
    Compensation
    
    
    All OtherName and Principal
    
    
    
    
    
    Salary
    
    
    Bonus
    
    
    Awards
    
    
    Awards
    
    
    Compensation
    
    
    Earnings
    
    
    Compensation
    
    
    TotalPosition
    
    Year
    
    
    $
    
    
    $
    
    
    $(1)
    
    
    $(1)
    
    
    $
    
    
    $
    
    
    $(2)
    
    
    $Paul H. Sunu (3)
    
    
    2010
    
    
    
    268,269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    507,632
    
    
    
    775,901Chief Executive OfficerDavid L. Hauser (3)
    
    
    2010
    
    
    
    523,077
    
    
    
    60,923
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,608,472
    
    
    
    2,192,472Chairman of the Board of
    
    
    2009
    
    
    
    409,231
    
    
    
    
    
    
    
    1,814,349
    
    
    
    55,520
    
    
    
    
    
    
    
    
    
    
    
    12,602
    
    
    
    2,291,702Directors and Chief
Executive OfficerAjay Sabherwal (4)
    
    
    2010
    
    
    
    170,769
    
    
    
    5,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,183
    
    
    
    203,822Executive Vice
President, Chief
Financial OfficerAlfred C. Giammarino (4)
    
    
    2010
    
    
    
    114,561
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,026
    
    
    
    121,587Executive Vice President,
    
    
    2009
    
    
    
    401,923
    
    
    
    
    
    
    
    236,180
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,634
    
    
    
    650,737Chief Financial Officer
    
    
    2008
    
    
    
    109,615
    
    
    
    9,591
    
    
    
    738,261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,757
    
    
    
    881,224Peter G. Nixon
    
    
    2010
    
    
    
    325,000
    
    
    
    19,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,392
    
    
    
    359,986President
    
    
    2009
    
    
    
    343,750
    
    
    
    
    
    
    
    201,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,165
    
    
    
    564,9112008
    
    
    
    303,481
    
    
    
    103,109
    
    
    
    484,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,167
    
    
    
    909,912Shirley J. Linn
    
    
    2010
    
    
    
    300,000
    
    
    
    18,087
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,111
    
    
    
    335,198Executive Vice President,
    
    
    2009
    
    
    
    317,308
    
    
    
    
    
    
    
    186,458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,801
    
    
    
    521,567General Counsel and
    
    
    2008
    
    
    
    278,291
    
    
    
    109,244
    
    
    
    445,724
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,116
    
    
    
    852,375SecretaryLisa R. Hood (4)
    
    
    2010
    
    
    
    310,308
    
    
    
    16,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,375
    
    
    
    334,076Senior Vice President and
    
    
    2009
    
    
    
    243,269
    
    
    
    
    
    
    
    71,476
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,968
    
    
    
    327,713Controller
    
    
    2008
    
    
    
    223,435
    
    
    
    54,047
    
    
    
    185,388
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,206
    
    
    
    477,076Raymond C. Allieri
    
    
    2010
    
    
    
    250,178
    
    
    
    11,106
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    321,909
    
    
    
    583,193Executive Vice President
and Chief Strategy Officer
 
 (1)
    
    The amounts in columns (e) and (f) are the grant date fair value of the stock and
option awards, adjusted to eliminate the effect of any forfeiture assumption, computed in
accordance with the CompensationStock Compensation Topic of the ASC. Grant date fair value
of awards granted prior to the Merger have been adjusted to reflect the fair value of the
award immediately following the Merger. Please see note 15 to the consolidated
financial statements 144




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##### Table of Contents



for more information about the assumptions FairPoint used to
determine the grant date value of the awards(2)
    
    The amount shown in column (i) for 2010 reflects the following for each NEO: 
    
    Matching contributions made by FairPoint to its 401(k) retirement savings plan in
the amounts of $5,769 for Mr. Sunu, $12,250 for Mr. Hauser, $2,135 for Mr.
Sabherwal, $5,728 for Mr. Giammarino, $10,619 for Mr. Nixon, $10,379 for Ms. Linn,
$6,306 for Ms. Hood and $11,718 for Mr. Allieri;
    
    Contributions made by FairPoint to the term life insurance plans it sponsors for
all eligible employees (including our NEOs) in the amounts of $1,863 for Mr. Sunu,
$6,579 for Mr. Hauser, $587 for Mr. Sabherwal, $1,298 for Mr. Giammarino, $4,773 for
Mr. Nixon, $6,732 for Ms. Linn, $1,069 for Ms. Hood and $1,805 for Mr. Allieri;
    
    A one-time signing bonus of $500,000 paid to Mr. Sunu, in accordance with his
employment agreement, upon commencement of his employment.
    
    Relocation expenses reimbursed by FairPoint in the amounts of $24,461 for Mr.
Sabherwal and $40,149 for Mr.
Allieri;
    
    Severance pay in the amount of $268,237 for Mr. Allieri.
    
    Consulting services fees in the amount of $1,589,643 for Mr. Hauser.
 
 (3)
    
    Mr. Sunu was appointed as our Chief Executive Officer on August 24, 2010, succeeding Mr.
Hauser, who resigned effective August 24, 2010.(4)
    
    Mr. Sabherwal was appointed Chief Financial Officer on July 19, 2010, succeeding Ms.
Hood. Ms. Hood was appointed Chief Financial Officer on an interim basis on March 31, 2010,
succeeding Mr. Giammarino, who resigned effective March 30, 2010. Grants of Plan-Based Awards
   Outstanding Equity Awards at December 31, 2010
  145




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##### Table of Contents



Option Awards
    
    
    Stock Awards(a)
    
    
    
    
    
    (b)
    
    
    (c)
    
    
    (d)
    
    
    (e)
    
    
    (f)
    
    
    (g)
    
    
    (h)
    
    
    (i)
    
    
    (j)EquityIncentivePlanEquity
    
    
    Awards:Incentive
    
    
    MarketEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan
    
    
    or PayoutIncentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards:
    
    
    Value ofPlan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    
    UnearnedAwards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    
    Unearned
    
    
    Shares,Number of
    
    
    
    
    
    
    
    
    
    
    Number of
    
    
    Value of
    
    
    Shares,
    
    
    Units orNumber of
    
    
    Number of
    
    
    Securities
    
    
    
    
    
    
    
    
    
    
    Shares or
    
    
    Shares or
    
    
    Units or
    
    
    OtherSecurities
    
    
    Securities
    
    
    Underlying
    
    
    
    
    
    
    
    
    
    
    Units of
    
    
    Units of
    
    
    Other
    
    
    RightsUnderlying
    
    
    Underlying
    
    
    Unexercised
    
    
    Option
    
    
    
    
    
    
    Stock That
    
    
    Stock That
    
    
    Rights
    
    
    ThatUnexercised
    
    
    Unexercised
    
    
    Unearned
    
    
    Exercise
    
    
    Option
    
    
    Have Not
    
    
    Have Not
    
    
    That Have
    
    
    Have NotGrant
    
    
    Options (#)
    
    
    Options (#)
    
    
    Options
    
    
    Price
    
    
    Expiration
    
    
    Vested
    
    
    Vested
    
    
    Not Vested
    
    
    VestedName
    
    Date
    
    
    Exercisable
    
    
    Unexercisable
    
    
    (#)
    
    
    ($)
    
    
    Date
    
    
    (#)
    
    
    ($)
    
    
    (#)
    
    
    ($)Paul H. Sunu
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Executive
OfficerDavid L. Hauser
    
    
    7/1/2009
    
    
    
    533,334
    
    
    
    
    
    
    
    
    
    
    
    0.95
    
    
    
    7/1/2019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive OfficerAjay Sabherwal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice
President, Chief
Financial OfficerAlfred C. Giammarino
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice
President, Chief
Financial OfficerPeter G. Nixon
    
    
    3/12/2002
    
    
    
    8,419
    
    
    
    
    
    
    
    
    
    
    
    36.94
    
    
    
    3/12/2012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    President
    
    
    12/12/2003
    
    
    
    23,786
    
    
    
    
    
    
    
    
    
    
    
    36.94
    
    
    
    12/12/2013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3/3/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,139
    (2)
    
    
    903Shirley J. Linn
    
    
    3/12/2002
    
    
    
    9,209
    
    
    
    
    
    
    
    
    
    
    
    36.94
    
    
    
    3/12/2012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice
    
    
    12/12/2003
    
    
    
    14,212
    
    
    
    
    
    
    
    
    
    
    
    36.94
    
    
    
    12/12/2013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    President, General
    
    
    3/3/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,667
    (2)
    
    
    833Counsel and
SecretaryLisa R. Hood
    
    
    3/12/2002
    
    
    
    8,791
    
    
    
    
    
    
    
    
    
    
    
    36.94
    
    
    
    3/12/2012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Senior Vice
    
    
    12/12/2003
    
    
    
    6,633
    
    
    
    
    
    
    
    
    
    
    
    36.94
    
    
    
    12/12/2013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    President and
    
    
    3/3/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,972
    (2)
    
    
    319ControllerRaymond C. Allieri
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice
President and Chief
Strategy Officer
 
 (1)
    
    These restricted shares were to vest on July 1, 2012. 146




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##### Table of Contents



(2)
    
    These awards were granted under the FairPoint Communications, Inc. 2008 Long Term
Incentive Plan for the performance period January 1, 2009 through December 31, 2011. Payout
of awards is based 50% on the Companys TSR, as defined in the award agreement, versus its
peer group in the Dow Jones Telecommunications Index and 50% on the Companys Adjusted EBITDA
versus a target set by the compensation committee prior to the beginning of the performance
period. Participants will receive a percentage of their TSR target as follows: TSR greater
than 20% of peer group  40%, TSR greater than 40% of peer group  100%, TSR greater than
60% of peer group  200%. If the Companys TSR is not greater than at least 20% of its peer
group, then participants will receive nothing. Participants will receive a percentage of
their Adjusted EBITDA target according to the Companys Adjusted EBITDA versus its target, as
follows: less than 95% of target  0%, 95% of target  40%, 100% of target  100%, 105% of
target or higher  200%. Amounts listed in column (i) reflect the threshold number of shares
to be issued, as performance to date has not exceeded the threshold. Amounts listed in
column (j) reflect the market value of these awards at December 31, 2010, based on the
closing price of the Companys common stock on December 31, 2010. Option Exercises and Stock Vested
  147




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##### Table of Contents



Nonqualified Deferred Compensation
  (a)
    
    (b)
    
    
    (c)
    
    
    (d)
    
    
    (e)
    
    
    (f)Executive
    
    
    Registrant
    
    
    Aggregate
    
    
    Aggregate
    
    
    AggregateContributions
    
    
    Contributions
    
    
    Earnings
    
    
    Withdrawals/
    
    
    Balancein Last FY
    
    
    in Last FY
    
    
    in Last FY
    
    
    Distributions
    
    
    at Last FYEName
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)(1)Paul H. Sunu
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Executive OfficerDavid L. Hauser
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chairman of the Board of Directors and
Chief Executive OfficerAjay Sabherwal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice President, Chief
Financial OfficerAlfred C. Giammarino
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice President, Chief
Financial OfficerPeter G. Nixon
    
    
    
    
    
    
    
    
    
    
    8,923
    
    
    
    
    
    
    
    72,975PresidentShirley J. Linn
    
    
    
    
    
    
    
    
    
    
    2,161
    
    
    
    
    
    
    
    19,268Executive Vice President,
General Counsel and SecretaryLisa R. Hood
    
    
    
    
    
    
    
    
    
    
    3,783
    
    
    
    
    
    
    
    44,087Senior Vice President and ControllerRaymond C. Allieri
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice President, and Chief
Strategy Officer
 
 (1)
    
    The following table shows the extent to which amounts reported in this column have
been reported in the Summary Compensation Table for the current or previous years: Name
    
    AmountPaul H. Sunu
    
    
    David L. Hauser
    
    
    Ajay Sabherwal
    
    
    Alfred C. Giammarino
    
    
    Peter G. Nixon
    
    
    34,278Shirley J. Linn
    
    
    29,658Lisa R. Hood
    
    
    4,247Raymond C. Allieri
    
    
    
 148




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##### Table of Contents



Potential Payments Upon Termination or Change of Control
  Mr. Sunu
  Messrs. Sabherwal and Nixon and Ms. Linn
   149




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##### Table of Contents



Acceleration andContinuation ofEquity Awards
    
    
    Continuation of(Market Value of
    
    
    Medical/Welfare
    
    
    TotalCash
    
    
    
    
    
    
    Unearned Awards as of
    
    
    Benefits
    
    
    TerminationSeverance
    
    
    Bonus
    
    
    12/31/10)
    
    
    (Present Value)
    
    
    BenefitsReason for Payment:
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Paul H. SunuInvoluntary termination with cause
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Voluntary termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Termination without cause or after
change in control
    
    
    1,500,000
    
    
    
    1,500,000
    
    
    
    
    
    
    
    28,067
    
    
    
    3,028,067Ajay SabherwalInvoluntary termination with cause
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Voluntary termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Termination without cause or after
change in control
    
    
    740,000
    
    
    
    370,000
    
    
    
    
    
    
    
    38,062
    
    
    
    1,148,062Peter G. NixonInvoluntary termination with cause
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Voluntary termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Termination without cause or after
change in control
    
    
    650,000
    
    
    
    39,188
    
    
    
    903
    
    
    
    26,710
    
    
    
    716,801Shirley J. LinnInvoluntary termination with cause
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Voluntary termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Termination without cause or after
change in control
    
    
    600,000
    
    
    
    36,173
    
    
    
    833
    
    
    
    26,631
    
    
    
    663,637Lisa R. HoodInvoluntary termination with cause
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Voluntary termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Termination after change in control
    
    
    
    
    
    
    
    
    
    
    319
    
    
    
    
    
    
    
    319
 150




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##### Table of Contents



Director Compensation
 2010 Compensation
      2010 Summary Director Compensation
 (a)
    
    (b)
    
    
    (c)
    
    
    (d)
    
    
    (e)
    
    
    (f)
    
    
    (g)
    
    
    (h)Change inPensionFees
    
    
    
    
    
    
    
    
    
    
    Non-equity
    
    
    Value andEarned
    
    
    
    
    
    
    
    
    
    
    Incentive
    
    
    Nonqualifiedor Paid
    
    
    Stock
    
    
    Option
    
    
    Plan
    
    
    Deferred
    
    
    All Otherin Cash
    
    
    Awards
    
    
    Awards
    
    
    Compensation
    
    
    Compensation
    
    
    Compensation
    
    
    TotalName
    
    ($)(1)(2)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    Earnings
    
    
    ($)
    
    
    ($)Thomas F. Gilbane, Jr.(3)
    
    
    110,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,000Claude C. Lilly
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000Robert S. Lilien
    
    
    260,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260,000Jane E. Newman
    
    
    160,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160,000Michael R. Tuttle(3)
    
    
    110,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,000
 
 (1)
    
    See the discussion preceding this table for the general method used to determine
each non-employee directors cash compensation. For fiscal 2010, the particular components
paid as cash compensation in excess of each non-employee directors $55,000 retainer and
$45,000 annual award were as follows: Gilbane ($10,000 as chair of compensation 151




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##### Table of Contents



committee); Lilien ($160,000 as restructuring monitor); Lilly ($20,000 as chair of audit
committee); Newman ($10,000 as lead director and $50,000 as chair of the board of directors
following Mr. Hausers resignation); Tuttle ($10,000 as
chair of corporate governance and nominating
committee). (2)
    Fees Earned or Paid in Cash includes amounts accrued but unpaid for services
rendered in the fourth quarter of 2010.(3)
    Messrs. Gilbane and Tuttle were nominated by Verizon and appointed as directors by
our board of directors effective as of March 31, 2008. Compensation Committee Interlocks and Insider Participation
   Compensation Committee Report
  EXECUTIVE OFFICERS
  Name
    
    Age
    
    PositionPaul H. Sunu
    
    
    55
    
    
    Chief Executive OfficerPeter G. Nixon
    
    
    58
    
    
    PresidentAjay Sabherwal
    
    
    45
    
    
    Executive Vice President and Chief Financial OfficerJeffrey W. Allen
    
    
    55
    
    
    Executive Vice President, Sales and MarketingKenneth W. Amburn
    
    
    68
    
    
    Executive Vice President, Operations and EngineeringShirley J. Linn
    
    
    60
    
    
    Executive Vice President, General Counsel and SecretaryKathleen McLean
    
    
    51
    
    
    Executive Vice President and Chief Information OfficerGary C. Garvey
    
    
    57
    
    
    Senior Vice President, Human ResourcesJohn
T. Hogshire
    
    
    49
    
    
    Vice President and ControllerThomas E. Griffin
    
    
    50
    
    
    Vice President and TreasurerRose B. Cummings
    
    
    52
    
    
    Vice President, Integrated Marketing CommunicationsRod Imbriani
    
    
    50
    
    
    Vice President, Product and Marketing Management
  Peter G. Nixon.
 152




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##### Table of Contents



Ajay Sabherwal.
 Jeffrey W. Allen
 Kenneth W. Amburn.
 Shirley J. Linn.
 Kathleen McLean.
 Gary C. Garvey.
 John
T. Hogshire.
 Thomas E. Griffin.
 153




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##### Table of Contents



Rose B. Cummings.
 Rod Imbriani.
 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Securities Authorized for Issuance Under Equity Compensation Plans
   Security Ownership of Certain Beneficial Owners
    
    
    each NEO;
    
    each director;
    
    all executive officers and directors as a group; and
    
    each person known to us to be the beneficial owner of 5% or more of the outstanding shares
of our common stock.
  154




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##### Table of Contents



Common Stock BeneficiallyOwned(1)Name
    
    Number
    
    
    Percent of ClassExecutive Officers and Directors:Paul H. Sunu(2)
    
    
    151,250
    
    
    
    0.6
    %Ajay Sabherwal(3)
    
    
    44,500
    
    
    
    0.2
    %Peter G. Nixon(4)
    
    
    35,250
    
    
    
    0.1
    %Shirley J. Linn(5)
    
    
    35,250
    
    
    
    0.1
    %Lisa R. Hood(6)
    
    
    9,425
    
    
    
    *Todd W. Arden
    
    
    
    
    
    
    *Dennis J. Austin(7)
    
    
    20,083
    
    
    
    *Edward D. Horowitz(8)
    
    
    20,083
    
    
    
    *Michael J. Mahoney(9)
    
    
    20,083
    
    
    
    *Michael K. Robinson(10)
    
    
    20,083
    
    
    
    *David L. Treadwell(11)
    
    
    20,083
    
    
    
    *Wayne Wilson(12)
    
    
    20,083
    
    
    
    *All directors and executive officers of FairPoint as a group(19 persons)(13)
    
    
    546,598
    
    
    
    2.1
    %5% Stockholders:Angelo, Gordon & Co., L.P.(14)
    
    
    4,628,325
    
    
    
    17.7
    %Marathon Asset Management, L.P.(15)
    
    
    2,850,793
    
    
    
    10.9
    %Chatham Asset Management, LLC (16)
    
    
    1,470,003
    
    
    
    5.6
    %
 
 *
    
    Less than 0.1%.(1)
    
    Unless otherwise indicated below, the persons and entities named in the table have sole
voting and sole investment power with respect to all shares beneficially owned by them,
subject to community property laws where applicable. The percentage of beneficial ownership
is based on 26,197,432 shares of our common stock outstanding as of March 25, 2011.(2)
    
    With respect to shares beneficially owned: (i) includes 31,250 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days, (ii) does not include 93,750 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 120,000 shares of restricted stock.(3)
    
    With respect to shares beneficially owned: (i) includes 10,500 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 31,500 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 34,000 shares of restricted stock.(4)
    
    With respect to shares beneficially owned: (i) includes 8,250 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 24,750 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 27,000 shares of restricted stock. 155




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##### Table of Contents



(5)
    
    With respect to shares beneficially owned: (i) includes 8,250 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 24,750 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 27,000 shares of restricted stock.(6)
    
    With respect to shares beneficially owned: (i) includes 4,625 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 13,875 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 4,800 shares of restricted stock.(7)
    
    With respect to shares beneficially owned: (i) includes 5,500 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 22,002 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 14,583 shares of restricted stock.(8)
    
    With respect to shares beneficially owned: (i) includes 5,500 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 22,002 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 14,583 shares of restricted stock.(9)
    
    With respect to shares beneficially owned: (i) includes 5,500 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 22,002 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 14,583 shares of restricted stock.(10)
    
    With respect to shares beneficially owned: (i) includes 5,500 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 22,002 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 14,583 shares of restricted stock.(11)
    
    With respect to shares beneficially owned: (i) includes 5,500 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 22,002 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 14,583 shares of restricted stock.(12)
    
    With respect to shares beneficially owned: (i) includes 5,500 shares of our common stock
issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 22,002 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 14,583 shares of restricted stock.(13)
    
    With respect to shares beneficially owned: (i) includes 138,500 shares of our common
stock issuable upon exercise of stock options that are either currently exercisable or become
exercisable during the next 60 days (ii) does not include 415,512 shares of our common stock
issuable upon exercise of stock options that are neither currently exercisable nor become
exercisable during the next 60 days and (iii) includes 408,098 shares of restricted stock.(14)
    
    Other than the information relating to its percentage ownership of our common stock,
based solely on information contained in a Schedule 13D filed with the SEC on February 3,
2011, by Angelo, Gordon & Co., L.P. (address: 245 Park Avenue, 26th Floor, New
York, NY 10167). The Angelo, Gordon & Co., L.P. Schedule 13D reported sole voting power and
sole dispositive power of 4,628,325 shares. 156




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##### Table of Contents



(15)
    
    Other than the information relating to its percentage ownership of our common stock,
based solely on information contained in a Schedule 13G filed with the SEC on February 4,
2011, by Marathon Asset Management, L.P. (address: One Bryant Park, 38th Floor,
New York, NY 10036). The Marathon Asset Management, L.P. Schedule 13G reported sole voting
power and sole dispositive power of 4,121,444 shares, which includes 2,850,793 shares of
common stock and 1,270,651 warrants to purchase common stock at an exercise price of $48.81.(16)
    
    Other than the information relating to its percentage ownership of our common stock,
based solely on information contained in a Schedule 13G filed with the SEC on January 24,
2011, by Chatham Asset Management, LLC (address: 26 Main Street, Suite 204, Chatham, New
Jersey 07928). The Chatham Asset Management, LLC Schedule 13G reported shared voting power
and shared dispositive power of 2,850,793 shares. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  Director Independence
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  Fiscal Year endedDecember 31,2010
    
    
    2009Audit Fees(1)
    
    $
    5,379,000
    
    
    $
    5,982,000Audit Related Fees (2)
    
    
    66,000
    
    
    
    42,000Tax Fees (3)
    
    
    666,000
    
    
    
    246,000All Other Fees
    
    
    
    
    
    
    
 
 (1)
    
    Audit Fees include amounts billed to us related to annual financial statement audit work
and quarterly financial statement reviews. These amounts also include the review of documents
filed with the SEC, accounting consultations related to the annual audit and the preparation
of letters for underwriters and other requesting parties with respect to the Merger and
related transactions and application of fresh start accounting.(2)
    
    Audit Related Fees consist of amounts billed to us related to a review of internal
controls within our revenue process. 157




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##### Table of Contents



(3)
    
    Tax Fees consist of fees for professional services for tax consulting and compliance as
well as reviews of our 2009 and 2010 restructuring costs for tax purposes. Audit Committee Pre-Approval Policy
      
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a) Financial Statements
  (b) Exhibits
  158




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##### Table of Contents



SIGNATURES
  Fairpoint Communications, Inc.Date: March 31, 2011By:
    /s/  Paul H. SunuName:
    Paul H. SunuTitle:
    Chief Executive Officer and Director  Signatures
    
    Title
    
    Date/s/ Paul H. Sunu

Paul H. Sunu
    
    Chief Executive Officer and Director (Principal
Executive Officer)
    
    March 31, 2011/s/ Ajay Sabherwal

Ajay Sabherwal
    
    Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
    
    March 31, 2011/s/ John T. Hogshire

John T. Hogshire
    
    Vice President and Controller (Principal
Accounting Officer)
    
    March 31, 2011/s/ Todd W. Arden

Todd W. Arden
    
    Director
    
    March 31, 2011/s/ Dennis J. Austin

Dennis J. Austin
    
    Director
    
    March 31, 2011/s/ Edward D. Horowitz

Edward D. Horowitz
    
    Chairman of the Board of Directors
    
    March 31, 2011/s/ Michael J. Mahoney

Michael J. Mahoney
    
    Director
    
    March 31, 2011/s/ Michael K. Robinson

Michael K. Robinson
    
    Director
    
    March 31, 2011/s/ David L. Treadwell

David L. Treadwell
    
    Director
    
    March 31, 2011/s/ Wayne Wilson

Wayne Wilson
    
    Director
    
    March 31, 2011
 159




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description2.1
    
    Third Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code.(1)3.1
    
    Ninth Amended and Restated Certificate of Incorporation of FairPoint.(2)3.2
    
    Second Amended and Restated By Laws of FairPoint.(2)4.1
    
    Warrant Agreement, dated as of January 24, 2011, by and between FairPoint and The Bank
of New York Mellon.(3)4.2
    
    Specimen Stock Certificate.(2)4.3
    
    Specimen Warrant Certificate.(3)10.1
    
    Credit Agreement, dated as of January 24, 2011, by and among FairPoint, FairPoint
Logistics, Bank of America, N.A., as administrative agent, the other lenders party
thereto and Banc of America Securities LLC, as sole lead arranger and sole book
manager.(3)10.2
    
    Pledge Agreement, dated as of January 24, 2011, made by the pledgors party thereto in
favor of Bank of America, N.A. as administrative agent, for the benefit of certain
secured parties.(3)10.3
    
    Security Agreement, dated as of January 24, 2011, by and among FairPoint, FairPoint
Logistics, the subsidiaries of FairPoint party thereto and Bank of America, N.A., as
administrative agent.(3)10.4
    
    Continuing Guaranty Agreement, dated as of January 24, 2011, made by and among the
guarantors party thereto in favor of Bank of America, N.A., as administrative agent, for
the benefit of certain secured parties.(3)10.5
    
    Registration Rights Agreement, dated as of January 24, 2011, by and between FairPoint
Communications, Inc. and Angelo, Gordon & Co., L.P.(3)10.6
    
    FairPoint Litigation Trust Agreement, dated as of January 24, 2011.(3)10.7
    
    Form of Director Indemnity Agreement.(4)10.8
    
    Amended and Restated Tax Sharing Agreement, dated as of November 9, 2000, by and among
FairPoint and its Subsidiaries.(5)10.9
    
    Employment Agreement, dated as of August 16, 2010, by and between FairPoint and Paul H.
Sunu.(6)10.10
    
    Consulting Agreement, dated as of August 16, 2010, by and between FairPoint and David L.
Hauser.(6)10.11
    
    Change in Control and Severance Agreement, dated as of March 14, 2007, by and between
FairPoint and Peter G. Nixon.(7)10.12
    
    Change in Control and Severance Agreement, dated as of March 14, 2007, by and between
FairPoint and Shirley J. Linn.(7)10.13
    
    Change in Control and Severance Agreement, dated as of September 3, 2008, by and between
FairPoint and Ajay Sabherwal.(6)10.14
    
    FairPoint Communications, Inc. 2010 Long Term Incentive Plan.(1)10.15
    
    FairPoint Communications, Inc. 2010 Success Bonus Plan.(1)10.16
    
    Form of Restricted Share Award AgreementFairPoint Communications, Inc. 2010 Long Term
Incentive Plan.(1)10.17
    
    Stipulation filed with the Maine Public Utilities Commission, dated December 12, 2007.(8)10.18
    
    Amended Stipulation filed with the Maine Public Utilities Commission dated December 21,
2007(9)10.19
    
    Stipulation filed with the Vermont Public Service Board, dated January 8, 2008.(10)10.20
    
    Stipulation filed with the New Hampshire Public Utilities Commission, dated January 23,
2008.(11)10.21
    
    Letter Agreement, dated as of March 30, 2008, by and between the Staff of the New
Hampshire Public Utilities Commission and Verizon Communications Inc.(9)10.22
    
    Letter, dated as of May 12, 2009, from the Staff of the New Hampshire Public Utilities
Commission to FairPoint.(12)
 160




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##### Table of Contents



Exhibit No.
    
    Description10.23
    
    Post Filing Regulatory SettlementNew Hampshire, dated as of February 5, 2010, by and
between FairPoint and New Hampshire Public Utilities Commission Staff Advocates.(1)10.25
    
    Post Filing Regulatory SettlementMaine, dated as of February 9, 2010, by and among
FairPoint, Maine Public Utilities Commission and Maine Office of the Public Advocate.(1)10.25
    
    Post Filing Regulatory SettlementVermont, dated as of February 5, 2010, by and between
FairPoint and Vermont Department of Public Service.(1)11
    
    Statement Regarding Computation of Per Share Earnings (included in the financial
statements contained in this Annual Report).14.1
    
    FairPoint Code of Business Conduct and Ethics.*14.2
    
    FairPoint Code of Ethics for Financial Professionals.(13)21
    
    Subsidiaries of FairPoint.*23.1
    
    Consent of Independent
Registered Public Accounting Firm.*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 Confirming Debtors Third Amended Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated as of December 29, 2010.(1)99.2
    
    Order of the Maine Public Utilities Commission, dated February 1, 2008.(14)99.3
    
    Order of the Vermont Public Service Board, dated February 15, 2008.(15)99.4
    
    Order of the New Hampshire Public Utilities Commission, dated February 25, 2008.(16)99.5
    
    FairPoint Insider Trading Policy.*
 
 *
    
    Filed herewith.
    
    Indicates a management contract or compensatory plan or arrangement.
    
    Pursuant to SEC Release No. 33-8238, this certification will be treated as accompanying this
Annual Report on Form 10-K 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 Current Report on Form 8-K of FairPoint filed on January 14,
2011.(2)
    
    Incorporated by reference to the Registration Statement on Form 8-A of FairPoint filed on
January 24, 2011.(3)
    
    Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on January 25,
2011, Film Number 11544980.(4)
    
    Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on January 25,
2011, Film Number 11544991.(5)
    
    Incorporated by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended
September 30, 2000.(6)
    
    Incorporated by reference to the Quarterly Report on Form 10-Q of FairPoint for the period ended
September 30, 2010.(7)
    
    Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on March 19,
2007.(8)
    
    Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on December 13,
2007.(9)
    
    Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on April 3, 2008.(10)
    
    Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on January 8,
2008. 161




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##### Table of Contents



(11)
    
    Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on January 24,
2008.(12)
    
    Incorporated by reference to the Quarterly Report on Form 10-Q of FairPoint for the period
ended June 30, 2009.(13)
    
    Incorporated by reference to the Annual Report on Form 10-K of FairPoint for the year ended
December 31, 2004.(14)
    
    Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on February 6,
2008.(15)
    
    Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on February 21,
2008.(16)
    
    Incorporated by reference to the Current Report on Form 8-K of FairPoint filed on February 25,
2008. 162